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Britannia: Momentum continues - Views on News from Equitymaster
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Britannia: Momentum continues
Jul 29, 2008

Performance summary
  • Topline grows 20.2% YoY in 1QFY09 on the back of new launches in the biscuits segment.

  • The operating margins for 1QFY09 improves by 60 basis points (0.6%) on account of lower raw material costs.

  • Excluding the extraordinary items (VRS), the net profits are higher by 16.7% YoY in 1QFY09.



(Rs m) 1QFY08 1QFY09 Change
Gross sales 5,901 6,998 18.6%
less: excise duty 132 65 -50.8%
Net sales 5,769 6,933 20.2%
Expenditure 5,323 6,358 19.4%
Operating profit (EBDITA) 446 575 29.0%
EBDITA margin (%) 7.7% 8.3%  
Other income 108 79 -26.9%
Interest 5 35 600.0%
Depreciation 69 79 14.5%
Profit before tax 480 540 12.6%
Extraordinary item (31) (55)  
Tax 88 83 -5.7%
Profit after tax/(loss) 361 402 11.4%
Net profit margin (%) 6.3% 5.8%  
No. of shares (m) 23.9 23.9  
Diluted earnings per share (Rs)*   81.6  
Price to earnings ratio (x)*   16.8  
* 12 month trailing earnings

What has driven performance in 1QFY09?
  • Britannia reported a topline growth of 20.2% YoY in 1QFY09. The company has maintained its growth with increasing investments in brand building activities and new launches. It had launched ‘GoodDay Classic’, Tiger with Iron-Zor and ‘NutriChoice 5 Grain’ in this quarter. With the segment growing at 12% to 15%, Britannia has done well in its performance.

    Cost break-up
    As a % of net sales 1QFY08 1QFY09
    Total Cost of goods 61.6% 60.6%
    Staff Cost 3.7% 3.4%
    Advertising 5.9% 6.3%
    Other Expenditure 21.0% 21.4%

  • The operating margins improved by 60 basis points (0.6%) on account of lower raw material and staff costs. However the ad spends increased by 27% YoY. It forms 6.3% of the sales as compared to 5.9% in the last quarter. The company has launched new products and continued with its brand building activity. The management has indicated that it would continue spending aggressively on new product development and advertising. We have estimated ad spends as a percentage of net sales at 6.7% for FY09.

  • Excluding the extraordinary items (VRS) the net profits were higher by 16.7% YoY in 1QFY09. Higher margins and lower tax outgo aided the jump. However lower other income and higher interest expenses restricted the growth to that extent.

  • Consolidated turnover for Britannia was Rs 7.5 bn, while profit after tax was Rs 338 m in 1QFY09.

What to expect?
At the current price of Rs 1,374, the stock is trading at a price to earnings multiple of 9.2 times our FY11 estimates. Britannia continues to launch new products and focus on its key brands. It is also focusing on high value products, which has helped improve its margins. While biscuits would continue to be the mainstay the company, it is expanding its portfolio in other segments and geographies as well. It is also looking at inorganic growth to expand its presence in food segment. While raw material prices remain a concern, we are positive on the company’s growth momentum.

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