Britannia Industries Ltd

Result Update: Q2 FY 12

C.M.P: Rs. 446.25

Target Price: Rs. 504.00
Date: Jan 5th, 2012 BUY

Stock Data: SYNOPSIS

Sector: Food Processing
Face Value Rs. 2.00 Britannia Industries Limited engages
52 wk. High/Low (Rs.) 498.00/324.00 in the production and sale of bakery
Volume (2 wk. Avg.) 4292 and dairy products in India and
BSE Code 500825 internationally.
Market Cap (Rs.In mn) 53304.56
During the quarter ended, the
Share Holding Pattern robust growth of revenue is
increased by 18.05% Rs.12956.80
million.

Net Sales and PAT of the company

are expected to grow at a CAGR of
20% and 19% over 2010 to 2013E
respectively.
1 Year Comparative Graph
CRISIL has assigned credit rating to
Britannia Industries’ as AAA rating.

Britannia holds an equity stake

in Dynamix Dairy and outsources
the bulk of its dairy products from
its associate.

Britannia Indus BSE SENSEX

Years Net sales EBITDA Net Profit EPS P/E

FY 11 42199.70 2804.70 1452.90 12.16 36.69

FY 12E 50217.64 3189.48 1698.91 14.22 31.38

FY 13E 59256.82 35980.82 1952.74 16.35 27.30

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Peer Group Comparison
Market
Name of the company CMP(Rs.) Cap.(Rs.Mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend (%)

Britannia Industries 446.25 53304.56 13.41 33.28 11.81 325.00

Nestle India 4055.50 391351.40 96.88 41.86 45.71 485.00

Kwality Dairy 37.95 7710.90 3.19 11.90 8.47 10.00

GSK Consumer 2450.00 103036.10 83.10 29.48 10.73 500.00

Investment Highlights

Q2 FY12 Results Update

Britannia Industries has posted net profit of Rs 378.50 million for the quarter
ended Sept 30, 2011 as compared to Rs 318.30 million for the quarter ended Sept
30, 2010, representing rise of 18.76%. Net sales surged by 18.05% to Rs.12956.80
million from Rs.10975.30 million as compared to same quarter last year. Total
income has increased from Rs 13051.80 million for the quarter ended Sept 30,
2010 to Rs 11072.40 million for the quarter ended Sept 30, 2011, representing
increase of 17.88%. The EPS of the company is stood at Rs.15.84 for each share for
the quarter ended Sept 2011.

Quarterly Results - Standalone (Rs in mn)

As At Sep-11 Sep -10 %change

Net sales 12956.80 10975.30 18.05

PAT 378.50 318.30 18.76

Basic EPS 15.84 13.34 18.76

2

Break up of expenditure

Company Profile

Britannia Industries Limited is an Indian company based in Kolkata that is famous for
its Britannia and Tiger brands of biscuit, which are popular throughout the country.
Britannia has an estimated 38% market share. The Company's principal activity is the
manufacture and sale of biscuits, bread, rusk, cakes and dairy products.

In 1892, Britannia started in a nondescript house in Kolkata) with an initial

investment of Rs. 295. By 1910, with the advent of electricity, mechanized its
operations, and in 1921, it became the first company east of the Suez Canal to use
imported gas ovens.

In 1975, the Britannia Biscuit Company took over the distribution of biscuits from
Parry's who till now distributed Britannia biscuits in India. In the subsequent public
issue of 1978, Indian shareholding crossed 60%, firmly establishing the Indian’s of the
firm. The following year, Britannia Biscuit Company was re-christened Britannia
Industries Limited (BIL). Four years later in 1983, it crossed the Rs. 100 crores
revenue mark.

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In 1992, it celebrated its Platinum Jubilee. In 1997, the company unveiled its new
corporate identity - "Eat Healthy, Think Better" - and made its first foray into the dairy
products market. In 1999, the "Britannia Khao, World Cup Jao" promotion further
fortified the affinity consumers had with 'Brand Britannia'.

Britannia strode into the 21st Century as one of India's biggest brands and the pre-
eminent food brand of the country. In recognition of its vision and accelerating graph,
Forbes Global rated Britannia 'One amongst the Top 200 Small Companies of the
World', and The Economic Times pegged Britannia India's 2nd Most Trusted Brand.

