Neutral Britannia Industries; target of Rs 3700: Motilal Oswal

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Motilal Oswal 's research report on Britannia Industries

Britannia Industries (BRIT) has been aided by a confluence of positive factors, such as high in-home consumption (biscuits constitute 82% of sales), reduction in ad spend, decline in material cost, and low promotional spend (owing to strong demand). These are likely to drive the strongest topline growth since FY12 (18.3% in FY21E) and the highest PAT growth since FY16 (38% in FY21E). - However, this extraordinary earnings growth in FY21 presents a significant hurdle from an FY22/FY23 perspective as none of these factors present a structural positive. Furthermore, material costs could result in high volatility in earnings for BRIT - it has one of the lowest gross margins among peers (40% in FY20). - While we like the structural story, expensive valuations (47.5x FY22), sustained concerns of elevated group inter-corporate deposits (ICDs) at around INR6b (similar to 4QFY20 when they crossed their own stated threshold of INR5b), and an uncertain earnings outlook beyond FY21 have led us to maintain our Neutral rating.

Outlook

Our TP of INR3,700 is set at 45x Jun’22 EPS.

For all recommendations report, click here

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