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2,200% return in 10 years & this 100-year-old brand still has moats

According to market experts, the company will see some traction in the long term.

Updated: Aug 10, 2018, 01.12 PM IST
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FMCG major Britannia Industries has reported a 19.41 per cent jump in consolidated net profit at Rs 258.08 crore for the June quarter.
A strong moat with huge opportunities can give you that adrenaline rush.

Britannia Industries Managing Director Varun Berry firmly believes so. He sees two crucial factors going for the company that's difficult to spot in any of its peers.

In the pipeline are 50 new products this year to mark the company's 100 years of operations.

Returns are an eye opener. The scrip soared 54 per cent and 101 per cent during the last one year and three years, respectively, as against 17 per cent and 33 per cent of the benchmark Sensex during the same period.

Britannia even went up 775 per cent and 2,192 per cent over the last 5 years and 10 years, respectively. Which meant market capitalisation of the company moved to nearly Rs 76,000 crore, from Rs 3,200 crore, during August 2008-18.

Berry highlighted that the first moat for Britannia is the brand itself and his 30-year plus experience in the consumer industry. “What I have seen is that you can do a lot of stuff, but you cannot build brands in a hurry. So, that is our big moat and I think that is something that no one can match,” he said in an interaction with ETNow.

He sees low-cost operation as the second moat for Britannia. “I do not think that there is any company which operates with the kind of costs that we operate,” Berry asserted.

The term moat is popularised by legendary investor Warren Buffett referring to businesses that maintained competitive advantages over its competitors.

The market guru once said: "A good business is like a strong castle with a deep moat around it. I want sharks in the moat. I want it untouchable."

Motial Oswal has ‘Buy’ call on Britannia with a target price of Rs 7,300. The brokerage house sees 28.40 per cent and 27.90 per cent rise in net profit and EBITDA of Britannia in FY19.

Emkay Global Financial Services in a report said, “We expect sales and earnings CAGR of 15 per cent and 20 per cent over FY18-21E. The stock is trading at 52x FY20E EPS after the 25 per cent run-up over the last 5 months. We believe that the current valuation offers limited upside and hence, we downgrade it to ‘Hold’ from ‘Accumulate’. We roll forward our target price to Rs 6,100 (previously Rs 5,850) valuing it at 45x September 20E EPS (in-line with Nestle and HUL).”

Top line as well as the bottom line of the company has already grown in double digits during the past 10 years. Net sales and net profit of the biscuit major grew 14 per cent and 19 per cent on a CAGR basis during FY08-18.

According to market experts, with the GST rollout, the company will see some traction in the long term as organised players see market share gains. This space is seeing a shift from the value segment towards the premium one and Britannia is well poised to ride this wave.

Also, the company is widening its reach in rural India. Their reach in rural pockets now stands at around 75 per cent of their urban reach.

For 2017-18, Britannia posted net sales of Rs 9,905.60 crore against Rs 2,776.30 crore in FY08. Net profit jumped to Rs 1,004.20 crore, from Rs 177.40 crore before.

Elara Capital in a report in July said, “Britannia has high distributor margins and investments are the lowest as they are aiming at 'zero inventory' days.”

It added: “Britannia has high margin. Investment is the lowest and the volume is high. This makes good net profits from distributor’s perspective. Unilever and Nestle need more investments - RoI (return on investment) is lower. Marico is also low inventory -- just one day of inventory. The rest all are same across companies.”

Britannia Industries, which earns 70 per cent of its revenue from the biscuits segment, would gradually increase the pie of non-biscuits category by foraying into new product space. In value terms, Britannia's market share in the biscuits category is 33 per cent.

Addressing shareholders during the company's 99th annual general meeting, Berry said Good Day is within striking distance of Parle G.

"We are the number one biscuit maker and far ahead of Parle in market share. We expect Good Day to overtake Parle G in next 2-3 years," said Berry.

The company recently came out with a new logo and also proposed a stock split and issue of bonus debentures, subject to necessary approvals. It has plans to hunt for opportunities for acquisitions.

The FMCG major Britannia Industries has reported a 19.41 per cent jump in consolidated net profit at Rs 258.08 crore for the June quarter, driven by double-digit volume growth.

Net profit stood at Rs 216.12 crore in April-June a year ago.

Global brokerages, including UBS and Goldman Sachs, have ‘Buy’ rating on Britannia shares with a target price of Rs 7,700 and Rs 7,235, respectively. UBS believes that Britannia is the key beneficiary of rural upswing, and diversification is on track. “Maintain buy on good revenue and earnings growth visibility compared with peers,” said UBS.

Goldman Sachs believes Britannia has re-invested gross margin benefit in ad spend to support volume growth. It maintained a bullish stance on the ability to drive premiumisation by launching affordable packs of premium products

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