The brand Britannia is the trust of almost one-third of India's one billion populations
and a strong management at the helm on its path of innovation and quality.

Products Overview

The company's offerings are spread across the spectrum with products ranging from
the healthy and economical Tiger biscuits to the more lifestyle-oriented Milkman
Cheese.

• Britannia NutriChoice Oat Cookies

• Britannia NutriChoice Ragi Cookies
• Britannia Veg Cakes
• Nutrichoice Health Starter Kit
• Britannia NutriChoice 5 Grain
• Tiger Banana
• NutriChoice SugarOut: Litetime, Chocolate cream, and Orange cream
• NutriChoice Digestive Biscuit
• Treat Fruit Rollz: Juicy Apple, Strawberry Surprise, Tangy Orange and
Delicious Dates
• New Britannia Milk Bikis

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Brands Category

• Dairy products

Britannia holds an equity stake in Dynamix Dairy and outsources the bulk of
its dairy products from its associate. The products in this segment include
Butter, Milk, Dahi, Diary Whitener, Ghee, Actimind, Tigerzor Choco Milk,
Tigerzor Badam Milk, Cheese and Gourmet.

• Biscuits

The brand names of biscuits include Timepass, Bourbon, Cookies,

VitaMarieGold, Tiger, Nutrichoice Junior, Good day, 50-50, Treat, Pure Magic,
Milk Bikis, Good Morning, Bourbon, Thin Arrowroot, Nice, Little Hearts, Marie
Gold and many more.

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Financial Results

12 Months Ended Profit & Loss Account (Standalone)

Value(Rs.in.mn) FY10 FY11 FY12E FY13E

Description 12m 12m 12m 12m

Net Sales 34166.00 42199.70 50217.64 59256.82

Other Income 401.00 525.60 578.16 635.98

Total Income 34567.00 42725.30 50795.80 59892.79

Expenditure -32941.60 -39920.60 -47606.33 -56293.98

Operating Profit 1625.40 2804.70 3189.48 3598.82

Interest -42.30 -377.40 -388.72 -404.27

Gross profit 1583.10 2427.30 2800.76 3194.55

Depreciation -375.50 -445.90 -476.67 -519.57

Profit Before Tax 1207.60 1981.40 2324.09 2674.98

Tax -42.70 -528.50 -625.18 -722.24

Profit After Tax 1164.90 1452.90 1698.91 1952.73

Equity capital 238.90 238.90 238.90 238.90

Reserves 3723.60 4274.10 5973.01 7925.74

Face value 10.00 2.00 2.00 2.00

EPS 48.76 12.16 14.22 16.35

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Quarterly Ended Profit & Loss Account (Standalone)

Value(Rs.in.mn) 31-Mar-11 30-Jun-11 30-Sep-11 31-Dec-11E

Description 3m 3m 3m 3m

Net sales 11237.80 11075.50 12956.80 12827.23

Other income 100.90 258.20 95.00 108.30

Total Income 11338.70 11333.70 13051.80 12935.53

Expenditure -10519.80 -10556.90 -12320.00 -12140.98

Operating profit 818.90 776.80 731.80 794.56

Interest -90.70 -93.10 -96.80 -99.70

Gross profit 728.20 683.70 635.00 694.85

Depreciation -137.10 -110.90 -115.50 -118.97

Profit Before Tax 591.10 572.80 519.50 575.89

Tax -158.60 -154.80 -141.00 -155.49

Profit After Tax 432.50 418.00 378.50 420.40

Equity capital 238.90 238.90 238.90 238.90

Face value 2.00 2.00 2.00 2.00

EPS 3.62 3.50 3.17 3.52

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Key Ratios

Particulars FY10 FY11 FY12E FY13E

No. of Shares(In Million) 23.89 119.45 119.45 119.45

EBITDA Margin (%) 4.76% 6.65% 6.35% 6.07%

PBT Margin (%) 3.53% 4.70% 4.63% 4.51%

PAT Margin (%) 3.41% 3.44% 3.38% 3.30%

P/E Ratio (x) 9.15 36.69 31.38 27.30

ROE (%) 29.40% 32.19% 27.35% 23.92%

ROCE (%) 24.23% 36.82% 34.13% 31.87%

Debt Equity Ratio 1.08 0.96 0.73 0.58

EV/EBITDA (x) 6.56 19.01 16.71 14.81

Book Value (Rs.) 165.86 37.78 52.00 68.35

P/BV 2.69 11.81 8.58 6.53

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Charts:

