Buy Britannia Industries; target of Rs 4665: Sharekhan

Sharekhan's research report on Britannia Industries

Key input prices (including milk and sugar) have shown a declining trend due to higher production, which will benefit dairy and packaged food manufacturing companies such as Britannia Industries (Britannia) in the near future. Dairy procurement prices declined by 11% in recent times on account of higher supply.  The same is expected to remain stable over the next two quarters because of better supply. On the other hand, sugar prices have corrected by 6% from their high and have remained flat on YoY basis. Sugar production is expected to be higher by 20-25% in the current season on account of better rainfall, which will further help prices to soften in the domestic market. Further, extended monsoon in most of the country bodes well for rabi crops (wheat production is expected to be higher), as it will help in softening rabi crop prices. If prices of key inputs remain soft in the coming quarters,

Outlook

we expect Britannia’s gross  margins to improve by 50-80BPS in H2FY2018.   We maintain our Buy recommendation on the stock with an unchanged price target of Rs.4,665.