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Britannia: Good days are here - Views on News from Equitymaster
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Britannia: Good days are here
May 29, 2008

Performance summary
  • Topline grows 17.5% YoY in FY08 led by new launches.

  • The operating margins for 4QFY08 improves by 180 basis points (1.8%), while they were up 3.1% in FY08.

  • Excluding the extraordinary items (VRS and profit on sale of properties), the net profits are higher by 54% YoY and 75% YoY in 4QFY08 and FY08 respectively.

  • The board of directors has recommended a dividend of Rs 18 per share (dividend yield of 1.2%)

(Rs m) 4QFY07 4QFY08 Change FY07 FY08 Change
Net sales 5,992 6,928 15.6% 21,993 25,848 17.5%
Expenditure 5,591 6,342 13200.0% 20,739 23,563 13.6%
Operating profit (EBDITA) 401 586 46.1% 1,254 2,285 82.2%
EBDITA margin (%) 6.7% 8.5%   5.7% 8.8%  
Other income 111 266 139.6% 314 502 59.9%
Interest 8 14 75.0% 54 64 18.5%
Depreciation 66 77 16.7% 253 291 15.0%
Profit before tax 438 761 73.7% 1,261 2,432 92.9%
Extraordinary item (6) (13)   77 109 41.6%
Tax 34 138 305.9% 108 413 282.4%
Profit after tax/(loss) 398 610 53.3% 1,076 1,910 77.5%
Net profit margin (%) 6.6% 8.8%   4.9% 7.4%  
No. of shares (m) 23.9 23.9   23.9 23.9  
Diluted earnings per share (Rs)*         79.9  
Price to earnings ratio (x)*         18.2  
* 12 month trailing earnings

What has driven performance in FY08?
  • Britannia reported a topline growth 17.5% YoY in FY08. It launched several new products in the last quarter like Tiger Banana, Good Day Classic, a range of premium cookies in three variants and new variants of bread. It also introduced a range of its select power brands in Sri Lanka. The performance is credible in the highly competitive environment. The company’s investment in its brands is paying off. On the consolidated basis the topline is up 22.5%. The subsidiaries have grown by 187% YoY. The sales are in line with our estimates.

    Cost break-up
    As a % of net sales 4QFY07 4QFY08 FY07 FY08
    Total Cost of goods 61.1% 60.6% 63.7% 60.2%
    Staff Cost 3.6% 3.4% 3.5% 3.5%
    Advertisement 7.3% 7.1% 6.2% 7.0%
    Other Expenditure 21.3% 20.5% 21.0% 20.5%

  • The margins for 4QFY08 improved by 180 basis points (1.8%), while they were up 3.1% in FY08. Raw material cost as a percent of sales fell from 63.7% in FY07 to 60.2% in FY08. Ad costs were higher at 7% of sales on account of increasing competition and new launches. Inspite of higher raw material prices, the company’s margins have improved which is commendable. The company has done well on the margin front and has beaten our estimates.

  • Excluding the extraordinary items (VRS and profit on sale of properties), the net profits were higher by 54% YoY and 75% YoY in 4QFY08 and FY08 respectively. Higher margins and other income aided the jump in bottomline. The growth would have been higher but for higher tax outgo. The effective tax rate has increased from 8.6% to 17% in FY08. The net profits are higher than our estimates.

What to expect?
At the current price of Rs 1,455, the stock is trading at a price to earnings multiple of 10.8 times our FY10 estimates. The company along with improving its domestic performance is also aiming to strengthen its international presence by entering new markets. The company had done strategic acquisitions and joint ventures in the last 2 years and it hopes that this would help the company to grow its international footprint by leveraging on the complementary strengths of the partners. The company also plans to enhance synergies with its existing partners. It is also planning to focus on its dairy business, Britannia New Zealand Foods Company (BNZF), a joint venture with the Fonterra Co-operatives Group of New Zealand, as this would diversify the revenues. Further, its investment in the brands has started paying off. New launches and wider product pipeline on account of acquisitions is aiding the company. We continue to be positive on its performance going forward. We maintain our view on the stock.

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