Britannia Industries Ltd

BUY Target Price: Rs.1860.00

CMP: Rs.1660.00 Market Cap.: Rs 39657.40mn.
Date: December 11, 2009

Key Ratios:
Particulars FY09 FY10E FY11E SYNOPSIS
OPM (%) 8.88 8.89 8.94
NPM (%) 5.77 6.27 6.31 • Britannia Industries Limited manufactures,
ROE (%) 21.88 20.42 18.44 sells, and exports bakery and dairy
ROCE (%) 28.74 24.65 22.33 products in India and internationally.
P/BV(x) 4.81 3.83 3.12 • Forbes Global rated Britannia amongst the
P/E(x) 21.98 18.74 16.93 Top 200 small companies of the world, and
EV/EBDITA(x) 14.28 13.20 11.93 the Economic Times pegged Britannia has
Debt Equity 0.03 0.03 0.02
India`s 2nd most trusted brand in India.
Ratio
• The company plans to focus on
Key Data: strengthening its international business and
Sector Food Processing expand its brand presence.
Sector • Britannia Industries is seeking shareholders
Face Value Rs.10.00 permission for a proposal to up its
52 wk. High/Low 1890.00/1175.00 borrowing limit to Rs.20 billion to chase
(Rs.)
inorganic growth opportunities.
• Net sales and PAT of the company is
expected to grow at a CAGR of 13% and
7% over 2008 to 2011E respectively.
V.S.R. Sastry
Vice President
Share Holding Pattern:
Equity Research Desk
91-22-25276077
vsrsastry@firstcallindiaequity.com

Dr. V.V.L.N. Sastry Ph.D.

Chief Research Officer
drsastry@firstcallindia.com

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 Table of Content

Investment Highlights....................................................................................................3

Peer Group
comparison………………………………………………………………………………………………
….….….6

Keyconcern………………………………………………………………………………………………

………………….…………6

Financials…………………………………………………………………………………………………

…………………………….7

Charts………………………………………………………………………………………………………

………………….………...9

Outlook and

conclusions………………………………………………………………………………………………

…….....10

Industry

Overview…….…………………….……………………………………………………………….……

…….…….. ..11

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Investment Highlights

Q2 FY10 Results Update

Britannia reported a steady growth in standalone net profit for the quarter
ended Sep 2009. During the quarter, the profit of the company rose 10.38%
to Rs 590.70 million from Rs 533.00 million in the same quarter previous year.
Net sales for the quarter marginally rose 1.87% to Rs 8627.40 million over
same quarter previous year. It posted earnings of Rs 24.73 a share during
the quarter, registering 10.83% growth over previous year period.

Britannia Industries is the market leader in the organized biscuit and bakery
products market in India. In the environment of high commodity inflation
and increasing competitiveness, company have maintained operating
margin and generated Rs 2500 million of operational cash flow. The focus is
on commercializing consumption opportunities both in the bakery and
diary business.

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 Quarterly Results - Standalone (Rs in mn)

As at Sep - 09 Sep - 08 %Change

Net Sales 8627.40 8469.40 1.87

Net Profit 590.70 533.00 10.83

Basic EPS 24.73 22.31 10.83

Net Sales & PAT Growth

EPS Growth

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 Strengthen its global business
Britannia Industries plans to focus on strengthening its international business
and expand its brand presence in the consequences of its settlement with
Danone on the intellectual property rights (IPR) issue over the `Tiger` brand.
The company also expects its dairy business to drive growth for the
company. It’s challenging for the industry due to the slowdown in GDP
growth and failed monsoons in several areas and food shortages.

Raising of borrowing limit

Britannia Industries is seeking shareholders permission for a proposal to
increase its borrowing limit to Rs.20 billion to chase inorganic growth
opportunities. The company might need to raise funds if it plans to acquire
any large setup. It had an adequate liquidity to maintain and grow its
business operations.

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 The need to expand its borrowing limit comes as a result of the company`s
proposed issue of bonus debentures, which is deemed to be borrowing.
Pegged at Rs 4.75 billion (including Rs 690 million dividend distribution tax to
be paid by the company), the bonus debenture will carry an 8.5% interest
and will be redeemable at the end of the third year.

Danone witnesses Rs 3.8 bn capital gain in Britannia divestment

Groupe Danone, the global dairy products major based in France, netted a
capital gain of Rs 3.8 billion when it recently divested its indirect 25.5%
holding in the Bangalore-based biscuit major Britannia Industries. Danone
and the Mumbai-based Wadia Group agreed to end their 13-year-old joint
venture for running Britannia Industries for around Rs 9 billion.

Peer Group Comparison

CMP(Rs. ) Market
Name of the (As on Dec Cap.(Rs.
company 11, 2009) mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend(%)
Britannia Industries 1660.00 39,657.40 80.89 20.52 4.81 400.00

Nestle India 2614.50 252,078.90 68.78 38.01 53.26 425.00

Marico Ltd 103.65 63,149.70 2.82 36.76 17.16 65.50

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Colgate Palmolive 677.95 92,196.30 25.54 26.54 42.64 1500.00

Key Concerns

High competition

Economy slowdown

High initial launch of cost

Limited mass media option.

