Britannia Industries

Reduce
During FY14-19, Britannia has exhibited remarkable financial performance CMP ` 2,749
with Revenue/Net Profit CAGR of 10%/23% respectively. The Annual Target / Upside ` 2,767 / 1%
Report 2019 envisages Britannia’s endeavor of becoming a “Global Total
Foods Company”, in next two years with focus on various initiatives BSE Sensex 38,397
towards introducing new innovative products, foraying into adjacent NSE Nifty 11,419
business, establishing new manufacturing facilities, investments in R&D
Scrip Details
and increasing outreach to new markets. As part of its centenary
celebrations in FY19, Britannia unveiled a brand new logo after 20 years Equity / FV ` 240mn / ` 1
signifying “Excitement and Goodness’’ to target the youth. Market Cap ` 660bn
US$ 10bn
Foray into new adjacent categories 52-week High/Low ` 3,467/` 2,616
Britannia plans to increase the share of non-biscuit portfolio in five years
Annual Report Analysis FY19

to 50%, from about 20% now. It targets to double the contribution from Avg. Volume (no) 417,379
product innovation by FY20E from ~4-5% in FY19. During the year, NSE Symbol BRITANNIA
Britannia entered 3 new categories – Salted Snacks, Croissants, Cream Bloomberg Code BRIT IN
Wafers. The cream wafers were launched October 2018 onwards in South
India markets and are now being launched nationally while the salty snacks Shareholding Pattern Mar'19(%)
portfolio is still restricted in the southern region. Croissants were extended Promoters 50.7
to modern trade initially, offerings are now being taken to kirana shops and
general trade. Company expects ` 2bn contribution from croissant MF/Banks/FIs 12.4
segment within two years of launch. FIIs 17.1
Public / Others 19.9
Focus on Direct Distribution
In order to have greater penetration in rural areas and the Hindi heartland, Britannia Relative to Sensex
where Parle is the biggest player because of the massive reach of its
glucose biscuit, Parle G, Britannia is focusing on direct distribution model. 120
Britannia currently reached 2.1 mn outlets directly in FY19 (1.8 mn in FY18)
and is looking to add 200-300K outlets every year.
110

Plan to increase international business contribution

100
Britannia aims to double the contribution from overseas business from ~6-
7% currently to 15% in next five years. Britannia took a step forward in
expanding its geographic footprint by setting up a greenfield plant at Nepal 90
which started operations in April 2019. The management aims to add one
new international geography annually to strengthen international 80
business. It has scaled up production at its factory in the Special Economic
Zone, Mundra to meet export requirements in Africa and America. 70
May-19
Jan-19

Jun-19
Feb-19
Mar-19
Jul-18

Jul-19
Oct-18

Apr-19
Aug-18
Sep-18

Nov-18
Dec-18

Increased momentum in Dairy business

Britannia’s Dairy segment is ~` 4-5bn constituting ~5% of the turnover. The
company plans of making it a ` 15bn business over next five years. Its dairy BRIT SENSEX
investment has been pegged at ` 5bn over three years. Britannia
accelerated growth in Dairy segment by focusing on strengthening its core
categories such as Cheese and Yoghurt, while innovating in other
categories such as Drinks. During FY19, the launch of Winkin’ Cow
Milkshakes in the tetrapak format received encouraging response. VP Research: Sachin Bobade
Britannia has been continuously investing in building milk procurement Tel: +91 22 40969731
and distribution capabilities while ensuring quality. E-mail: sachinb@dolatcapital.com

Sharpening Operating Efficiency Associate: Nikhat Koor

In the last five years, Britannia’s operating margins improved >600bps from Tel: +91 22 40969764
9.1% in FY14 to 15.7% in FY19. New innovative products, which account for E-mail: nikhatk@dolatcapital.com
4.5% of topline, are gross margin accretive. We expect rural recovery,
premiumisation, calibrated price hike, focus on innovation, and cost
efficiency to aid margin expansion and offset raw material inflation
pressure in the coming quarters.

