Moneycontrol
Nov 29, 2016 02:37 PM IST IST | Source: Moneycontrol.com

JP Morgan initiates Britannia with overweight, target at Rs 3500

Bakery and dairy products maker Britannia Industries shares gained nearly 2 percent intraday Tuesday after JP Morgan has initiated coverage with an overweight rating and a December 2017 target price of Rs 3,500, implying 18 percent potential upside.


Moneycontrol Bureau


Bakery and dairy products maker Britannia Industries shares gained nearly 2 percent intraday Tuesday after JP Morgan has initiated coverage with an overweight rating and a December 2017 target price of Rs 3,500, implying 18 percent potential upside.

In near term, even as demonetisation keeps 2HFY17 performance volatile, the brokerage house expects growth rates to improve over FY18 and finds current levels to be a good entry opportunity for long term investors.


On a PEG (price/earnings to growth) basis, it is trading at a significant discount to FMCG peers/Nestle despite better operating metrics/execution, it feels.


It is a leading packaged foods company and benefits from a rising focus on innovation, astute marketing and good execution, which should continue to support market-share gains and mix enhancements, the brokerage house says.


It further says core brands are being strengthened with re-launches/ marketing push, and new launches (at premium end) are underway to bolster the portfolio. Significant initiatives are underway to improve manufacturing/supply chain efficiencies and drive cost optimisation.


Being present at the cusp of the consumer transition to packaged foods and with the aim to enter one new category every year, Britannia is well placed to capitalise on these trends, the brokerage house believes.


Strong free cash flow generation, healthy return ratios and potentially higher dividends are other positive drivers, it says.


JP Morgan feels the margin concerns are overdone. "A combination of judicious pricing, mix and cost efficiency measures will help address the impact of high raw material inflation. Following a dip in FY17, we build in 90bps expansion in operating profit margin over FY16-19. Recent share price performance is pricing in the risks of input cost inflation," it explains.


It says key risks include weak demand, higher input costs, irrational competition, drag from dairy and poor response to new launches.

At 11:52 hours IST, the stock was quoting at Rs 2,999.95, up Rs 42.40, or 1.43 percent on the BSE.

Posted by Sunil Shankar Matkar

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