We had brought back Britannia amongst our major picks six weeks ago the stock has given that moved up 18% (outperforming FMCG index by 600bp). Even so, we argue any weakness in the stock due to probably QoQ weaker demand in Q2FY22 (off a sturdy base) can be an chance to add. We list out the important factors for our rationale.
We stay positive on Britannia as on-the-go categories recover due to increasing mobility, industry share gains from regional players, and expanding addressable markets, not to mention gradual cost hikes and favourable base in H2FY22. ICDs at Rs 4.7 bn are reduce than Mar-21 level of Rs 7.9 bn, which is a superior development. Retain ‘Buy’ with a TP of Rs 4,670.
12 factors why we see more upside
(1) Getting aggressive on WIMI (Win in Many India’s) tactic (2) gains in industry share to sustain (3) substantial space in e-commerce (targets 5% versus 2% at the moment) (4) development possible in adjacencies are appealing (5) increasing mobility, reopening of malls will drive OOH goods, sampling of new goods and premiumisation (6) most revolutionary enterprise due to R&D capability (7) rural development to revive in most states (8) ramping up capacity in Maharashtra, Tamil Nadu, UP (9) commercialised partnership in Egypt and Uganda for manufacturing (10) cost hikes and enhancing mix to drive more balanced development (11) upping smartness and ESG quotient (12) Go Airlines’ Rs 36 bn IPO probably to get SEBI nod.
Key dangers are inflation in cashew and palm oil. Q2 base for firm is higher, so superior development on a y-o-y basis is probably from H2FY22.
Britannia is the worth leader in the biscuit category and has sustained industry share gains. We think its development will continue to outstrip the sector effectively. Its deepening distribution network, especially in rural, with focus on driving development in weak states – Gujarat, Madhya Pradesh, Uttar Pradesh and Rajasthan – will hold it in superior stead. The company’s aggregate development has enhanced with the rise in its industry share.
Britannia’s expense-saving initiatives (targeting ~2.1% of income per year) continue to be robust, assisting it sustain margin expansion. A gradual improvement in the item mix will also help gross and Ebitda margins. A important variable is Parle gaining industry share from other players and narrowing the industry share gap. We preserve ‘BUY/SO’ with a TP of Rs 4,670.