July 22, 2019

Annual Report Macro View
The Board has approved the re-appointment of Mr. Varun Berry as Managing Director of
the company for a period of five years with effect from 1 April 2019 to 31 March 2024.
Key Management >Mr. Jairaj Bham resigned from the position of Company Secretary and Compliance Officer
of the Company w.e.f. 12 October 2018. Mr. T.V. Thulsidass, member of ICSI was appointed
as Company Secretary and Compliance Officer, effective 15th October, 2018.
Mrs. Tanya Arvind Dubash, was appointed as an Additional and Independent Director
Board of Directors effective, 7th February, 2019. She is a Harvard Business School graduate and was a former
Board Member of Keyline Brands Ltd and also the current board member of Godrej UK Ltd.
Auditors No changes.
B S R & Co. LLP continue to be the auditors of the Company.
Pledged Shares No pledged shares.
Credit Ratings CRISIL assigned a credit rating of CRISIL AAA, coupled with a CRISIL A1+ for long-term and
short-term debt instrument/ facilities respectively of the Company.
Number of securities acquired/disposed/pledged during the year:
FY19 FY18
Acquired 99,999 33,333
Insider Holdings
Disposed 77,409 58,333
Pledged - -
Pledged Revoked - -
Due to the widespread impacts of global trade tensions and the credit squeeze in the
domestic markets, Indian economy witnessed some slowdown in growth in the latter half
Macroeconomic Factors of the year. The prognosis of stable governance and growth-oriented policies, might push
growth rates. Middle East consumption shrink due to diaspora, mass layoffs, and political
instability in key markets and steep local currency depreciation in Africa poses a lot of
challenge to the International Business.
Category of Shareholder (%) FY19 FY18
Promoter Holding 50.66 50.70
Public
i) Mutual Funds 4.65 6.23
ii) Banks/FI 0.16 0.23
Key Holders iii) Alternate Investment Funds 0.45 -
iv) Insurance Companies 7.09 6.15
v) Foreign Portfolio Investors 15.75 17.05
vii) FIIs - 0.02
ix) Other 0.01 -
Non-Institutions 21.22 19.62
Total 100.00 100.00
Source: Company, DART
 The BOD at their meeting held on 23 August, 2018 approved sub-division of
each equity share of face value of ` 2 fully paid up into 2 equity shares of
face value of ` 1 each fully paid up.
 Consequent to the sub-division of the face value of equity shares from ` 2
each to ` 1 each, the Britannia Employee Stock Option Scheme was further
amended to increase maximum number of equity shares from 17,75,000
equity shares of ` 2 each to 35,50,000 equity shares of ` 1 each through
postal ballot and e-voting on 15 October 2018.
 In Aug’18, the BOD approved the issue of secured non-convertible
redeemable fully paid-up debentures as Bonus Debentures of ` 60 each out
of the accumulated profits of the Company (amounting to ` 7.2bn), in the
ratio of 1 Bonus Debenture for every 1 equity share of ` 2 each held by the
shareholders.

July 22, 2019 2

Increase in Inter corporate Deposits
Inter Corporate Deposits (` mn)
Name of Borrower FY2019 FY2018 FY2017
Bajaj Finance Limited 2642.8 2011.8 1027.5
Kotak Mahindra Prime Limited - - 100
Kotak Mahindra Investments Limited 600 250 372.5
Shriram Transport Finance Company Ltd. 322.1 819.6 97.2
Infrastructure Leasing & Finance Company Limited - - 687.9
Tata Housing Development Company Ltd - 250 -
Bombay Dyeing & Manufacturing Co. Ltd. 3500 3500 3500
The Bombay Burmah Trading Corporation - - 400
Macrofil Investments Limited - - 600
PNB Housing Finance Limited - 1272 250
HDFC Limited 1577.5 750 1500
Mahindra & Mahindra Financial Services Ltd. - 250 -
Tata Capital Financial Services Ltd. - 500 -
Go Airlines (India) Limited 3350 - -
Total 11,992.4 9,603.4 7,672.2
Source: Company, DART

Remuneration
 There were 4,480 permanent employees on the rolls of Company as on 31
March 2019.
 Average percentage increase made in the salaries of Employees and the
Managerial Personnel in FY19 on comparable basis was ~10% YoY.
 The median remuneration of employees of the company during FY19 was `
2.83 Lakhs, down 11.3% YoY.

July 22, 2019 3

 Industry Analysis
Biscuits
 Biscuits, being one of the fastest growing categories in FMCG, has a high
penetration rate (+90%) in the Indian households. The biscuits industry in
India is 3rd largest in the world after USA and China.
 India biscuit market stood at USD3.9 bn in 2016, and is projected to grow at
a CAGR of 11%, to reach USD7.25 bn by 2022.
 Organised players, dominated by Britannia and Parle account for ~70% of
the industry’s volumes.
 Per capita consumption of biscuits in India relative to certain developed
economies is quite low and offers significant opportunities for category
growth and innovation.
 A large population base, increase in disposable income, urbanization and
change in lifestyle and food habits will further propel growth of the biscuit
industry.

Dairy
 Since 1998, India has been the largest producer and consumer of dairy
products, currently contributing ~20% of the global production.
 However, Indian milk industry continues to be largely unorganized, with
organized sector contributing to only 20% by value.
 Over the past few years, the processed milk products market has witnessed
sustained growth due to increasing urbanization, rising disposable income
and proliferation of retail outlets beyond Tier 1 cities.
 Changing lifestyles and increasing awareness of nutrition and health benefits
are expected to drive sales from value added products like cheese and
yoghurt thus augmenting industry growth.

