2QFY2014 Result Update | FMCG

November 22, 2013

Britannia
Performance Highlights
Quarterly Highlights (Standalone)
Y/E March (` cr) Revenue EBITDA OPM (%) PAT
Source: Company, Angel Research

ACCUMULATE
CMP Target Price
Investment Period
2QFY13 1,403 60 4.3 45 % yoy 13.7 129.3 435bp 112.6 1QFY14 1,403 117 8.3 86 % qoq 13.6 17.9 31bp 10.9

`880 `945
12 Months

2QFY14 1,594 138 8.6 96

Stock Info Sector Market Cap (` cr) Net Debt (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code FMCG 10,539 (19) 0.5 973/463 32,143 2 20,229 5,999 BRIT.BO BRIT@IN

For 2QFY2014 Britannia Industries (Britannia) posted a strong 113% yoy growth in bottom-line to `96cr, which was in line with our estimates. The robust performance on the bottom-line front was led by a 435bp yoy expansion in the OPM. Key highlights for the quarter: For 2QFY2014, Britannias standalone top-line rose by 13.7% yoy to `1,594cr yoy, driven by superior product mix and higher price realizations. Volume growth is estimated to be in low to mid single digits. The consolidated top-line rose by ~13% as the subsidiaries posted a 4.4% yoy growth in top-line. Gross margin rose 388bp yoy aided by superior mix, better realization and softening of prices of inputs. The OPM rose by 435bp on a yoy basis to 8.6% on account of higher gross margin and tight cost controls. Advertising expenditure as a percentage of sales too was down by 16bp on a yoy basis. The bottom-line rose by 113% yoy to `96cr aided by a strong operational performance. Interest costs too fell by 87% yoy due to the redemption of debentures. Outlook and valuation: We expect Britannia to post a revenue and bottom-line CAGR of ~14.8% and 40.4% respectively over FY2013-15. The strong bottom-line growth is expected to be driven by a healthy OPM expansion. At the current market price, the stock is trading at 23.3x FY2015E EPS; we recommend an Accumulate on the stock with a target price of `945 (25x FY2015E EPS). Key financials (Standalone)
Y/E March (` cr) Net sales % chg Net profit (Adj.) % chg EBITDA margin (%) EPS (`) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/EBITDA (x) FY2012 4,947 17.8 187 28.5 5.1 15.6 56.3 20.2 38.4 27.7 2.1 41.1 FY2013 5,564 12.5 229 22.6 5.8 19.1 45.9 16.4 39.4 36.5 1.9 32.3 FY2014E 6,470 16.3 378 65.0 8.6 31.6 27.8 11.6 48.8 48.2 1.6 18.7 FY2015E 7,339 13.4 451 19.5 8.9 37.8 23.3 8.4 41.9 42.8 1.4 15.8

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 50.8 9.6 19.1 20.5

Abs. (%) Sensex BRIT

3m 13.0 28.1

1yr 9.6

3yr 3.3

85.1 116.7

V.Srinivasan
022 3935 7800 Ext: 6831

Source: Company, Angel Research; Note: CMP as of November 21, 2013

v.srinivasan@angelbroking.com

Please refer to important disclosures at the end of this report

Britannia | 2QFY2014 Result Update

Exhibit 1: Quarterly performance (Standalone)

Y/E March (` cr) Net Sales Consumption of RM (% of Sales) Staff Costs (% of Sales) Advertising (% of Sales) Other Expenses (% of Sales) Total Expenditure Operating Profit OPM Interest Depreciation Other Income PBT (excl. Extr. Items) Extr. Income/(Expense) PBT (incl. Extr. Items) (% of Sales) Provision for Taxation (% of PBT) Reported PAT PATM Equity shares (cr) EPS (`) Adjusted PAT
Source: Company, Angel Research

2QFY14 1,594 967 60.6 42 2.6 131 8.2 317 19.9 1,457 138 8.6 1 16 20 141 0 141 8.8 45 32.0 96 6.0 12 8.0 96

2QFY13 1,403 905 64.5 37 2.7 118 8.4 283 20.2 1,343 60 4.3 9 14 27 64 0 64 4.5 19 29.3 45 3.2 12 3.8 45

% yoy 13.7 6.8 12.4 11.5 12.0 8.5 129.3 (87.0) 9.8 (25.2) 121.3 121.3 142.4 112.6

