Company Update INDIA CONSUMER STAPLES 7 January 2015 BUY Britannia Industries TP: INR 2,200.00 10.2% BRIT IN Outlook strong; raising earnings/TP – maintain BUY We raise our FY16/FY17 earnings for BRIT by ~13%/14% on expectations of continued benefits flowing in from mix improvements, cost synergies and a muted RM inflation outlook. We built in a 350bps margin expansion over FY14-FY17, leading to a strong EBITDA/PAT CAGR of 29% over this period. An increase in A&P spends in H2FY15/FY16 should lead to market share gains, while margins could surprise on lower RM costs. We roll over to a Mar’16 TP of Rs 2,200 (from Rs 1,800 earlier) and maintain BUY on the stock. REPORT AUTHORS Gaurang Kakkad +91 22 6766 3470 [email protected] Topline growth at 14.6% CAGR: We expect BRIT to report a 14.6% revenue CAGR over FY14-FY17 with volume growth likely to average at ~7-8%. We expect the company to continue benefiting from the premiumisation of its portfolio, with premium-end offerings likely to see a higher growth rate (20% YoY) than the lower end segment. Despite a benign input cost scenario (flattish RM cost Index YoY), the company is likely to take 2-3% price hikes each year as competitive intensity in the sector has remained muted. Premal Kamdar Margins to expand 350bps over FY14-FY17: We expect BRIT to report a 29% EBITDA CAGR over FY14-FY17 as margins likely improve from ~8% in FY14 to ~11.5% in FY17. A richer product mix coupled with a benign input cost scenario would shore up gross margins by 300bps over FY14-FY17, while the company also benefits from operating leverage due to cost rationalisation measures. BRIT is also likely to increase A&P spends from 8.3% in FY15 to 8.9% in FY17 as it tries to gain back market share from competitors. We expect a 29% PAT CAGR over FY14-FY17 on the back of strong margins. INR 1,995.75 Upgrading earnings; TP revised to Rs 2,200: We raise our FY16/FY17 earnings for BRIT by ~13%/14% on expectations of strong margins due to premiumisation benefits, benign input costs and operating leverage. We roll over to a Mar’16 TP of Rs 2,200 (from a Dec’15 TP of Rs 1,800). Maintain BUY. 3M AVG DAILY VOLUME/VALUE +91 22 6766 3469 [email protected] PRICE CLOSE (07 Jan 15) MARKET CAP INR 239.3 bln USD 3.8 bln SHARES O/S 119.5 mln FREE FLOAT 49.0% 0.1 mln / USD 3.8 mln 52 WK HIGH 52 WK LOW INR 1,926.95 INR 809.10 Financial Highlights Y/E 31 Mar FY13A FY14A FY15E FY16E FY17E Revenue (INR mln) 61,359 68,293 78,358 89,706 1,02,738 EBITDA (INR mln) 3,710 5,438 7,817 9,885 11,776 Adjusted net profit (INR mln) 2,595 3,956 5,581 7,058 8,413 Adjusted EPS (INR) 21.7 33.0 46.5 58.8 70.1 Adjusted EPS growth (%) 29.9 51.8 41.1 26.5 19.2 DPS (INR) 7.1 10.7 15.4 19.5 23.3 ROIC (%) 43.6 45.2 68.2 97.5 132.8 Adjusted ROAE (%) 53.7 58.4 59.0 55.0 49.7 Adjusted P/E (x) 91.9 60.5 42.9 33.9 28.5 EV/EBITDA (x) 64.6 44.3 30.6 23.9 19.7 P/BV (x) 42.7 30.0 21.9 16.3 12.5 (INR) Stock Price Index Price 29,400 1,790 1,290 24,400 790 19,400 290 14,400 Source: Company, Bloomberg, RCML Research This report has been prepared by Religare Capital Markets Limited or one of its affiliates. For analyst certification and other important disclosures, please refer to the Disclosure and Disclaimer section at the end of this report. Analysts employed by non-US affiliates are not registered with FINRA regulation and may not be subject to FINRA/NYSE restrictions on communications with covered companies, public appearances, and trading securities held by a research analyst account. BUY Britannia Industries TP: INR 2,200.00 10.2% BRIT IN Company Update INDIA CONSUMER STAPLES Per Share Data Y/E 31 Mar (INR) FY13A FY14A FY15E FY16E FY17E Reported EPS 21.7 33.0 46.5 58.8 70.1 Adjusted EPS 21.7 33.0 46.5 58.8 70.1 7.1 10.7 15.4 19.5 23.3 46.7 66.5 91.3 122.6 159.9 FY13A FY14A FY15E FY16E FY17E 3.9 3.5 3.0 2.6 2.3 EV/EBITDA 64.6 44.3 30.6 23.9 19.7 Adjusted P/E 91.9 60.5 42.9 33.9 28.5 P/BV 42.7 30.0 21.9 16.3 12.5 FY13A FY14A FY15E FY16E FY17E EBITDA margin 6.0 8.0 10.0 11.0 11.5 EBIT margin 4.9 6.7 8.7 9.8 10.3 Adjusted profit margin 4.2 