July 22, 2019 4

 Financial Analysis
Profit & Loss Analysis
 Revenue- During the year, net sales grew 11.5%, from ` 99.1 bn in FY18 to `
110.5 bn in FY19. This is attributed to-
 Strengthening distribution by increasing direct reach to 2.1mn outlets
from 18.4mn in FY18. Rural distribution reach is expanding rapidly. Rural
preferred dealers count stood at 18,100 compared to 14,400 at end of
FY18.
 Focusing on the weak geographies i.e. the Hindi belt. Rajasthan grew
22.1%, MP (+19%), UP (+17%) and Gujarat (+14.7%) in FY19.
 Entering new categories and launching new-to-market innovations
 Cost Efficiency Program- total cost efficiency increased 4.5x that of FY13-
14 which stood at ` 2,250mn
 Bread and Dairy exhibited double digit growth during the year.
 Raw material costs – RM costs increased 7.4% YoY to ` 65.6bn in FY19. The
company was able to restrict overall inflation to ~3% in Q4 with deflation in
sugar (8%), palm oil (5%) and milk (9%) partially offset by inflation in flour
(+9%). Consequently, Gross margins increased 225bps to 40.6% in FY19.
 Operating expenses – Employee cost (4.0% of net sales) stood at `4.4 bn in
FY19 as compared to `4.0 bn in FY18, increasing 10.0% YoY. Selling and
distribution expenses (9.5% of net sales) grew 17.4% YoY to ` 10.5bn.
 Margins- While Gross margins increased 225bps and employee costs
remained flat, selling & administrative/ other expenses increased
40/130bps. Consequently, EBITDA margin expanded 60bps to 15.7% in FY19
due to cost efficiency initiatives. EBITDA surged 15.4% YoY to ` 17.3bn during
the year.
 Tax expenses- increased 19.1% YoY to ` 6.1bn in FY19. Effective tax rate
stood at 34.6% in FY19 compared to 33.9% in FY18.
 Net Profit – Net Profit jumped 15.4% YoY to ` 11.6bn in FY19. Net profit
margin stood at 10.5% as compared to 10.1% in FY2018. EPS stood at ` 48.3
in FY19 from ` 41.8 in FY18.
DART View - We believe the company has potential to grow further, given
improvement in market share and emphasis on products other than biscuits, in the
dairy business. We remain optimistic, due to its focus on expanding distribution
reach, increasing in-house manufacturing, launching of new value added products,
and controlling operational costs. Moreover, the new NDA government would boost
infrastructure which would enhance distribution. We believe that company may
resort to price hikes in different categories to mitigate inflation and maintain
margins.

Balance Sheet and Cash Flow Analysis

 Share capital: During FY19, Britannia has allotted 99,999 equity shares of `
2 each upon exercise of options under Britannia Industries Limited Employee
Stock Option Scheme. Consequently, the paid up equity share capital has
increased by ` 1,99,998 during the year.
 Reserves: Total reserves stood at ` 42.2bn in FY19 from ` 33.8bn in FY18.
The company has transferred an amount of ` 1122.2 mn to the General
Reserve in FY19.

July 22, 2019 5

  Dividend: Over the years, Britannia has been consistent in its dividend
distribution. The BOD recommended a dividend of 1500.0%, amounting to `
15.0 per share (face value ` 1 per share) during the year. The total dividend
payout, including dividend distribution tax aggregated to ` 4.3 bn. Dividend
Payout Ratio declined from 31.6% in FY18 to 30.6% in FY19.
 Gross and net block: Gross block increased 30.4% YoY to ` 21.9bn in FY18.
Net block increased to ` 16.9bn in FY19 from ` 13.5 bn in FY18, a growth of
25.5%. This translated into a decline in fixed asset turnover from 7.4x in FY18
to 6.5x in FY19.
 Capex: Capital expenditure shrunk by 5.2%YoY, from ` 4.2bn in FY18 to `
4.0bn in FY19. Britannia has so far put in ` 200mn capex to set-up a plant for
the salty snacks portfolio at Bengaluru. Commercialization of cake and
croissant lines at Ranjangaon plant took place in FY 19. ~` 6bn has been
invested in the plant. Company expects to incur capex of ` 4-4.5bn in FY20.
 Loan funds declined by 22.3%, from `2.0 bn in FY18 to `1.6 bn in FY19.
Repayment of borrowings led to a decline in debt-equity ratio from 0.06 to
0.04. Cash and Bank balances declined by 41.1% to `1.1 bn in FY19 as against
` 1.9 bn in FY18.
 Working capital: Debtors increased by 29.4%, from `3.0 bn in FY18 to `3.9
bn in FY19. Debtor days increased from 11 days to 13 days on account of
increase in institutional and exports receivable. Trade payables recorded a
growth of 11.2% to reach `11.4 bn. Payable days remained stable at 38 days.
Inventory increased by 19.7% YoY to ` 7.8bn. Inventory days increased to 26
in FY19 from 24 in FY18. Inventory turnover declined from 15.2x to 14.1x
during the same period. Working capital turnover decreased to 11x in FY19
from 13x in FY18.
 Return Ratios- ROE contracted by 260bps YoY to 30.3% in FY19. ROCE also
contracted 260bps to 29.0%. We expect return ratios in the range of ~27-
29% going ahead.
 Cash flow from operations declined by 7.2% YoY to ` 12.7bn in FY19. We
believe that going forward Britannia will generate cumulative OCF of ` 34bn
over FY20-21E to suffice its capex and working capital requirement.

International Business
 Spread across 79 countries, Britannia took a step forward in expanding its
geographic footprint by setting up a greenfield plant at Nepal which started
operations in April 2019.
 Production has also been scaled up at Britannia’s factory in the Special
Economic Zone (SEZ), Mundra to meet export requirements in Africa and
America.
 The outlook of the international business remains challenging due to
consumption slowdown in the Middle East mainly due to shrinking diaspora,
mass layoffs, political instability/war situation in key markets and steep local
currency depreciation in Africa.
 In FY19, company’s International Business grew in single digit mainly due to
slow down in Middle East. Britannia aims to sustain growth in sluggish
environment in the GCC countries by expanding consumer base, distribution
network and improving product visibility.
 Britannia is exploring opportunities of local manufacturing in several
strategic markets like Egypt, Nigeria, Uganda, Bangladesh and Ghana.
 Britannia expects its international business to contribute 15% of its turnover
in five years.