Financials Results
12 Months Ended Profit & Loss Account (Standalone)

Value(Rs.in.mn) FY08 FY09 FY10E FY11E

Description 12m 12m 12m 12m

Net Sales 25848.00 31271.10 33772.79 37150.07

Other Income 502.00 245.30 318.89 350.78

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 Total Income 26350.00 31516.40 34091.68 37500.85

Expenditure -23672.00 -28739.70 -31087.85 -34178.06

Operating Profit 2678.00 2776.70 3003.83 3322.78

Interest -64.00 -117.00 -38.40 -42.24

Gross profit 2614.00 2659.70 2965.43 3280.54

Deprecation -291.00 -334.60 -384.79 -423.27

Profit Before Tax 2323.00 2325.10 2580.64 2857.28

Tax -413.00 -521.10 -464.51 -514.31

Profit After Tax 1910.00 1804.00 2116.12 2342.97

Equity capital 239.00 238.90 238.90 238.90

Reserves 7819.00 8006.50 10122.62 12465.59

Face value 10.00 10.00 10.00 10.00

EPS 79.92 75.51 88.58 98.07

Quarterly Ended Profit & Loss Account (Standalone)

31-Dec-
Value(Rs.in.mn) 31-Mar-09 30-Jun-09 30-Sep-09 09E

Description 3m 3m 3m 3m

Net sales 7667.30 7338.60 8627.40 8972.50

Other income 28.30 126.50 84.10 60.28

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 Total Income 7695.60 7465.10 8711.50 9032.78

Expenditure -6958.60 -6782.80 -7917.40 -8254.70

Operating profit 737.00 682.30 794.10 778.08

Interest -7.80 -8.20 -8.80 -9.24

Gross profit 729.20 674.10 785.30 768.84

Deprecation -88.10 -91.20 -93.50 -96.31

Profit Before Tax 641.10 582.90 691.80 672.53

Tax -234.60 -109.20 -101.10 -107.61

Profit After Tax 406.50 473.70 590.70 564.93

Equity capital 238.90 238.90 238.90 238.90

Face value 10.00 10.00 10.00 10.00

EPS 17.02 19.83 24.73 23.65

Charts

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1 Year Comparative Graph

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 Britannia BSE SENSEX

Outlook and Conclusion

At the current market price of Rs.1660.00, the stock is trading at 18.74 x

FY10E and 16.93 x FY11E respectively.
Price to Book Value of the stock is expected to be at 3.83 x and 3.12 x
respectively for FY10E and FY11E.
Earning per share (EPS) of the company for the earnings for FY10E and
FY11E is seen at Rs.88.58 and Rs.98.07 respectively.
Net Sales and PAT of the company is expected to grow at a CAGR of 13%
and 7% over 2008 to 2011E respectively.
On the basis of EV/EBITDA, the stock trades at 13.20 x for FY10E and 11.93 x
for FY11E.
Britannia Industries plans to focus on strengthening its international
business and expand its brand presence.
Britannia Industries is the market leader in the organized biscuit and
bakery products market in India. In the environment of high commodity
inflation and increasing competitiveness, company have maintained
operating margin and generated Rs 2500 million of operational cash flow.

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 The company is focusing on commercializing consumption opportunities
both in the bakery and diary business.
We recommend ‘BUY’ in this particular scrip with a target price of
Rs.1860.00 for Long term investment.

Industry Overview
The Indian food market is estimated at over US$ 182 billion, and accounts for
about two thirds of the total Indian retail market. Further, according to
consultancy firm McKinsey & Co, the retail food sector in India is likely to grow
from around US$ 70 billion in 2008 to US$ 150 billion by 2025, accounting for a
large chunk of the world food industry, which would grow to US$ 400 billion from
US$ 175 billion by 2025.

Spices
Despite a global slowdown, Indian spice exports are growing. India exported
470,520 tonnes of spices valued at US$ 11.68 billion—an all-time high—in 2008-09.
During the previous financial year, 444,250 tonnes valued at US$ 11.01 billion
were exported.
The spice exports were at an all-time high both in terms of volume and value.
Compared with last year, the export had shown an increase of 19 per cent in
rupee value and six per cent in dollar terms.

Food Processing
The food processing industry is presently growing at 14 per cent against 6-7 per
cent growth in 2003-04. The industry received foreign direct investments (FDI)
totaling US$ 143.80 million in 2007-08 against US$ 5.70 million in the previous fiscal.
The cumulative FDI received by the industry from April 2000-January 2009 stood
at US$ 760.32 million.

