1QFY2013 Result Update | FMCG

August 14, 2012

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

BUY
CMP Target Price
Investment Period
1QFY12 1,103 47 4.3 31 % yoy 10.8 37.6 104 38.7 4QFY12 1,310 68 5.2 53 % qoq (6.7) (4.4) 13 (18.1)

`464 `584
12 Months

1QFY13 1,222 65 5.3 43

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 5,539 (432) 0.3 600/434 22,986 2 17,728 5,380 BRIT.BO BRIT@IN

For 1QFY2013, Britannia Industries (Britannia) posted a moderate top-line growth of 10.8% yoy to `1,222cr (`1,103cr in 1QFY2012). The adjusted profit registered a robust 38.7% yoy growth to `43cr (`31cr in 1QFY2012). Key highlights for the quarter: Britannias top-line grew by 10.8% yoy on account of ~4% volume growth and the remaining ~7% growth accounted by price hikes. The company registered a 104bp yoy expansion in its OPM to 5.3% led by a 379bp yoy gross margin expansion to 37.9%, as prices of major raw materials such as wheat and skimmed milk products declined. Consequently, adjusted profit grew by 38.7% yoy to `43cr. However, the company registered a mere 4.1% yoy increase in its reported profit on account of a higher base in 1QFY2012 as it included a profit on sale of property (post-tax) of ~`10cr. During the quarter, Britannia launched Bourbon Capuccino, Pure Magic Praline and a new range of creamy flavors for Treat. Outlook and valuation: We expect Britannia to post ~17% revenue CAGR over FY201214E and model in margin expansion of 85bp, despite sustained higher ad spends due to the benign input cost environment. Further, in terms of earnings, we expect Britannia to post a robust ~27% CAGR. At the current market price, the stock is trading at 18.3x FY2014 EPS; hence, we recommend Buy on the stock with a target price of `584, based on 23x FY2014E 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)
Source: Company, Angel Research

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 51.0 14.9 15.1 19.1

Abs. (%) Sensex BRIT

3m 9.3 (13.6)

1yr 5.3 (1.6)

3yr 15.0 34.8

FY2011 4,198 23.4 145 24.7 4.9 12.2 38.1 12.3 34.3 18.8 1.2 24.6

FY2012E 4,947 17.8 187 28.5 5.1 15.6 29.7 10.7 38.4 27.7 1.0 20.1

FY2013E 5,835 17.9 247 32.4 5.7 20.7 22.4 8.8 43.1 44.3 0.9 15.4

FY2014E 6,824 17.0 303 22.6 5.9 25.4 18.3 6.8 41.9 44.6 0.7 12.5
Amit Patil 022-39357800 Ext: 6839 amit.patil@angelbroking.com

V.Srinivasan
022 3935 7800 Ext: 6831

v.srinivasan@angelbroking.com

Please refer to important disclosures at the end of this report

Britannia | 1QFY2013 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

1QFY13 1,222 757 62.01 38 3.1 99 8.1 263 21.5 1,157 65 5.3 9 13 18 60 0 60 4.9 17 28.2 43 3.6 12 3.6 43

1QFY12 1,103 726 65.79 30 2.8 82 7.5 217 19.7 1,056 47 4.3 9 11 20 47 10 57 5.2 15 27.0 42 3.8 12 2.6 31

% yoy 10.8 4.4 23.8 19.9 20.9 9.6 37.6 1.04 1.7 17.3 (10.2) 29.3 5.7 10.2 4.1

4QFY12 1,310 822 62.8 34 2.6 110 8.4 275 21.0 1,242 68 5.2 10 13 23 69 0 69 5.2 16 22.6 53 4.0 12

% qoq (6.7) (7.9) (1.3) 12.2 20.3 (10.6) (4.2) (4.5) 2.3 (6.8) (4.4) (0.7) 3.9 (20.8) (11.8) 0.0 (11.8) (5.5) 9.7 24.5 (18.1) (12.2) 0.0 (18.1) (18.1)

FY2012 4,947 3,180 64.3 146 2.9 381 7.7 988 20.0 4,695 252 5.1 38 47 86 252 0 252 5.1 66 26.0 187 3.8 12 15.6 187

FY2011 4,198 2,764 65.8 120 2.9 304 7.2 804 19.1 3,992 206 4.9 38 45 74 198 0 198 4.7 53 26.6 145 3.5 12 12.2 145

% chg 17.8 15.0 21.6 25.3 23.0 17.6 22.2 0.8 6.1 15.6 27.4 27.4 24.4 28.5

38.7 38.7

4.4 53

28.5 28.5

Exhibit 2: 1QFY2013 Actual vs Angel estimates

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

Actual 1,222 65 5.3 43

Angel Est. 1,313 81 6.2 64

% Diff. (6.9) (20.1) (88) (31.7)