July 22, 2019 6

 NEW LAUNCHES
Britannia introduced 4 new category launches and 24 new product launches during
the year.

Biscuits:
The Company launched an innovative product ‘Treat Stars’ in 2 variants-Crème and
White Choco Duo and Crème and Milk Choco Duo in this category. Britannia also
launched a new product named ‘Treat Burst’. ‘Nutrichoice Digestive Oats and
Chocolates’, ‘Vita Marie Gold Whole Wheat’ and ‘Milk Bikis Yummy Choco Smileys’
are the other few launches done by the Company.

Pure Magic Chocolush’, ‘Chunkies Triple Chocochips’. ‘Bourbon’, ’50-50’,

‘Wonderfulls Butter Jeera and Mixed Fruit’ and ‘Nicetime’ are few product re-
launches executed by the Company.

Rusk:
The Company has launched a new product named ‘Toastea’ in this category and
further plans to introduce ‘Multigrain Rusk’ keeping in align the demand of healthy
products by various consumers.

Cakes:
The company launched four new products in this category. They are ‘Layerz Choco’,
‘Muffills Double Choco’, ‘Fudge It’ and ‘Cake Roll Yo’ in 2 variants-Strawberry and
Choco.

Dairy:
Flavored Milkshakes: The Company launched 4 variants under ‘Winkin Cow Thick
Shakes’.

Adjacencies:
The Company launched three new categories.
 Salted Snacks: ‘Time Pass Groovy Chips’ in 3 variants-Minty Pudina, Spicy
Tomato and Pickled Mango; ‘Time Pass Funsticks’ in 2 variants-Tomato Twist
and Masala Munch
 Center Filled Croissants: Britannia has launched centre filled Croissants
under the brand ‘Treat’ in selected trade channels (Vanilla and Cocoa). A
state-of-the-art manufacturing facility for Croissants has been set up in
Ranjangaon, Maharashtra during the year.
 Cream Wafers: The Company developed ‘Treat Crème Wafers’ in 4 variants-
Choco, Vanilla, Strawberry and Orange.

July 22, 2019 7

Source: Company, DART

Significant Developments during the year

 During the year, the operations of Daily Bread Gourmet Foods (India) Private
Limited have been discontinued and the process of voluntary liquidation has
been initiated.
 Company has successfully commissioned Biscuits and Cake lines at the
Integrated Food Park, Ranjangaon, Maharashtra (Oct-Nov 2018) and Salted
Snacks line at Bidadi factory, Karnataka (Jan 2019).
 During the year, Britannia celebrated its 100th year and refreshed its identity
with the launch of the new Britannia logo signifying “Excitement and
Goodness”.
 FY19 has been a year full of innovations and extensive R&D which is evident
through the wide range of categories and products launched. Total R&D
spend amounted to `346.0 mn in FY19
 During FY19, the Company has invested in areas of automation, technology
upgradation and absorption of new technologies to enter into adjacent
categories. The initiatives resulted in achieving improvement in labour
productivity and enhanced process capability, thereby ensuring consistent
product quality in spite of large operations spread across country.
 Britannia has already started milk procurement in Maharashtra on a pilot
basis and expects to go full scale once the Ranjangaon plant is fully
operational. It aims at sourcing milk form ~25,000 farmers.
 Britannia was recognised as “Food Company of the Year 2018” in the India
Food Safety Excellence Awards 2018 organized by SYNNEX this year.

July 22, 2019 8

Financial Metrics and Charts
Net sales trend EBITDA and Margin trend
120 111 14 20 20
99
100 91 15 15
84 9
79
80 10 10
69
4
60 5 5
6 9 12 12 15 17
40 (1) 0 0
FY14 FY15 FY16 FY17 FY18 FY19 FY14 FY15 FY16 FY17 FY18 FY19
Net sales (` bn) Growth % EBITDA(` bn) Margin %

Source: Company, DART Source: Company, DART

Net profit trend Return ratios

14 80 60%
11.6
12 70 55%
10.0
10 60 50%
7.9 8.4
6.9 50 45%
8
40 40%
6 4.0 30 35%
4 20 30%
2 10 25%
0 0 20%
FY13 FY14 FY15 FY16 FY17 FY18 FY14 FY15 FY16 FY17 FY18 FY19
Net Profit (` bn) Growth (%)
ROE (%) ROCE (%)
Source: Company, DART Source: Company, DART

Increase in Direct distribution (in lakhs) Number of Rural Preferred Dealers

25 20,000 18,100
21
20 18.4 14,400
15,000
15.5
15 12.6 10,000
10 10,000 8,000
10 6,600
7.3
5,000
5

0 0
FY14 FY15 FY16 FY17 FY18 FY19 FY15 FY16 FY17 FY18 FY19

Source: Company, DART Source: Company, DART

July 22, 2019 9

 Performance of Hindi belt (NSV growth %)
30
26.7
25 22.1 22.8
19.6 19
20 17
15.2 16
14.6 14.7
15 12.7
9.3
10

0
Rajasthan MP UP Gujarat
2016-17 2017-18 2018-19

Source: Company, DART

Trend in revenue growth (YoY %) Trend in domestic volume growth (YoY %)