1QFY14 1,403 837 59.7 49 3.5 127 9.0 274 19.5 1,287 117 8.3 3 15 27 125 0 125 8.9 39 30.9 86 6.1 12

% qoq 13.6 15.4 1.6 (14.0) (24.3) 3.8 (8.6) 15.7 1.8 13.2 17.9 (66.0) 2.4 (25.5) 12.7 0.0 12.7 (0.8) 16.9 3.7 10.9 (2.4) 0.0 10.5 10.9

1HFY2014 2,998 1,804 60.2 90 3.0 258 8.6 591 19.7 2,743 255 8.5 4 31 46 266 0 266 8.9 84 31.5 182 6.1 12 15.2 182

1HFY2013 2,624 1,662 63.3 75 2.9 216 8.2 546 20.8 2,499 126 4.8 18 27 44 125 0 125 4.8 36 28.6 89 3.4 12 7.4 89

% chg 14.2 8.6 20.8 19.2 8.3 9.8 102.5 (75.4) 13.5 4.4 113.1 113.1 134.9 104.3

112.1 112.6

7.2 86

103.8 104.3

Exhibit 2: 2QFY2014 Actual vs Angel estimates

(` cr) Revenue EBITDA OPM (%) PAT
Source: Company, Angel Research

Actual 1,594 138 8.6 96

Angel Est. 1,598 135 8.4 89

% Diff. (0.2) 1.9 18bp 7.6

November 22, 2013

Britannia | 2QFY2014 Result Update

Top-line growth at 13.7% yoy

For 2QFY2014, Britannia Industries (Britannia) standalone top-line rose by 13.7% yoy to `1,594cr, driven by superior product mix and higher price realizations. Volume growth is expected to be in low to mid single digits. The companys strategy of extending its brands in premium categories and continuous focus on increasing value-added products in its overall sales mix resulted in a better product mix and realization. The company has continuously introduced new variants in its premium brands such as GoodDay and Nutrichoice. Sales of these brands have grown at a faster rate as compared to brands such as Mariegold and 50-50. However, the top-line growth of subsidiaries remained muted at 4.4% yoy.

Exhibit 3: Top-line grows 13.7% yoy

1,800 1,600 1,400 1,200 (` cr) 1,000 800 600 1,294 1,247 1,310 1,222 1,403 1,453 1,487 1,403 200 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 1,594 400 10.8 8.4 18.2 15.5 16.3 16.5 13.5 14.9 13.7 20 18 16 14 12 10 8 6 4 2 0 ( %)

Top-line (LHS) Source: Company, Angel research

YoY growth (RHS)

OPM grows by 435bp yoy

The companys Gross margin rose 388bp yoy, aided by a superior mix, better realization and softening of prices of inputs. The OPM rose by 435bp on a yoy basis to 8.6% on account of higher gross margin and tight cost controls. Advertising expenditure as a percentage of sales too was down 16bp on a yoy basis. The bottom-line rose by 113% yoy to `96cr.

November 22, 2013

Britannia | 2QFY2014 Result Update

Exhibit 4: OPM performance

10 9 8 7 6 (%) 5 4 3 2 1 0 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 120 100 80 60 40 20 0 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 (%) 96 4.8 6.5 5.3 4.3 5.4 7.8 8.3 8.6

Source: Company, Angel research

Net profit grows by 113% yoy

The bottom-line rose by 113% yoy to `96cr, aided by a strong operational performance. Interest costs too fell by 87% yoy due to the redemption of debentures.

Exhibit 5: Bottom-line performance

120 100 80 (` cr) 60 40 20 -

38

54

53

43

45

57

88

PAT (LHS) Source: Company, Angel Research

YoY growth (RHS)

Investment arguments
Renewed product portfolio to aid growth: Britannia has recently forayed into breakfast cereals, milk and premium category biscuits. We believe this rejig in the product portfolio offers significant uptrading benefits to the company, thereby fuelling growth. Also, with increased per capita consumption and penetration, the company will continue to grow at a pace faster than its historical growth.

November 22, 2013

86

Britannia | 2QFY2014 Result Update

Outlook and valuation

We expect Britannia to post a revenue and bottom-line CAGR of ~14.8% and 40.4% respectively over FY2013-15. The strong bottom-line growth is expected to driven by a healthy OPM expansion. At the current market price, the stock is trading at 23.3x FY2015E EPS; we recommend an Accumulate on the stock with a target price of `945 (25x FY2015E EPS)

Exhibit 6: One-year forward PE

50.0 45.0 40.0 35.0 30.0 25.0 20.0 15.0 10.0 5.0 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 May-09 May-10 May-11 May-12 May-13 Nov-13 Feb-09 Feb-10 Feb-11 Feb-12 Aug-09 Aug-10 Aug-11 Aug-12 Feb-13 Aug-13