August 14, 2012

Britannia | 1QFY2013 Result Update

Top-line growth driven by both volume and value growth

For 1QFY2013, Britannia posted a moderate top-line growth of 10.8% yoy to `1,222cr (`1,103cr in 1QFY2012). The top-line growth was on account of ~4% volume growth and the remaining ~7% on account of price hikes. 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 better realization. For instance, the Good-Day brand has been extended from Good-Day Regular (price index of 156) to Good-Day Chocochips (price index of 256) and Fresh Bake (price index of 389). During the quarter, Britannia launched Bourbon Capuccino, Pure Magic Praline and a new range of creamy flavors for Treat.

Exhibit 3: Top-line grows 10.8% yoy

1,400 1,200 1,000 (` cr) 800 600 400 1,095 1,080 1,126 1,103 1,294 1,247 1,310 1,222 200 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 913 27.6 24.8 22.5 21.1 20.8 18.2 15.5 16.3 30 10.8 25 20 15 10 5 0 ( %)

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

YoY growth (RHS)

OPM expands by 104bp yoy

The companys gross margin expanded by 379bp yoy during the quarter to 37.9%, as prices of major raw materials such as wheat and skimmed milk products declined. However, advertising and other expenses increased by 62bp yoy and 180bp yoy to 8.1% and 21.5% of sales respectively. Consequently, the company registered a 104bp yoy expansion in its OPM to 5.3%.

Exhibit 4: OPM performance

7% 6% 5% (%) 4% 3% 2% 1% 0% 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 4.5% 4.7% 4.8% 4.3% 6.4% 6.5% 5.2% 5.32%

Source: Company, Angel research

August 14, 2012

Britannia | 1QFY2013 Result Update

Recurring profit grows by 38.7% yoy

The adjusted profit registered a robust 38.7% yoy growth to `43cr (`31cr in 1QFY2012). However, the company registered a mere 4.1% yoy increase in
the reported profit on account of a higher base in 1QFY2012 as it included profit on sale of property (post-tax) of ~`10cr.

Exhibit 5: Recurring profit performance

60 50 40 (` cr) 30 20 33 32 37 43 31 38 54 53 43 10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 -39.6 -51.7 3.5 235.7 44.8 22.6 300 38.7 250 200 -4.7 18.8 150 ( %) 100 50 0 -50 -100

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 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. Declining raw-material prices to help improve margins: Prices of major commodities such as wheat and skimmed milk products have declined in the past few quarters. This along with various cost-rationalization methods and improving sales mix will result in improved operating margins going ahead. However, poor monsoons may result in higher inflationary pressures which remain a cause of concern.

August 14, 2012

Britannia | 1QFY2013 Result Update

Outlook and valuation

We expect Britannia to post ~17% revenue CAGR over FY201214E and model in margin expansion of 85bp, despite sustained higher ad spends due to the benign input cost environment. Further, in terms of earnings, we expect Britannia to post a robust ~27% CAGR. At the current market price, the stock is trading at 18.3x FY2014 EPS; hence, we recommend a Buy on the stock with a target price of `584, based on 23x FY2014E EPS.

Exhibit 6: One-year forward PE

40.0 35.0 30.0 25.0 (x) 20.0 15.0 10.0 5.0 May-09 May-10 May-11 May-12 Jan-09 Mar-09 Jan-10 Mar-10 Jan-11 Mar-11 Mar-12 Sep-08 Sep-09 Sep-10 Sep-11 Jan-12 Jul-08 Jul-09 Jul-10 Jul-11 Nov-08 Nov-09 Nov-10 Nov-11 Jul-12

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 Buy Neutral Neutral Neutral Neutral Neutral Neutral Neutral Neutral Neutral Mcap (` cr)
36,195 5,539 16,098 21,294 21,454 11,708 106,988 209,730 11,652 42,942 8,265
#

CMP (`)
3,773 464 1,184 122 630 2,784 495 268 190 4,454 134

TP (`)
584 -

Upside (%)
26 -

P/E (x) FY13E

31.2 22.4 34.2 27.4 28.8 26.6 34.7 28.9 27.9 38.8 21.3

EV/Sales (x) FY13E

3.1 0.9 5.2 3.5 3.7 3.3 4.0 6.7 2.4 4.9 1.1

RoE (%) FY13E

38.1 43.1 99.5 43.2 25.5 34.4 70.9 35.6 31.4 71.2 8.6

CAGR # Sales
17.0 17.4 12.8 15.3 22.1 16.8 15.5 16.9 18.6 16.5 9.7

FY14E
26.1 18.3 28.9 23.6 23.8 22.5 30.1 24.8 22.4 31.9 17.9

FY14E
2.6 0.7 4.5 3.0 3.1 2.8 3.4 5.8 2.0 4.1 1.0

FY14E
35.5 41.9 94.1 41.4 25.4 32.8 59.8 35.0 29.7 60.3 9.5

EPS
18.5 27.4 11.7 18.3 28.3 21.0 17.6 17.0 27.6 15.0 16.9

Source: Company, Angel Research; Note: Denotes CAGR over FY2012-14E, *December Year Ending.