5.8 7.1 7.9 8.2 Adjusted ROAE 53.7 58.4 59.0 55.0 49.7 ROCE 28.6 33.9 42.1 41.8 39.1 Revenue 12.4 11.3 14.7 14.5 14.5 EBITDA 29.6 46.6 43.8 26.4 19.1 Adjusted EPS 29.9 51.8 41.1 26.5 19.2 153.3 (0.3) (5.1) (14.9) (8.0) DPS BVPS Valuation Ratios Y/E 31 Mar (x) EV/Sales Financial Ratios Y/E 31 Mar Profitability & Return Ratios (%) YoY Growth (%) Invested capital Working Capital & Liquidity Ratios Receivables (days) Inventory (days) 7 6 6 6 6 38 35 35 35 35 Payables (days) 53 43 44 44 43 Current ratio (x) 0.9 0.8 1.0 1.2 1.4 Quick ratio (x) 0.1 0.1 0.3 0.5 0.7 Gross asset turnover 4.7 4.6 4.6 4.9 5.1 Total asset turnover 3.3 3.4 3.3 3.0 2.9 Net interest coverage ratio 7.2 55.6 136.3 195.4 318.2 Adjusted debt/equity 0.5 0.1 (0.2) (0.5) (0.6) FY13A FY14A FY15E FY16E FY17E 72.4 69.5 69.0 69.0 69.0 120.3 123.6 118.7 116.3 115.4 Turnover & Leverage Ratios (x) DuPont Analysis Y/E 31 Mar (%) Tax burden (Net income/PBT) Interest burden (PBT/EBIT) EBIT margin (EBIT/Revenue) 4.9 6.7 8.7 9.8 10.3 Asset turnover (Revenue/Avg TA) 330.9 339.8 327.2 304.1 285.1 Leverage (Avg TA/Avg equities) 383.6 296.5 253.0 229.9 212.7 53.7 58.4 59.0 55.0 49.7 Adjusted ROAE 7 January 2015 Page 2 of 4 BUY Britannia Industries TP: INR 2,200.00 10.2% BRIT IN Company Update INDIA CONSUMER STAPLES Income Statement Y/E 31 Mar (INR mln) FY13A FY14A FY15E FY16E FY17E Total revenue 61,359 68,293 78,358 89,706 1,02,738 EBITDA 3,710 5,438 7,817 9,885 11,776 EBIT 2,979 4,606 6,816 8,793 10,568 Net interest income/(expenses) (413) (83) (50) (45) (33) Other income/(expenses) 1,017 1,170 1,322 1,481 1,658 Exceptional items 0 0 0 0 0 EBT 3,583 5,693 8,088 10,229 12,193 Income taxes (986) (1,736) (2,507) (3,171) (3,780) 0 0 0 0 0 (2) (2) 0 0 0 2,595 3,956 5,581 7,058 8,413 Extraordinary items Min. int./Inc. from associates Reported net profit Adjustments 0 0 0 0 0 2,595 3,956 5,581 7,058 8,413 FY13A FY14A FY15E FY16E FY17E 6,749 7,982 9,061 10,132 11,448 0 0 0 0 0 Provisions 2,786 3,321 4,853 6,137 7,316 Debt funds 3,610 1,672 1,672 1,672 1,672 0 0 0 0 0 239 240 240 240 240 Reserves & surplus 5,339 7,741 10,710 14,465 18,941 Shareholders' fund 5,578 7,981 10,950 14,705 19,181 18,745 20,980 26,560 32,670 39,640 Cash and cash eq. 1,029 1,091 3,825 8,582 13,513 Accounts receivables 1,228 1,087 1,288 1,451 1,675 Inventories 3,747 4,203 4,789 5,356 6,051 Other current assets 2,905 3,163 3,643 4,135 4,729 Investments 1,082 1,979 1,979 1,979 1,979 Net fixed assets 7,368 8,543 9,527 9,660 10,185 CWIP 1,473 1,473 1,473 1,473 1,473 0 0 0 0 0 (86) (86) (86) (86) (86) Adjusted net profit Balance Sheet Y/E 31 Mar (INR mln) Accounts payables Other current liabilities Other liabilities Equity capital Total liabilities and equities Intangible assets Deferred tax assets, net Other assets 0 0 0 0 0 Total assets 18,746 21,452 26,439 32,549 39,519 FY13A FY14A FY15E FY16E FY17E 3,327 4,788 6,582 8,149 9,622 413 83 50 45 33 0 0 0 0 0 (158) 1,194 1,343 1,135 981 Cash Flow Statement Y/E 31 Mar (INR mln) Net income + Depreciation Interest expenses Non-cash adjustments Changes in working capital Other operating cash flows 30 84 192 45 33 3,612 6,149 8,167 9,374 10,669 (2,154) (2,007) (1,985) (1,225) (1,733) 2,150 (897) 0 0 0 Other investing cash flows 286 0 0 0 0 Cash flow from investing 282 (2,904) (1,985) (1,225) (1,733) 0 Cash flow from operations Capital expenditures Change in investments Equities issued 0 (4) 0 0 Debt raised/repaid (2,268) (1,938) 0 0 0 Interest expenses (413) (83) (50) (45) (33) (3,937) Dividends paid (1,189) (1,811) (2,612) (3,303) Other financing cash flows (423) (83) (50) (45) (33) Cash flow from financing (4,293) (3,919) (2,712) (3,393) (4,004) Changes in cash and cash eq (399) (674) 3,470 4,756 4,932 Closing cash and cash eq 1,029 355 3,825 8,582 13,513 7 January 2015 Page 3 of 4 RESEARCH DISCLAIMER Important Disclosures This report was prepared, approved, published and distributed by a Religare Capital Markets (“RCM”) group company located outside of the United States (a “non-US Group Company”). 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