Source: Bloomberg, Angel Research; Note: Blue line represents 5-yr average

Exhibit 7: Peer valuation

Company Asian Paints Britannia Colgate Dabur GCPL GSKCHL* HUL ITC Marico Nestle* TGBL Reco Neutral Accum. Neutral Neutral Neutral Neutral Neutral Neutral Neutral Neutral Neutral Mcap (` cr)
48,967 10,515 17,035 28,003 29,322 18,687 124,463 247,050 13,453 52,950 8,893

CMP (`)
511 880 1,253 161 862 4,443 576 313 209 5,492 144

TP (`)
945 -

Upside (%)
7 -

P/E (x) FY14E

38.7 27.8 32.7 30.2 35.5 36.7 34.6 28.4 28.5 44.8 19.9

EV/Sales (x) FY14E

3.8 1.6 4.6 3.9 3.9 4.7 4.2 6.5 2.7 5.6 1.1

RoE (%) FY14E

35.1 48.8 96.2 39.1 24.1 34.0 111.7 36.1 21.5 56.1 8.9

CAGR # Sales
15.6 14.8 15.7 15.4 19.3 17.6 12.6 14.3 10.3 14.4 11.0

FY15E
32.6 23.3 27.9 25.8 28.7 30.7 31.5 24.4 23.3 36.8 17.4

FY15E
3.2 1.4 3.9 3.4 3.3 3.9 3.7 5.5 2.3 4.7 0.9

FY15E
32.6 41.9 92.5 36.5 24.6 33.3 88.2 34.9 21.7 50.3 9.5

EPS
16.2 40.4 10.7 19.1 19.6 19.7 11.4 16.8 26.1 14.3 12.7

Source: Company, Angel Research; Note: #Denotes CAGR over FY2013-15E, *December Year Ending.

Company background
Britannia is one of the foremost food companies in India. The company is present across biscuits, dairy products and breads segments and has recently forayed into the breakfast cereals category with the launch of Healthy Start. Britannia derives ~85% of its revenue from the biscuits segment, where it has formidable brands such as Tiger (glucose biscuits), Treat (cream biscuits), 50-50 (crackers), Good Day (premium cookies and the company's highest selling brand) and NutriChoice (premium high-fiber biscuits).

November 22, 2013

Britannia | 2QFY2014 Result Update

Profit and loss statement (Standalone)

Y/E March (` cr) Total operating income % chg Total Expenditure Cost of Materials Advertising Exp (Incl. Promotion) Personnel Others EBITDA % chg (% of Net Sales) Depreciation& Amortization EBIT % chg (% of Net Sales) Interest & other Charges Other Income (% of PBT) Share in profit of Associates Recurring PBT % chg Prior Period & Extra Exp./(Inc.) PBT (reported) Tax (% of PBT) PAT (reported) ADJ. PAT % chg (% of Net Sales) Basic EPS (`) Fully Diluted EPS (`) % chg
previous year numbers

FY2010 FY2011 FY2012 FY2013 FY2014E FY2015E 3,403 9.4 3,241 2,164 269 106 703 162 (38.2) 4.8 38 125 (45.6) 3.7 8 51 30.4 167 (33.9) 46.64 121 4 2.5 163 117 (35.4) 3.4 9.7 9.7 (35.4) 4,198 23.4 3,992 2,764 304 120 804 206 27.1 4.9 45 162 29.6 3.9 38 74 37.4 198 18.3 198 53 26.6 145 145 24.7 3.5 12.2 12.2 24.7 4,947 17.8 4,695 3,180 381 146 988 252 22.2 5.1 47 205 26.6 4.1 38 86 34.0 252 27.4 252 66 26.0 187 187 28.5 3.8 15.6 15.6 28.5 5,564 12.5 5,244 3,518 445 144 1,137 320 27.1 5.8 57 263 28.6 4.7 38 102 31.1 327 29.7 327 98 30.0 229 229 22.6 4.1 19.1 19.1 22.6 6,470 16.3 5,915 3,912 518 194 1,291 555 73.3 8.6 64 491 86.5 7.6 36 101 18.1 555 69.7 555 178 32.0 378 378 65.0 5.8 31.6 31.6 65.0 7,339 13.4 6,683 4,397 587 220 1,479 656 18.2 8.9 71 586 19.2 8.0 44 122 18.4 664 19.5 664 212 32.0 451 451 19.5 6.2 37.8 37.8 19.5

Note: Some of the figures from FY2011 onwards are reclassified; hence not comparable with

November 22, 2013

Britannia | 2QFY2014 Result Update

Balance Sheet (standalone)

