Maintain REDUCE on Britannia Industries - 4Q lags other food cos, guiding for strong 1Q - HDFC Securities

Mr. Varun Lohchab, Head Institutional Research & Mr. Naveen Trivedi, Institutional Research Analyst, HDFC Securities.

Britannia Industries (4QFY20): 4Q lags other food cos, guiding for strong 1Q. Maintain REDUCE
(TP Rs 2,852, CMP Rs 3,510, MCap Rs 844bn)

Britannia (BRIT) clocked 2% yoy revenue growth (HSIE -2%) with flat volume. Co saw growth acceleration (8-10%) in Jan/Feb which was better than what it clocked in 9MFY20 (5% yoy growth). Lockdown led supply chain disruption impacted primary performance in March. Pantry loading supported other foods businesses in Q4 as Nestle and Marico's Saffola posted 11% and 25% yoy growth which BRIT missed. However, BRIT's recovery in April/May was strong (24% yoy) owing to (1) Benefits of high home consumption (April/May consumer offtake at ~20% for BRIT), (2) Market share gain (particularly in Hindi belt), (3) Channel filling (~3% support), (4) Quicker resumption of plants and supply chain than peers, and (5) Support from deeper distribution reach. With consumers refraining from eating outside, we expect Britannia to deliver healthy growth in 1HFY21, before aggregate demand pressure kicks-in in 2HFY21. Cost control and moderation in RM inflation will sustain EBITDA margin in FY21. We increase EPS estimate by 6/5% for FY21/FY22. However, we remain cautious due to rich valuations (38x FY22 PE) coupled with group company investments (via ICD), rising gross debt and non-current investments. We value BRIT at 38x P/E on Mar-22E EPS, and derive a TP of Rs 2,852. Maintain REDUCE.

Marginal beat in revenue: Consolidated revenue saw a growth of 2% yoy to Rs 28.67bn (+10% in 4QFY19 and 5% in 3QFY20) vs exp. decline of 2%. We expect flat volume in 4Q (+7% in 4QFY19 and +2% in 3QFY20) vs. est decline of 4%. Co saw healthy growth in Jan/Feb (8-10% growth) after moderate performance in 9MFY20 (5%). Market share gain in biscuits continued for the co as it increased the gap from the second placed player. However, the sudden lockdown impacted revenue and net profit for Britannia by 7-10%. The expanding rural reach will also aid co as rural economy is expected to do better than urban in the near term.

EBITDA growth of 4%: GM dipped by 152bps yoy (+273bps in 4QFY19 and -44bps in 3QFY20) to 39.7% (HSIE 40.6%) as RM inflation sustained (particularly dairy and palm oil) in 4Q. Employee/Other expenses were up by +12/-9% yoy. EBITDAM expanded by 24bps yoy (-5bps in 4QFY19 and +94bps in 3QFY20) to 15.8%. EBITDA grew by 4% yoy (+10% in 4QFY19 and +11% in 3QFY20) to Rs 4.54bn (exp Rs 4.19bn). PAT grew by 27% yoy to Rs 3.7bn (HSIE Rs 3.2bn) owing to lower taxes.

Call & other takeaways: (1) Demand picks up in Jan/Feb, (2) All factories, depots and distributors of the co are operational, (3) Biscuits are expected to do strong growth due to consumers reducing eating out, (4) New launches will continue in a gradual manner in FY21, (5) ICDs to group cos are a bit lower than last year (~Rs 6bn). Non-group ICDs saw increase in FY20.

Shares of BRITANNIA INDUSTRIES LTD. was last trading in BSE at Rs.3510.25 as compared to the previous close of Rs. 3450.3. The total number of shares traded during the day was 80015 in over 8504 trades.

The stock hit an intraday high of Rs. 3704.55 and intraday low of 3472. The net turnover during the day was Rs. 289506302.

Source : Equity Bulls

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