9
10
Outlook and Conclusion

At the current market price of Rs.446.25, the stock is trading at 31.38 x FY12E
and 27.30 x FY13E respectively.
Earning per share (EPS) of the company for the earnings for FY12E and FY13E
is seen at Rs.14.22 and Rs.16.35 respectively.
Net Sales and PAT of the company are expected to grow at a CAGR of 20% and
19% over 2010 to 2013E respectively.
On the basis of EV/EBITDA, the stock trades at 16.71 x for FY12E and 14.81 x
for FY13E.
Price to Book Value of the stock is expected to be at 8.58 x and 6.53 x
respectively for FY12E and FY13E.
We expect that the company will keep its growth story in the coming quarters
also. We recommend ‘BUY’ in this particular scrip with a target price of
Rs.504.00 for Medium term investment.

Industry Overview

India is set to witness the next revolution in the food processing industry, as per Mr
Subodh Kant Sahai, the Union Minister for Food Processing Industries. The Centre
has set an investment target of Rs 100, 000 crore (US$ 18.90 billion) by 2015 in the
sector. The sector is expected to grow by 20 per cent and value addition to increase by
35 per cent by 2015.

India is the second largest producer of food and holds the potential to be the biggest
on global food and agriculture canvas, according to a Corporate Catalyst India (CCI)
survey. The Indian food industry comprises of food production and the food processing
industry. The food processing industry is one of the largest in India – it is ranked fifth
in terms of production, consumption, export and expected growth.

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Market Size of Indian Food Industry

The Indian fast moving consumer goods (FMCG) market is estimated to grow to US$
100 billion by 2025 from US$ 12 billion in 2011, according to market research firm
Nielsen's report titled Consumer 360. The report has identified four key trends that
will drive consumption: premiumisation, consumers switching from commodity to
brands, from indulgence to regular consumption, and acceptability.

Food Processing Industry

The Union Ministry of Food Processing plans to give emphasis on improving supply
chain, by creating large primary collection and distribution centres throughout the
country involving private sector, in the 12th Five Year Plan (2012-17) period.

Food processing industry is of enormous significance for India's development because

it has linked up economy, industry and agriculture in India, efficiently and effectively.
The three pillars being together have synergised the development process and
promoted the growth of the nation to a great extent.

There are 25, 367 registered food processing units in the country whose total invested
capital is Rs 84,094 crore (US$ 15.90 billion), as per a competitiveness report of the
National Manufacturing Competitiveness Council. This information was provided in a
written reply to the Lok Sabha, by Dr Charan Das Mahant, the Minister of State for
Food Processing Industries.

Food processing industry is one of the largest industries operating in India and is
divided into several segments.

Segments

The Food Processing Industry operates across various segments that include:
• Fruits & vegetables

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 • Meat & poultry
• Dairy
• Marine products, grains and consumer foods (that includes packaged food,
beverages and packaged drinking water)

Value addition of food products is expected to increase from 8 per cent to 35 per cent
by 2025. Fruit & vegetable processing is also expected to increase from the current
level of 2 per cent to 25 per cent of total production by 2025, as per the CCI report.
Dairy sector – that holds highest share in processed food market – holds large
potential to be exploited. The report reveals that 37 per cent of the total dairy produce
is processed, of which only 15 per cent is done by the organised sector. Hence, there
lies a plethora of opportunity for investment and development.

The Vision Document 2015 envisages increasing the value addition to 35 per cent by
2015. The food processing sector is presently growing at an average rate of 13.5 per
cent per annum. Food processing industry is a potential source for driving the rural
economy and is of great importance to an agrarian economy like India.