16 16
14 12.513.112.412.7 14 12 12 12 12
11.3 10.710.3
12 12 10 10 10
9.4
10 10
8 6.6 8 7 7
5.6 5.2 5.7 5
6 6
3.4
4 4 2 2 2
2 2
0 0
Q4FY16
Q1FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Q2FY18
Q3FY18
Q4FY18
Q1FY19
Q2FY19
Q3FY19
Q4FY19
Q4FY16
Q1FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Q2FY18
Q3FY18
Q4FY18
Q1FY19
Q2FY19
Q3FY19
Q4FY19

Source: DART, Company Source: DART, Company

Trend in Gross margins (%) Trend in EBITDA margins (%)

42 41.341.2 17
41 16 15.5 15.6 15.8 15.915.6
39.639.8 40.040.0 15.3
40 16
38.7 38.738.5 14.8 14.8
39 38.0 15 14.5
37.6 37.8 37.8
38 15 14.2
37 14 13.6 13.7 13.7
36 14
35 13
Q4FY16
Q1FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Q2FY18
Q3FY18
Q4FY18
Q1FY19
Q2FY19
Q3FY19
Q4FY19
Q4FY16
Q1FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Q2FY18
Q3FY18
Q4FY18
Q1FY19
Q2FY19
Q3FY19
Q4FY19

Source: DART, Company Source: DART, Company

July 22, 2019 10

4-Quarter ConCall Trend Analysis
Q1FY19 Q2FY19 Q3FY19 Q4FY19
The topline CAGR is 10.0%. Net sales grew
Operating profit has increased from 5.7% to The top line CAGR is 11.0% and that on the
by 10.0% and profit after tax is 13.0%.
14.0%. Profit after tax increased to 10.2%. The top line and bottom line CAGR were bottom line is 31.0% over years from FY13.
Slowdown in overall growth. Winding down of
Operating Income declined because Bihar & 11.0% and 31.0% respectively. Operating 12.0% growth in revenue. Total profitability
Growth and Profitability Daily Bread business and writing off goodwill
Orissa did not announce their incentive profit was 14.6% in this quarter. Profit after YTD is 14.4%. Net sales grew by 11.0%,
of that business resulted in no expansion in
scheme under GST, and weren’t recognized. tax increased to 10.6%. profit from operations 12.0%, and profit
EBITDA margin. Volume growth of 7.0% in
Margin improvement in bread business. before tax 17.0%.
domestic business.
Increase in other expenses, with 80% Cost efficiency increased 4.5 times compared
variable expenses. Costs up due to one-time to FY14. Material cost up by 6.0%. Employee
100 years activation. Change in business cost inflation at 25.0% because of adding Cutdown on packaging costs. Costs
Benign commodity costs. Manufacturing cost model, so shift between the lines of material new units and new plants. High depreciation increased because Croissants, Snacks and
accounts for 8.0-9.0% of total cost. Input consumption and other expenses. Expenses and amortization because of capitalization of Wafers had some scaling up costs. Other
Expenses
costs moved up. Marketing spend was scaled to go up in Q3. CapEx for the year `5000mn, assets relating to new units in Guwahati, expenses grew by 29.0% YoY due to shift
down by 2.0%. `2000mn in H1 and `3000mn in H2. Mundra and Ranjangaon which led to overall between material cost and other expenses
Expansion in south and north in future. total operating expense increase of 10.5%. because of bread business.
Advertising spends increased by 20% over Total expenditure as a percentage of MSP
previous year. was 86.2.
Contributions from Hindi belt accelerated: Hindi belt was growing at 1.5x. Share in Hindi belt growth faster than overall growth
Faster growth in Hindi belt giving strength in
Rajasthan – 37.0%, MP – 22.0%, UP - South between 50-60% and North was in of the company. Rajasthan YTD has seen
Geographical Distribution weak areas. Direct distribution reach was 2.1
24.0%, Gujarat – 24.0%. Direct distribution teens or even less. Direct distribution almost 25.0% growth, 21.3% in MP, 19.0% in UP,
mn outlets.
in 1.8 mn outlets. 2 mn outlets. and 17.0% in Gujarat.
Trends in Middle East are not great from
Slowdown in Middle East, however there were economic growth standpoint. However,
Invested in a factory in Nepal which was growths due to share gains. Shut down in a double digit growth for the Co. Single digit growth in International Business
expected to be ready by the end of FY19 and lot of countries. Mundra factory gave a cost Commercialized line in Nepal which will be due to slowdown in Middle East. Oman
International Business
attained leadership status. No exports in advantage and enabled expansion of the ready for production in 30 days. Decline in factory shut down caused a big impact. Nepal
Bangladesh and Nigeria due to high import company's international footprint. topline and EBITDA YoY because revenues Operations to be commenced in April.
duties. Innovations in Middle East. Commercialization of Nepal plant in Q4. shifted from Middle East entities to India,
causing tax incidences.
Rural distributors reached 18,100 and there
Double digit growth in Rural, inspite of was penetration into lower pop strata villages
Rural growth continued to outpace the urban Approximately 2.08 mn outlets. Growth in
demonetization and GST implementation. in the rural hinterland of India. Flagging of
Market Distribution growth. Distribution in rural was roughly rural market was double digit and there were
Rural distribution was roughly 14,400 outlets rural and urban growths and both came down
16,500 stock points. roughly 18,000 distributors.
in March 2018. from the levels that they were at 6 months
ago.

