Buy Britannia; target of Rs 7300: Motilal Oswal

Motilal Oswal's research report on Britannia

BRIT ended FY18 with 9.5% sales growth, 17.5% EBITDA growth, and 13.6% adjusted PAT growth. Gross margin expanded 10bp to 38.4% and EBITDA margin expanded 100bp to 15.1%.  Consolidated ad spends (not disclosed on quarterly basis) grew 6.8% to INR4.1b; however, as a percentage of sales, ad spends declined 10bp to 4.1%.  BRIT’s distribution expansion has resulted in a reach of 5.2m outlets across the country, with direct reach of 1.84m outlets. This should fuel strong growth.   The INR320b biscuit market in India is projected to grow at a CAGR of 11.3% in value terms during 2018-2022.

Outlook

Continuing premiumization, significant incremental cost savings, and favorable commodity cost outlook mean further EBITDA margin expansion prospects are bright, as well. We retain Buy with a target price of INR7,300 (51x June 2020E EPS; 20% premium to three-year average due to improving visibility on both volume recovery and margin growth).