Buy Britannia Industries; target of Rs 4301: Prabhudas Lilladher

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Prabhudas Lilladher's research report on Britannia Industries

We are increasing FY21/22/23 EPS estimates by 3.1%/0.4%/0.5% on improved margin delivery, benign input cost environment and efficiency gains. 2Q revenues growth of 11.4% and volume growth of 9% was short of expectations on absence of Independence day sales in MT and impact of pantry destocking and unlock. Long term growth trajectory is intact given that non biscuit sales (25%) volumes grew by 10.5% during 2Q versus 8.5% for Biscuits. we believe that the best quarter of growth and margins is behind us. We expect a tepid 4.9% EPS growth in FY22 on peaked out margins, 53% decline in other income (Rs31bn dividend payout) and 82% higher interest cost (Rs14bn bonus Debs). However, we believe that long term growth story is intact given focus on 1) innovations 2) affordable packs/pricing (biscuits–Rs5/10 in premium brands) 3) direct distribution reach (3x since 2014) 4) success in non- biscuits segments (Cake, Cream wafers, salted snacks, milkshakes – 19% sales CAGR over FY20-23) 5) cost efficiency programs (Rs2.5bn/1.5-2% of sales) and 6) high growth in Hindi heartland (1.2-2.5x). We estimate 22% PAT growth in FY21E and 14.1% CAGR over FY20-23.

Outlook

We value the stock at 46xFY23 EPS and arrive at SOTP based target price of Rs4301 (Rs4279 earlier). Retain Buy.

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