July 22, 2019 11

 Q1FY19
Britannia invested in a SEZ and created a
100% export-oriented unit in order to fuel
the expansion worldwide and efficiently
Strategy
produce in India & world. Investment in
places where Parle has a local factory to
compete with them and other local players.
Launched Deuce under the biscuit category.
Premium rusk rebranded and renamed to
Toastea. Democratized version of Wonderfulls
and Chunkies relaunched. Multi grain rusk
and triple chocolate version of biscuits
launched. Joined hands with Greek company
New Initiatives and Chipita for Croissant, expected to launch by
Launches Q3 of FY19. More innovation in cake & rusk
to increase penetration. Launch of milk-based
drinks in tetra format in September, slew of
cheese format launches in Q3 and Q4 and
format innovations in dairy whitener space.
Product innovation in yogurts in Q4. Biggest
factory set up in Ranjangaon, Pune.
Wheat prices started to go up because of
Headwind/Tailwind
increase in MSP.
Product Segmentation
Plans to open new factory through local
Guidance investment each year. Marketing budget for
next two years expected to be 4-4.5%.
July 22, 2019
Q2FY19 Q3FY19 Q4FY19
Change in the business model of Bread
Investment in new technology lines for all
business. Moved from buying finished bread Intends to become Global Total Food
new businesses. Slow price hikes for inflation
from vendors to supplying them material and Company.
mitigation.
paying them conversion.
Launch of Good day Cashew Almond, Dairy Democratized version of Center-filled biscuit
Launched whole-wheat Marie, wafers and
Whitener in a jar format, Milkshakes in tetra and Treat Stars launched. Relaunch of cake
new cake formats like layer cakes and swiss
pack at ` 25. Entered the Wafers category in portfolio. Salty snacks launched in Tamil
rolls. Relaunched 50-50, providing
2 states in the South. Commercialization of Nadu. Commercialization of various lines in
momentum. Delay in launch of Croissant due
Ranjangaon factory. Ranjangaon plant.
to commercialization of line.
Overall inflation 4%. Inflation in flour 9%.
Went long for commodities like flour, sugar, RPO inflation 10% - due to increase in duty
Overall inflation of 3%. High inflation in flour
RPO and milk that curtailed overall inflation from 30.0% to 48.0%. Deflation in Sugar
and deflation in sugar, RPO and milk prices.
to under 4%. Inflation on wheat and sugar. 14% and milk products 12%. Cash & carry
remained sluggish post Diwali.
Cheese portfolio is doing very well with the
highlight being Winkin Cow products.
Premium biscuits did not perform as per Growth in dairy and bread segment. Low
expectations. Chocolush, Nutrichoice oats are utilization in Croissant segment.
doing extremely well. Healthy growth in
modern trade channel.
Expects to launch Wafers Nationwide once The 3 formats of Salty snacks will be
Cake growth expected to be 3.0-4.0% higher
there is enough capacity. Anticipated savings launched in Q1FY20. Anticipated Saving and
than base business in 3 years. Inflation
`2250 mn. Cost inflation around 4-4.5% in CAPEX for FY2020 is `400mn and `4000-
expected at 4.0-5.0%.
Q4. 4500mn respectively.
12
 Profit and Loss Account
(` Mn) FY18A FY19A FY20E FY21E
Revenue 99,140 110,547 125,770 142,850
Total Expense 84,123 93,213 104,647 118,682
COGS 61,071 65,615 73,975 84,179
Employees Cost 4,016 4,418 5,098 5,743
Other expenses 19,036 23,180 25,575 28,759
EBIDTA 15,017 17,334 21,122 24,169
Depreciation 1,421 1,619 2,032 2,363
EBIT 13,596 15,715 19,090 21,805
Interest 76 91 78 79
Other Income 1,664 2,065 2,227 2,549
Exc. / E.O. items 0 0 0 0
EBT 15,184 17,689 21,239 24,276
Tax 5,142 6,125 7,393 8,444
RPAT 10,042 11,591 13,873 15,858
Minority Interest (1) (27) (26) (26)
Profit/Loss share of associates 0 0 0 0
APAT 10,042 11,591 13,873 15,858

Balance Sheet
(` Mn) FY18A FY19A FY20E FY21E
Sources of Funds
Equity Capital 240 240 240 240
Minority Interest 131 327 290 254
Reserves & Surplus 33,822 42,292 52,440 64,453
Net Worth 34,062 42,533 52,681 64,693
Total Debt 2,007 1,560 1,560 1,560
Net Deferred Tax Liability (226) (99) (99) (99)
Total Capital Employed 35,975 44,321 54,432 66,409

Applications of Funds
Net Block 13,456 16,883 19,401 20,088
CWIP 2,028 1,012 1,012 1,012
Investments 10,792 14,763 17,763 19,763
Current Assets, Loans & Advances 25,379 29,622 35,172 46,373
Inventories 6,528 7,814 6,635 7,465
Receivables 3,046 3,942 4,007 4,380
Cash and Bank Balances 1,864 1,098 7,621 15,668
Loans and Advances 11,507 14,910 15,052 17,001
Other Current Assets 2,435 1,858 1,858 1,858

Less: Current Liabilities & Provisions 15,680 17,960 18,916 20,827

Payables 10,258 11,405 12,190 13,370
Other Current Liabilities 5,422 6,555 6,726 7,457