Y/E March (` cr) SOURCES OF FUNDS Equity Share Capital Preference Capital Reserves& Surplus Shareholders Funds Minority Interest Total Loans Deferred Tax Liability Other long term liabilities Long term provisions Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Goodwill Investments Long term loans and adv. Current Assets Cash Loans & Advances Other Current liabilities Net Current Assets Mis. Exp. not written off Total Assets
previous year numbers

FY2010 24 372 396 430 (7)

FY2011 24 427 451 431 6 16 123

FY2012 24 496 520 434 8 20 117 1,099 677 298 379 80 429 125 660 31 194 434 573 86 1,099

FY2013 24 617 641 192 14 19 126 992 857 355 502 78 292 125 686 64 226 396 691 (5) 992

FY2014E 24 883 907 242 6 19 159 1,333 957 419 538 50 612 125 808 47 226 535 799 9 1,333

FY2015E 24 1,222 1,246 292 6 19 163 1,727 1,057 490 567 50 1,012 125 861 26 226 609 887 (27) 1,727

819 548 266 282 10 491 529 23 198 308 492 37 819

1,027 594 290 304 12 545 142 480 29 83 368 456 25 1,027

Note: Some of the figures from FY2011 onwards are reclassified; hence not comparable with

November 22, 2013

Britannia | 2QFY2014 Result Update

Cash flow statement (Standalone)

Y/E March (` cr) Profit before tax Depreciation Change in Working Capital Interest / Dividend (Net) Direct taxes paid Payment of VRS/ other comp. Profit on sale of invest/FA (Net) Others Cash Flow from Operations (Inc.)/ Dec. in Fixed Assets (Inc.)/ Dec. in Investments Cash Flow from Investing Issue of Equity Inc./(Dec.) in loans Dividend Paid (Incl. Tax) Interest/Dividend paid (Net) Cash Flow from Financing Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances
previous year numbers

FY2010 FY2011 FY2012 FY2013 FY2014E FY2015E 121 38 100 (25) 73 33 12 2 183 (40) (68) (108) (2) 112 (21) (93) (17) 41 23 198 45 (43) 13 53 20 48 189 (47) (54) (102) 1 70 13 (81) 5 23 29 252 47 84 5 66 23 (142) 158 (152) 116 (36) 4 118 6 (120) 2 29 31 327 57 (242) (20) 98 (3) 23.9 51 (178) 149 (29) 0 164 140 13 11 33 31 64 555 64 30 2 178 (3) (34) 442 (72) (320) (392) 50 112 6 (68) (17) 64 47 664 71 19 (11) 212 (3) 0 533 (100) (400) (500) 50 112 (8) (54) (20) 47 26

Note: Some of the figures from FY2011 onwards are reclassified; hence not comparable with

November 22, 2013

Britannia | 2QFY2014 Result Update

Key ratios
Y/E March Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA Per Share Data (`) EPS (fully diluted) Cash EPS DPS Book Value Returns (%) RoCE Angel ROIC (Pre-tax) RoE Turnover ratios (x) Asset Turnover (Gross Block) Inventory / Sales (days) Receivables (days) Payables (days) WC (ex-cash) (days)
previous year numbers

FY2010 FY2011 FY2012 FY2013 90.2 52.4 26.5 3.0 3.0 63.8 9.7 16.8 5.0 33.2 14.9 42.3 26.7 6.2 29 4 33 8 72.4 55.3 23.3 2.5 2.5 50.2 12.2 15.9 6.5 37.8 18.8 36.6 34.3 7.1 27 5 31 4 56.3 44.9 20.2 2.1 2.1 41.1 15.6 19.6 8.5 43.5 27.7 36.6 38.4 7.3 32 5 63 (23) 45.9 36.8 16.4 1.9 1.9 32.3 19.1 23.9 10.0 53.6 36.5 47.2 39.4 7.1 28 5 36 (0)

FY2014E FY2015E 27.8 23.8 11.6 1.6 1.6 18.7 31.6 37.0 8.0 75.9 48.2 78.7 48.8 7.3 26 5 38 (2) 23.3 20.1 8.4 1.4 1.4 15.8 37.8 43.7 8.0 104.3 42.8 91.7 41.9 7.3 26 5 38 (3)

Note: Some of the figures from FY2011 onwards are reclassified; hence not comparable with

November 22, 2013

Britannia | 2QFY2014 Result Update

Research Team Tel: 022 - 39357800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

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Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

Britannia No No No No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors

Ratings (Returns):

Buy (> 15%) Reduce (-5% to -15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

November 22, 2013

10