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Britannia: Strength in numbers

Feb 1, 2002

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)3QFY013QFY02Change9m FY019m FY02Change
Net Sales3,1813,4809.4%9,99010,7707.8%
Other Income76-14.3%56595.4%
Expenditure2,8713,0987.9%9,1369,7026.2%
Operating Profit (EBDIT)31038223.2%8541,06825.1%
Operating Profit Margin (%)9.7%11.0% 8.5%9.9% 
Interest 233552.2%6410157.8%
Depreciation495716.3%14117121.3%
Profit before Tax24529620.8%70585521.3%
Extraordinary items(11)69 50 131162.0%
Tax7713879.2%25034437.6%
Profit after Tax/(Loss)15722744.6%50564227.1%
Net profit margin (%)4.9%6.5% 5.1%6.0% 
No. of Shares 27.926.9 27.926.9 
Diluted Earnings per share*23.333.8 25.031.8 
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)3QFY013QFY02Change9m FY019m FY02Change
Raw material1,5711,81215.3%5,0935,5298.6%
Staff 250234-6.4%701671-4.3%
Others1,0501,0520.2%3,3423,5024.8%
Total expenditure2,8713,0987.9%9,1369,7026.2%

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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