Beverages

The Indian market for non-alcoholic drinks, is expected to grow at a compound

aggregate growth rate (CAGR) of around 15 per cent during 2009-2012, according to a
report published by market research firm RNCOS, titled "Indian Non-Alcoholic Drinks
Forecast to 2012".

Furthermore, the report forecasts the fruit/vegetable juice market to grow at a CAGR
of around 30 per cent in terms of value during 2009-2012, followed by the energy
drinks segment which is expected to grow at a CAGR of around 29 per cent during the
same period.

• Coca-Cola and its bottling partners will invest US$ 2 billion in India over five
years starting 2012, making it the single largest investment in one phase by the
company. The new investments will be infused across infrastructure

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 development, brand building, sustainability programmes, innovation, marketing
and distribution expansion, according to Atul Singh, President and CEO, Coca-
Cola India and South West Asia
• Boost Juice is set to enter the Indian market and has also signed an agreement
with a local partner to this effect. "India is a high growth market and the
climate in many parts of India is similar to that in Australia," according to
Simon Feiglin of The Riverside Company, a US-based private equity investment
company
• Plastic packaging products maker, Manjushree Technopack plans to set up two
greenfield manufacturing facilities in Bengaluru at a cost of Rs 150 crore (US$
28.36 million) to manufacture polyethylene terephthalate (PET) bottles for the
food and beverages sectors by end of 2012
• The food and beverages sectors, including majors such as Pepsi, Coco Cola,
Cadbury and Bisleri, consume about 400,000 tonnes of PET bottles annually,
which is estimated to grow at 20 per cent in the next few years

Exports

The food processing industries in India has attracted foreign direct investment (FDI)
worth US$ 1,309.54 million from April 2000 to September 2011, according to the data
provided by Department of Industrial Policy and Promotion (DIPP).

Exports of organic food products are expected to grow five-fold by 2015, according to
the Agriculture and Processed Food Products Export Development Authority (APEDA).
The Government agency expects exports to touch US$ 1.43 billion by 2014-15 against
US$ 280 million in 2010-11.

"There are a total of 2,084 organic projects in India which have been certified by our
certification bodies. 191 out of these are exporters of organic produce," as per
Shailender Singh, Consultant, Organic Division, APEDA.

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Investment Trends

• Marquee investor Sequoia Capital will invest US$ 5 million for a minority stake
in Faaso's, a Pune-based vendor of Indian fast food. The chain will use this
funding to set up 300 to 400 outlets across India. According to some industry
estimates, the Indian "eating out" industry is itself worth Rs 100,000 crore (US$
18.90 billion) and growing at 15-20 per cent per annum, exciting investors such
as Sequoia
• Switzerland-based Franke Artemis Group is expanding its operations in India
and is set to launch a new vertical of food service systems in the country
involving a first phase investment of Rs 50 crore (US$ 9.45 million)
• CavinKare Group has entered the Indian confectionery segment with its liquid
candy, Funfills. The organised confectionery market in India is estimated at
approximately Rs 3,000 crore (US$ 567.11 million), as per Sanjay Sachdeva,
the firm's Business Head, Foods & Snacks
• With Indian coffee retailing set to grow 40 per cent per annum, Di Bella is set to
capitalise by expanding into other cities and if things go according to plan, then
opening 50 more outlets across India in the next three years
• Consumer goods makers such as L'Oreal, Ferrero, Kraft Cadbury, Del Monte
and Procter & Gamble are making more products in India to capitalise on the
growing consumer demand
• Italian chocolatier Ferrero, which saw sales of its chocolates such as Ferrero
Rocher and Kinder Joy grow by over 50 per cent this festive season, too, has set
up a plant in Maharashtra
• The world's largest consumer goods maker, Procter & Gamble, is investing Rs
700 crore (US$ 132.33 million) to expand its manufacturing capacity in India

These companies are increasing their manufacturing capacities in the country to take
advantage of lower production costs, save on import costs, and make their products
more competitive and widely available to the booming Indian consumer market.

15
Players and Strategies

Major players in India's fast-moving consumer goods (FMCG) industry will continue to
pursue acquisitions over the medium term, given the scope for expansion in under-
penetrated product segments and geographies, and the intensifying competitive
pressures in the domestic market, as per a report by the credit rating agency, Crisil.

