Hold Britannia Industries; target of Rs 4580: Prabhudas Lilladher

Prabhudas Lilladher's research report on Britannia Industries

We increase our FY23/FY24/FY25 EPS estimates by 7.9%/3.8%/2.5% on account of higher margins led by 1) incentives on new plants in other operating income and 2) stabilizing RM basket. BRIT continues to gain share in core Biscuits & Bakery segment and scale adjacencies & innovations like Biscafe, Nutrichoice Herbs, Marble cake, Croissants etc with sales up 1-4x since 1Q23. While Palm oil (down 50% from peak) & SMP (down 40% from peak) are favorable, benefits of lower cost wheat futures will end in FY23 and new season procurement price will be higher by ~10-15% (30-35% higher as of now) in our view. We believe 19.5% EBIDTA margin is unsustainable and factor in 17.8/18% margins for FY24/25. BRIT continues to build long term growth drivers with 1) 28k rural preferred dealers (26k in 4Q22) 2) rising share of MT sales with improved mix 3) higher growth in focus states 4) cost efficiency gains in manufacturing, distribution and procurement 5) sustained innovation program and 6) Dairy expansion plans in new categories in Ranjangaon Dairy unit.

Outlook

We estimate 13.2%/18.6% sales and PAT CAGR over FY22-25. We roll over to 45x Dec24EPS thereby arriving at a target price of Rs4,580 (Rs4,297 earlier). Retain Hold.