Net Current Assets 9,699 11,663 16,256 25,546

Total Assets 35,975 44,321 54,432 66,409
E – Estimates

July 22, 2019 13

 Important Ratios
Particulars FY18A FY19A FY20E FY21E
(A) Margins (%)
Gross Profit Margin 38.4 40.6 41.2 41.1
EBIDTA Margin 15.1 15.7 16.8 16.9
EBIT Margin 13.7 14.2 15.2 15.3
Tax rate 33.9 34.6 34.8 34.8
Net Profit Margin 10.1 10.5 11.0 11.1
(B) As Percentage of Net Sales (%)
COGS 61.6 59.4 58.8 58.9
Employee 4.1 4.0 4.1 4.0
Other 19.2 21.0 20.3 20.1
(C) Measure of Financial Status
Gross Debt / Equity 0.1 0.0 0.0 0.0
Interest Coverage 179.1 172.9 244.6 276.7
Inventory days 24 26 19 19
Debtors days 11 13 12 11
Average Cost of Debt 4.7 5.1 5.0 5.1
Payable days 38 38 35 34
Working Capital days 36 39 47 65
FA T/O 7.4 6.5 6.5 7.1
(D) Measures of Investment
AEPS (`) 41.8 48.3 57.8 66.1
CEPS (`) 47.8 55.0 66.3 75.9
DPS (`) 13.2 14.8 15.5 16.0
Dividend Payout (%) 31.6 30.6 26.8 24.2
BVPS (`) 141.9 177.2 219.5 269.6
RoANW (%) 32.9 30.3 29.1 27.0
RoACE (%) 31.6 29.0 28.2 26.3
RoAIC (%) 44.6 40.6 42.4 44.7
(E) Valuation Ratios
CMP (`) 2749 2749 2749 2749
P/E 65.7 56.9 47.6 41.6
Mcap (` Mn) 659,796 659,796 659,796 659,796
MCap/ Sales 6.7 6.0 5.2 4.6
EV 659,939 660,258 653,735 645,688
EV/Sales 6.7 6.0 5.2 4.5
EV/EBITDA 43.9 38.1 30.9 26.7
P/BV 19.4 15.5 12.5 10.2
Dividend Yield (%) 0.5 0.5 0.6 0.6
(F) Growth Rate (%)
Revenue 9.5 11.5 13.8 13.6
EBITDA 21.6 15.4 21.9 14.4
EBIT 21.8 15.6 21.5 14.2
PBT 20.4 16.5 20.1 14.3
APAT 19.3 15.4 19.7 14.3
EPS 19.3 15.4 19.7 14.3

Cash Flow
(` Mn) FY18A FY19A FY20E FY21E
CFO 13,737 12,742 17,876 17,021
CFI (10,654) (9,724) (7,550) (5,050)
CFF (2,427) (3,784) (3,803) (3,924)
FCFF 9,525 8,748 13,326 13,971
Opening Cash 1,208 1,864 1,098 7,621
Closing Cash 1,864 1,098 7,621 15,668
E – Estimates

July 22, 2019 14

 DART RATING MATRIX
Total Return Expectation (12 Months)
Buy > 20%
Accumulate 10 to 20%
Reduce 0 to 10%
Sell < 0%

Rating and Target Price History

Month Rating TP (`) Price (`)

(`) BRIT Target Price May-18 Accumulate 2,896 2,738
3,500
Jul-18 Accumulate 2,896 3,179
3,230 Aug-18 Accumulate 3,304 3,151
Nov-18 Accumulate 3,175 2,906
2,960
Feb-19 Accumulate 3,469 3,108
2,690 May-19 Reduce 2,767 2,696
Jun-19 Reduce 2,767 2,901
2,420

2,150
Jul-18

Jul-19
Jan-18

Jun-18

Nov-18
Dec-18
Jan-19

Jun-19
Apr-18

Aug-18
Sep-18
Oct-18

Apr-19
Feb-18
Mar-18

May-18

Feb-19
Mar-19

May-19

*Price as on recommendation date

DART Team
Purvag Shah Managing Director purvag@dolatcapital.com +9122 4096 9747

Amit Khurana, CFA Head of Equities amit@dolatcapital.com +9122 4096 9745

CONTACT DETAILS

Equity Sales Designation E-mail Direct Lines

Dinesh Bajaj VP - Equity Sales dineshb@dolatcapital.com +9122 4096 9709
Kartik Sadagopan VP - Equity Sales kartiks@dolatcapital.com +9122 4096 9762
Kapil Yadav VP - Equity Sales kapil@dolatcapital.com +9122 4096 9735
Ashwani Kandoi AVP – Equity Sales ashwanik@dolatcapital.com +9122 4096 9725
Lekha Nahar Manager – Equity Sales lekhan@dolatcapital.com +9122 4096 9740
Equity Trading Designation E-mail
P. Sridhar SVP and Head of Sales Trading sridhar@dolatcapital.com +9122 4096 9728
Chandrakant Ware VP - Sales Trading chandrakant@dolatcapital.com +9122 4096 9707
Shirish Thakkar VP - Head Domestic Derivatives Sales Trading shirisht@dolatcapital.com +9122 4096 9702
Kartik Mehta Asia Head Derivatives kartikm@dolatcapital.com +9122 4096 9715
Bhavin Mehta VP - Derivatives Strategist bhavinm@dolatcapital.com +9122 4096 9705

Dolat Capital Market Private Limited.

