>BRITANNIA INDUSTRIES (SBICAP SECURITIES)

Result analysis: Q4FY09
Quarterly net sales were up by 10%, slowest in past 12 quarters, operating profit up 17%, EBITDA down 11% and net profit down 33%. Operating profit increased due to lower raw material inflation, almost flat employee cost and less than proportionate increase in other operating expenses. However, starkly lower other income during the quarter affected the EBITDA. Lower EBITDA and higher tax provision coupled with exceptional & extraordinary items led to a 33% drop in net profit.

Result analysis: FY09
Annual sales growth momentum was maintained at 20%, whereas operating profit growth was restricted to 13.5% due to high commodity prices in the first half of FY09. Healthy other
income in Q3 and Q4 of FY09 buoyed up the EBITDA by 14.8%. Despite healthy EBITDA, and lower tax rate, net profit (bei) for the full year grew less than proportionately, up 9.7%, due to
higher financial expenses and depreciation. Extraordinary items further dragged the PAT down by 5.5%.

Management vision
As per Ms.Vinita Bali, MD, Britannia Industries, the company will continue to focus on:

• Building brand ‘Britannia’ in India and abroad and leverage the Middle East acquisition to expand its global footprint
• Continue to enhance portfolio of brands offered in India to cash in from buoyant demand for both healthy and indulgence food products from urban as well as rural India
• Cost efficiency to drive profitability
• Focus on both bakery and dairy to drive future growth

Outlook
Despite disappointing quarter we maintain our positive outlook due to Britannia’s leadership in biscuits category, which is expected to grow ~15% for next couple of years, as well as its increasing focus on other bakery products like bread and also on dairy businesses. We like Britannia’s aggressive innovation to cash in from rising demand for on-the-go snack foods and
presence across price points to cater consumers at all levels in the income pyramid. Buoyant demand from urban markets coupled with increasing demand from rural markets will keep the ball rolling for the bakery manufacturer, which controls 35% of the market.

Change in estimates and recommendation
Though, we maintain our positive outlook on the stock and expect the biscuit major’s revenues to grow by double digits, we revise our Earnings estimates (and in turn target price) downwards due to commodity inflation (sugar and vegetable oil), higher brand investment and increased debt burden to service bonus debentures (carrying 8.5% coupon for 3 years). We now estimate FY10 EPS at Rs91.1 and FY11 EPS at Rs111 and value the stock at 20xFY10E EPS arriving at a target price of Rs1823, upside potential of 8% from current price of Rs1682.

Recommendation changed from Buy to Market Perform.

To see full report: BRITANNIA INDUSTRIES