The Britannia management’s efforts in the final handful of years on (i) expanding distribution, in particular direct attain which is now at 2.3m outlets (next only to HUVR) even though its total attain is now the very best for any listed Food enterprise (ii) boosting R&D capabilities, following setting up a new R&D centre 5 years ago (iii) prosperous implementation of its low unit packs tactic, major to regularly powerful development in the hinterland (iv) constant expense rationalisation (v) continued investments in boosting general and regional manufacturing capabilities (like the ongoing Rs 15 bn on its mega facility in Ranjangaon) and (vi) its new regional tactic (related to HUVR’s hugely prosperous WIMI tactic) is resulting in regularly widening moats more than peers in Biscuits (industry leadership has extended for 37 quarters now) and in the broader $40-bn Food category exactly where BRIT produced an impressive initial foray in FY20.
Exciting extended-term chance With the widening of its moats, BRIT has strengthened its suitable to win and is poised to acquire additional industry share (at the moment only in the mid-30s) in the Biscuits category, which contributes ~80% of sales, and in the general $40 bn Packaged Food sector.
Remarkable track record BRIT’s track record more than the final 10 years ending FY20 is particularly powerful, with topline and earnings ahead of peers. This is outstanding provided that most FMCG peers have struggled to post double-digit CAGR more than the final 3-to-5 years.
Valuation and view Inexpensive valuations: The extraordinary powerful base in FY21e (40% EPS development forecasted), led by higher in-house consumption and low material and A&P charges, does place some stress on the next handful of quarters, especially in Q1FY22 exactly where the base has shown 105.4% EPS development. However, beyond that it will turn into much less difficult in subsequent quarters. On the other hand, the stock is now eye-catching at 36.5x FY23e EPS, a discount to its 3/5 year typical P/E a number of of 48x/46x and also on a relative basis as compared to its peers.
A favourable danger-reward ratio: Since our downgrade in Nov’19 on difficult valuations and increasing raw material charges (not a concern now), the stock has underperformed peers (4% return v/s double-digit typical returns by its peers). While we stay cautious due to challenges to FY22 earnings development, we think downside is restricted as the narrative is probably to move to FY23 and beyond in the next handful of months.
Upgrade to Buy: Immense structural chance, outstanding track record, RoEs of more than 40% and an eye-catching danger-reward ratio on FY23e earnings, following its current underperformance, lead us to upgrade BRIT to Buy. Our TP of Rs 4,120 (based on 45x FY23e EPS) implies an upside of 24% from its CMP.