Company background
Britannia is one of the foremost food companies in India. The company is present across the 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).

August 14, 2012

Britannia | 1QFY2013 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) Add: Share of earn. of asso. Less: Minority interest (MI) PAT after MI (reported) ADJ. PAT % chg (% of Net Sales) Basic EPS (`) Fully Diluted EPS (`) % chg
previous year numbers

FY2009 FY2010 FY2011 FY2012 FY2013E FY2014E 3,112 20.4 2,849 1,910 211 96 632 263 13.4 8.4 33 229 13.1 7.4 16 40 15.8 253 4.1 20.63 233 52 20.6 201 201 180 (5.6) 5.8 15.1 15.1 (5.6) 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 2.5 163 163 117 (35.4) 3.4 9.8 9.8 (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 26.6 145 145 145 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 26.0 187 187 187 28.5 3.8 15.6 15.6 28.5 5,835 17.9 5,504 3,698 449 175 1,182 331 31.1 5.7 52 279 36.2 4.8 8 70 20.5 341 35.1 341 94 27.5 247 247 247 32.4 4.2 20.7 20.7 32.4 6,824 17.0 6,418 4,293 532 205 1,388 406 22.8 5.9 59 347 24.4 5.1 8 82 19.5 421 23.5 421 118 28.0 303 303 303 22.6 4.4 25.4 25.4 22.6

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

August 14, 2012

Britannia | 1QFY2013 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 advances Current Assets Cash Loans & Advances Other Current liabilities Net Current Assets Mis. Exp. not written off Total Assets
previous year numbers

FY2009 24 801 825 25 10

FY2010 FY2011 FY2012 FY2013E FY2014E 24 372 396 430 (7) 24 427 451 431 6 16 123 24 496 520 28 8 20 117 693 677 298 379 80 429 125 660 31 194 434 979 (320) 693 24 604 628 28 6 20 124 806 822 350 472 82 545 142 480 29 83 368 456 25 1,027 441 125 830 60 194 576 1,143 (314) 806 24 795 819 28 6 20 135 1,009 935 409 526 93 641 125 903 63 194 646 1,280 (377) 1,009

860 512 234 278 6 423 539 41 195 303 413 126 27 860

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

1,027 594 290 304 12

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

August 14, 2012

Britannia | 1QFY2013 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

FY2009 FY2010 FY2011 FY2012 FY2013E FY2014E 233 33 0.5 (5) 52 (3) 7 26 224 (55) (42) (97) (81) 50 (1) (130) (3) 44 41 121 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 47 490 5 66 23 (142) 564 (152) 116 (36) (402) 118 6 (526) 2 29 31 341 52 (4) (65) 94 (3) 21.2 254 (147) (147) 140 (62) (78) 29 31 60 421 59 105 (57) 118 (3) (28) 385 (124) (200) (324) 112 (54) (58) 3 60 63

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

August 14, 2012

Britannia | 1QFY2013 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

FY2009 FY2010 FY2011 30.7 23.6 6.7 1.6 1.6 19.3 15.1 19.6 8.0 69.0 26.7 58.8 25.4 6.1 30 6 31 19 47.5 27.6 14.0 1.5 1.5 31.3 9.8 16.8 5.0 33.2 14.9 42.3 26.7 6.2 29 4 33 8 38.1 29.2 12.3 1.2 1.2 24.6 12.2 15.9 6.5 37.8 18.8 36.6 34.3 7.1 27 5 31 4

FY2012 FY2013E FY2014E 29.7 23.7 10.7 1.0 1.0 20.1 15.6 19.6 8.5 43.5 27.7 133.4 38.4 7.3 32 5 63 (23) 22.4 18.5 8.8 0.9 0.9 15.4 20.7 25.0 10.0 52.5 44.3 124.9 43.1 7.1 32 5 62 (19) 18.3 15.3 6.8 0.7 0.7 12.5 25.4 30.3 8.0 68.6 44.6 164.2 41.9 7.3 30 5 62 (22)

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

August 14, 2012

Britannia | 1QFY2013 Result Update

Research Team Tel: 022 - 39357800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

DISCLAIMER
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past. Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may have investment positions in the stocks recommended in this report.

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%)

August 14, 2012

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