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However, India’s share in exports of processed food in global trade is only 1.5
per cent; whereas the size of the global processed-food market is estimated at
US$ 3.2 trillion and nearly 80 per cent of agricultural products in the developed
countries get processed and packaged.
In order to further grow the food processing industry, the government has
formulated a Vision-2015 action plan under which specific targets have been
set. This includes tripling the size of the food processing industry from around US$
70 billion to about US$ 210 billion, raising the level of processing of perishables
from 6 per cent to 20 per cent, increasing value addition from 20 per cent to
35per cent, and enhancing India’s share in global food trade from 1.5 per cent
to 3 per cent. This would require an investment of US$ 20.6 billion. The ministry of
food processing is also planning to set up 350 new food processing units by mid-
October.

Snacks and Confectionery

The Indian market holds enormous growth potential for snack food, which is
estimated to be worth US$ 3 billion, with the branded snack market estimated to
be around US$ 1.34 billion, growing at 15-20 per cent a year. While the growth
rate of the US$ 1.56 billion unorganised sector is 7-8 per cent.

Dairy
According to Dairy India 2007 estimates, the current size of the Indian dairy
sector is US$ 62.67 billion and has been growing at a rate of 5 per cent a year.
The dairy exports in 2007–08 rose to US$ 210.5 million against US$ 113.57 last fiscal,
whereas the domestic dairy sector is slated to cross US$ 108 billion in revenues by
2011.

Retail Landscape: Food Chains and Restaurants

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The food and grocery market in India is the sixth largest in the world. Food and
grocery retail contributes to 70 per cent of the total retail sales. According to
industry estimates, the segment is growing at a rate of 104 per cent and is
expected to grow to US$ 482 billion by 2020.
According to a BMI forecast, India is likely to see a huge 443 per cent increase in
mass grocery retail (MGR) sales during the 2007-2012 period. Ninety nine per
cent of this segment is unorganised, and therefore, there is immense scope for
growth for the organised sector. The organised food retail sector is largely
dominated by restaurants, fast food outlets, coffee joints and the like.

McDonald’s is planning to open 40 new outlets across the country in FY10—

mostly in Mumbai, Chennai and Hyderabad—with an investment of US$ 25.64
million. At present, it has 160 outlets.

Major investments
Private investment has been one of the key drivers for growth of the Indian food
industry. The 'India Food Report 2008', reveals that the total amount of
investments in the food processing sector in the pipeline for the next three years
is about US$ 23 billion.
• The government has received around 40 expressions of interest (EoI) for
the setting up of 10 MFPs with an investment of US$ 514.37 million.
• Reliance Industries Ltd has invested US$ 1.25 billion in a dairy project.
• Parle Bisleri is planning to set up 25 new bottling plants across the country
in FY10 as a part of its growth strategy at an investment of US$ 10.43
million.
• Gujarat Co-operative Milk Marketing Federation (GCMMF), which owns
and markets Amul brand, has come up with a long term plan, which
envisages increasing the turnover of all its member dairy co-operatives to

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 US$ 5.72 billion by 2020 from current level of US$ 2.12 billion. GCMMF plans
to pump in around US$ 550.6 million to achieve its mission.
• PepsiCo is doubling its investment in its Indian beverage business for
calendar 2009. The company will invest over US$ 220 million to increase
the capacity of the business.
• Himachal Pradesh-based frozen food manufacturer Himalya International
plans to invest US$ 27.1 million in a new plant in Gujarat.

Government Initiatives
The new trade policy places increased focus on agro-based industries.
• Food processing industries have been put in the list of priority sectors for
bank lending.
• The government has also started work on 10 Mega Food Parks, and is
planning to increase the number to 30 by 2015.
• Fruit and vegetable processing units have been completely exempted
from paying excise duty.
• Automatic approval for foreign equity up to 100 per cent is permitted for
most of the processed food items.
• Items like fruits and vegetables products, condensed milk, ice cream,
meat production have been completely exempted from Central Excise
Duty.
• Excise duty on ready to eat packaged foods and instant food mixes has
been brought down to 8 per cent from 16 per cent.
• Excise duty on aerated drinks has been reduced to 16 per cent from 24
per cent.

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Looking ahead
According to the India Food and Drink Report Q3 2008 by research analysis firm
Research and Markets, by 2012, India’s processed food output is likely to grow
by 44.2 per cent to touch US$ 90.1 billion, while packaged food sales will
increase by 67.5 per cent to reach US$ 21.7 billion. On a per capita basis, per
capita packaged food spending is expected to grow by 56.5 per cent to US$
18.06 by 2012.
________________ ____ _________________________

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This document prepared by our research analysts does not constitute an offer or solicitation for the
purchase or sale of any financial instrument or as an official confirmation of any transaction. The
information contained herein is from publicly available data or other sources believed to be reliable but
do not represent that it is accurate or complete and it should not be relied on as such. Firstcall India
Equity Advisors Pvt. Ltd. or any of its affiliates shall not be in any way responsible for any loss or
damage that may arise to any person from any inadvertent error in the information contained in this
report. This document is provide for assistance only and is not intended to be and must not alone be
taken as the basis for an investment decision.

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