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Britannia: More cream in numbers

Jul 21, 2004

Introduction to results
Bakery products major, Britannia Industries', good run continues. After an encouraging FY04, the company has reported an even stronger 17% topline growth in the June quarter. The company reported over 11% topline growth during FY04, where most of its FMCG peers found it tough to grow the topline. Operating margins dipped marginally during the quarter to 12%, but a significant jump in other income (led by sale of investments) saw bottomline swell by a huge 110%.

(Rs m) 1QFY04 1QFY05 Change FY04 Change
Net Sales 3,369 3,947 17.2% 14,396 11.1%
Other Income 86 411 377.9% 546 66.0%
Expenditure 2,934 3,472 18.3% 12,695 10.5%
Operating Profit (EBDIT) 435 475 9.2% 1,701 15.6%
Operating Profit Margin (%) 12.9% 12.0%   11.8%  
Interest 24 5 -79.2% 60 -45.9%
Depreciation 58 48 -17.2% 224 -14.2%
Profit before Tax 439 833 89.7% 1,963 37.4%
Tax 148 195 31.8% 656 36.1%
Extraordinary items -5 -38 - -119 -
Profit after Tax 286 600 109.8% 1,188 19.9%
Net profit margin (%) 8.5% 15.2%   8.3%  
Effective tax rate (%) 33.7% 23.4%   33.4%  
No. of Shares (m) 25.1 25.1   25.1  
Diluted earnings per share* (x) 45.6 95.6   47.3  
P/E ratio (x)   6.7   13.5  
(* annualised)          

What is the company's business?
Britannia, promoted by Danone and Nusli Wadia (joint stake - 48.5%), is the second largest biscuit manufacturer, next only to Parle, in the Indian market. Danone is the world's largest producer of fresh dairy products and the second largest producer of biscuits and mineral water. Britannia recently hived off its dairy business effective March 27, 2002 to Britannia New Zealand Foods Pvt. Ltd., a joint venture with Fonterra Group, New Zealand. The primary business of the company is now bakery, which consists of biscuits, bread and cakes. Biscuits account for 93% of the company's revenues.

What has driven performance in 1QFY05?
The key reason for the strength in topline is believed to be the increasing affordability of branded biscuits that aided volume growth. The company's focus on the bakery products business combined with its marketing strengths seem largely responsible for this drive is sales. The company repackaged and relaunched most of its biscuit brands in FY04. Apart from this, Britannia continued to focus on ways to bring down its costs. VRS and lower cost of debt has helped the company improve profitability.

Operating margins: The hiving off of properties has led to lower depreciation provisioning. The company also received an order in favour of closure of its Mumbai plant. The matter though is still sub-judice. After the break away from the dairy business, the company's cash flows seemed to have improved significantly. The company reported a strong 378% growth in other income, led by sale of the company's investments (to the tune of Rs 384 m). Excluding this non-recurring income from the June quarters of both years, the profit before tax and extraordinary items has grown by a healthy 18%.

Cost break-up
as a % of net sales 1QFY04 1QFY05 FY04
Total Cost of goods 51.2% 57.1% 53.0%
Staff Cost 6.2% 4.7% 5.7%
Advertisement & promotion N. A. N. A. 8.0%
Other Expenditure 29.7% 26.1% 21.6%

Net profit: As part of its buyback programme, Britannia reduced its shares outstanding by about 0.8 m shares during FY04. The company has further bought back 1.22 m shares as part of its June 17 - August 7, 2004 buyback programme. This buyback will further reduce the company's shares outstanding to 23.9 m shares. This of course, will further pep up the company's earning per share going forward.

Over the last four quarters
2QFY04 3QFY04 4QFY04 1QFY05
Sales growth (YoY) 5.1% 8.6% 14.5% 17.2%
OPM (%) 12.1% 12.8% 9.5% 12.0%
Net profit growth (YoY) 26.0% 6.8% 4.1% 109.8%

What to expect?
At Rs 640 the stock trades at 13.5x FY04 earnings, market cap. to sales of 1.1x. The valuations are at the lower end of the FMCG spectrum. The management seems to have put the loss of Mr. Sunil Alagh behind it and is now totally focused on restructuring its business to enhance profitability and growth. However, the company's one product category focus is a concern, as competition is on the rise from the likes of Parle and ITC.

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Jun 17, 2021 10:18 AM


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