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Britannia: Strength in numbers - Views on News from Equitymaster
 
 
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  • Feb 1, 2002

    Britannia: Strength in numbers

    The bakery products major, Britannia Industries, has declared an encouraging 9% growth in December quarter through higher sales in both bakery and dairy products. The company reported a 45% rise in net profits. Britannia added Rs 84 m to its bottomline by reversal of previous year's liabilities representing a write back of processing charges no longer required.

    (Rs m) 3QFY01 3QFY02 Change 9m FY01 9m FY02 Change
    Net Sales 3,181 3,480 9.4% 9,990 10,770 7.8%
    Other Income 7 6 -14.3% 56 59 5.4%
    Expenditure 2,871 3,098 7.9% 9,136 9,702 6.2%
    Operating Profit (EBDIT) 310 382 23.2% 854 1,068 25.1%
    Operating Profit Margin (%) 9.7% 11.0%   8.5% 9.9%  
    Interest 23 35 52.2% 64 101 57.8%
    Depreciation 49 57 16.3% 141 171 21.3%
    Profit before Tax 245 296 20.8% 705 855 21.3%
    Extraordinary items (11) 69   50 131 162.0%
    Tax 77 138 79.2% 250 344 37.6%
    Profit after Tax/(Loss) 157 227 44.6% 505 642 27.1%
    Net profit margin (%) 4.9% 6.5%   5.1% 6.0%  
    No. of Shares 27.9 26.9   27.9 26.9  
    Diluted Earnings per share* 23.3 33.8   25.0 31.8  
    P/E Ratio   17.2     18.2  
    *(annualised)            

    On a nine month basis, Britannia has grown by nearly 8% in topline (YoY) and by 27% in net profit. In light of the difficult market conditions, which the FMCG sector has been facing, the performance has been pretty good. The company's relentless drive to improve margins continued in this quarter too. Operating margins improved by 130 basis points in December quarter. Overall in the nine months of FY02, Britannia has improved operating margins by 140 basis points to 9.9%.

    The VRS is beginning to show effect on the company's staff costs, which declined by over 4% to Rs 671 m in 9m FY02. The company wrapped up its buyback programme successfully. It bought the targetted 1 m shares at an average price of Rs 550. Britannia's staid buyback programme may have been one of the primary reasons for the stock's lacklustre performance.

    Cost break-up
    (Rs m) 3QFY01 3QFY02 Change 9m FY01 9m FY02 Change
    Raw material 1,571 1,812 15.3% 5,093 5,529 8.6%
    Staff 250 234 -6.4% 701 671 -4.3%
    Others 1,050 1,052 0.2% 3,342 3,502 4.8%
    Total expenditure 2,871 3,098 7.9% 9,136 9,702 6.2%

    Another important reason for staid valuations is that the company has lost the dairy initiative to Amul and Nestle. From the first mover advantage, it is now under the threat of becoming an also ran. Nestle is continously adding new products to its dairy folio and Amul is not sitting idle either. Also, the company's ad burden is likely to be significant. The signing of Sachin Tendulkar as a brand ambassador is a pointer to this fact. Also, the company's interest burden has increased sizeably. With HLL also eyeing the bakery segment, concerns continue to mount.

    However, to make up for the lost ground in the dairy segment, Britannia recently entered into a joint venture with a New Zealand based dairy company to market new products. Also, though signing up Sachin is expensive, it may add the zing necessary to propel topline growth. Britannia's association with cricket sponsorship has always helped it. The Lagaan tie-up and schemes seem to have benefitted volumes of its key brand 'Tiger', which was facing pressure earlier.

    Another encouraging fact is that the company's third quarter was much better than the second quarter performance. If this continues, then the valuations are likely to get stronger. Over the longer term, Britannia will continue be one of the dominant players in the Indian FMCG sector. At the current price of Rs 580 the stock trades at 18x 9mFY02 annualised earnings.

     

     

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