Sunshine Tower, 28th Floor, Senapati Bapat Marg, Dadar (West), Mumbai 400013
Analyst(s) Certification
The research analyst(s), with respect to each issuer and its securities covered by them in this research report, certify that: All of the views expressed in
this research report accurately reflect his or her or their personal views about all of the issuers and their securities; and No part of his or her or their
compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed in this research report.
I. Analyst(s) and Associate (S) holding in the Stock(s): (Nil)
II. Disclaimer:
This research report has been prepared by Dolat Capital Market Private Limited. to provide information about the company(ies) and sector(s), if any,
covered in the report and may be distributed by it and/or its affiliated company(ies) solely for the purpose of information of the select recipient of this
report. This report and/or any part thereof, may not be duplicated in any form and/or reproduced or redistributed without the prior written consent of
Dolat Capital Market Private Limited. This report has been prepared independent of the companies covered herein. Dolat Capital Market Private Limited.
and its affiliated companies are part of a multi-service, integrated investment banking, brokerage and financing group. Dolat Capital Market Private
Limited. and/or its affiliated company(ies) might have provided or may provide services in respect of managing offerings of securities, corporate finance,
investment banking, mergers & acquisitions, financing or any other advisory services to the company(ies) covered herein. Dolat Capital Market Private
Limited. and/or its affiliated company(ies) might have received or may receive compensation from the company(ies) mentioned in this report for
rendering any of the above services. Research analysts and sales persons of Dolat Capital Market Private Limited. may provide important inputs to its
affiliated company(ies) associated with it. While reasonable care has been taken in the preparation of this report, it does not purport to be a complete
description of the securities, markets or developments referred to herein, and Dolat Capital Market Private Limited. does not warrant its accuracy or
completeness. Dolat Capital Market Private Limited. may 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 report is provided for information only and is not an investment advice and must not
alone be taken as the basis for an investment decision. The investment discussed or views expressed herein may not be suitable for all investors. The user
assumes the entire risk of any use made of this information. The information contained herein may be changed without notice and Dolat Capital Market
Private Limited. reserves the right to make modifications and alterations to this statement as they may deem fit from time to time. Dolat Capital Market
Private Limited. and its affiliated company(ies), their directors and employees may; (a) from time to time, have a long or short position in, and buy or sell
the securities of the company(ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other
compensation or act as a market maker in the financial instruments of the company(ies) discussed herein or act as an advisor or lender/borrower to such
company(ies) or may have any other potential conflict of interests with respect to any recommendation and other related information and opinions. This
report is neither an offer nor solicitation of an offer to buy and/or sell any securities mentioned herein and/or not an official confirmation of any
transaction. This report is not directed or intended for distribution to, or use by any person or entity who is a citizen or resident of or located in any
locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would
subject Dolat Capital Market Private Limited. and/or its affiliated company(ies) to any registration or licensing requirement within such jurisdiction. The
securities described herein may or may not be eligible for sale in all jurisdictions or to a certain category of investors. Persons in whose possession this
report may come, are required to inform themselves of and to observe such restrictions.
For U.S. Entity/ persons only: This research report is a product of Dolat Capital Market Private Limited., which is the employer of the research analyst(s)
who has prepared the research report. The research analyst(s) preparing the research report is/are resident outside the United States (U.S.) and are not
associated persons of any U.S. regulated broker-dealer and therefore the analyst(s) is/are not subject to supervision by a U.S. broker-dealer, and is/are
not required to satisfy the regulatory licensing requirements of FINRA or required to otherwise comply with U.S. rules or regulations regarding, among
other things, communications with a subject company, public appearances and trading securities held by a research analyst account.
This report is intended for distribution by Dolat Capital Market Private Limited. only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of
the U.S. Securities and Exchange Act, 1934 (the Exchange Act) and interpretations thereof by U.S. Securities and Exchange Commission (SEC) in reliance
on Rule 15a 6(a)(2). If the recipient of this report is not a Major Institutional Investor as specified above, then it should not act upon this report and return
the same to the sender. Further, this report may not be copied, duplicated and/or transmitted onward to any U.S. person or entity.
In reliance on the exemption from registration provided by Rule 15a-6 of the Exchange Act and interpretations thereof by the SEC in order to conduct
certain business with Major Institutional Investors, Dolat Capital Market Private Limited. has entered into an agreement with a U.S. registered broker-
dealer Ltd Marco Polo Securities Inc. ("Marco Polo"). Transactions in securities discussed in this research report should be effected through Marco Polo
or another U.S. registered broker dealer/Entity as informed by Dolat Capital Market Private Limited. from time to time.

Dolat Capital Market Private Limited.

Corporate Identity Number: U65990DD1993PTC009797
Member: BSE Limited and National Stock Exchange of India Limited.
SEBI Registration No: BSE - INB010710052 & INF010710052, NSE - INB230710031& INF230710031, Research: INH000000685
Registered office: Office No. 141, Centre Point, Somnath, Daman – 396 210, Daman & Diu
Board: +9122 40969700 | Fax: +9122 22651278 | Email: research@dolatcapital.com | www.dolatresearch.com

Our Research reports are also available on Reuters, Thomson Publishers, DowJones and Bloomberg (DCML <GO>)