• Pizza chain major Domino's, which moved to the online platform in 2010,
expects India to be the biggest market for its online sales globally. "For us, e-
commerce in India is definitely going to grow huge," as per Patrick Doyle,
President and CEO, Domino's Pizza Inc
• Lavazza, the Italian coffee giant is getting its Indian game plan in place and as a
part of the consolidation process it has announced Law & Kenneth as its
communications partner that would assist the umbrella brand with strategic
and creative solutions to capture the Indian market
• "India is a top priority market and is in line with our emerging market growth
strategy. We foresee India to be a significant business in 10 years and are
committed to invest in this fast growing market," as per Alan Wilson, Chairman,
President and CEO, McCormick
• Australia's fastest-growing and most-awarded coffee company, Di Bella Coffee,
plans to enter the Indian market with at least six cafés in Mumbai in January
2012. "Our target is the youth. We would offer free internet usage per cup of
coffee," as per Sachin Sabharwal, Managing Director, Di Bella Coffee India Pvt
Ltd
• The branded frozen foods category is estimated at Rs 1,000 crore (US$ 189.04
million), and industry players say it is now growing at the rate of 20-25 per cent
per annum

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Government Initiatives

The Government of India has approved setting up of 15 mega food parks under
Infrastructure Development Scheme, with a total grant of Rs 787.50 crore (US$ 148.57
million), during the remaining period of 11th Five Year Plan (2007-12).
The Centre has also proposed to set up 30 food parks by the Ministry of Food
Processing Industries and this will help 20,000 small and medium industries engaged
in the manufacturing and processing of food products every year, as per N C Saha,
Director, IIP. The size of the food processing industry is likely to grow from US$ 200
billion at present to US$ 310 billion by 2015, added Saha.

The Ministry of Food Processing Industries has allocated Rs 595 crore (US$ 112.48
million) for different schemes to be implemented in the food processing sector during
2011-12.

Opening up the retail sector for FDI will give a tremendous boost to the economy of
fruit and vegetable growers in Himachal Pradesh, especially because its temperate
climate is ideal for off-season cultivation, says Prakash Thakur, Chairman, People for
Environment Horticulture and Livelihood, a non-governmental organisation (NGO)
involved in horticulture-related activities.

The Union Budget 2011-12 has also allocated US$ 135 million to the Food Processing
Ministry from the previous US$ 90 million. As a measure to boost investment in the
agriculture sector, the Minister extended the Viability Gap Funding Scheme (VGFS) for
public-private partnership (PPP) for setting up modern storage capacity besides giving
infrastructure status to cold chains.

Road Ahead

India's consumption growth story is expected to maintain its course of about 14 per
cent growth over the next three years driven by three factors-inclusiveness, mix
changes and specific consumption categories, as per senior analysts Vijay Chugh,

17
Ashvin Shetty and Shariq Merchant in the report 'The Indian Consumer: a robust
operator in an uncertain world'.

The Government of India had also announced Vision 2015, which lays focus on
enhancing the competitiveness of food processing industry in both domestic as well as
international markets along with ensuring stable income levels to farmers. The Vision
2015 provides for enhancing the level of processing of perishable to 20 per cent,
enhancing value addition to 35 per cent and increasing the share in global food trade
from 1.5 per cent to 3 per cent, by 2015.

India remains an attractive market, with its growing economy, large population that
offers considerable scope for additional geographic penetration, particularly in the
rural areas, and low per-capita consumption.

The opportunities in the food processing industry are vast. As the economy grows, the
food processing industry will offer bigger opportunities to the new as well as the
existing players.

________________ ____ _________________________

Disclaimer:
This document prepared by our research analysts does not constitute an offer or solicitation
for the purchase or sale of any financial instrument or as an official confirmation of any
transaction. The information contained herein is from publicly available data or other
sources believed to be reliable but do not represent that it is accurate or complete and it
should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s
affiliates 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. This document
is provide for assistance only and is not intended to be and must not alone be taken as the
basis for an investment decision.

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