KR Choksey Recommends 'Buy' This Packaged Food Stock For 11% Gains, Revenue Up 7.6% YoY

KR Choksey Research in its report published on 15 June 2022, has recommended buying Britannia Industries Ltd shares for a target price of Rs 3,755. The brokerage in the report stated that Britannia has taken numerous initiatives over the years which resulted in continuous market share gain.

With new product launches, higher traction on new channels including e-commerce, a robust portfolio, and an expansion of its distribution network (especially in rural markets), the company is expected to perform well in times to come.

Stock Outlook: Target Price, CMP, Returns & Performance

Britannia Industries' current market price (CMP) is Rs. 877.45 per share, opened at Rs 920.95 per share. Today it moved down around 4.72%. The brokerage has set a target price of Rs. 1250 for the company and considering its CMP, the stock has the potential to gain nearly 11% in near future. 

The share price of the company has moved up nearly 3.26% in a month, however, it also moved down nearly 6.79%. It performed well on long-term investments of 3 & 5 years. In 3 years it gave a positive return of 14.21% and in 5 years, it gave 89.93%. 

Britannia industries top-line growth is driven across all business and channels

Britannia Industries (Britannia) registered strong performance in FY22 even amid a tough business environment. Revenues grew by 7.6% YoY to Rs 1,41,363 Mn driven by a 3-4% volume growth and higher single-digit realization growth. while the PAT was lower by 18% YoY due to a decline in OPM. The company maintained mid-single-digit volume growth in the domestic business for the year. Modern trade channels reported 20% higher growth than the pre-Covid levels.

Adjacencies continued to perform well and products such as bread, rusk, and dairy drinks are growing in double digits along with improvement in profitability due to a better product mix. Thus, with strong operating performance, the adjusted PAT stood at Rs 15,160 Mn. In FY22, its overall dairy segment was able to achieve Rs 5,000 Mn Mark.

Dairy business: Britannia's milk procurement in Maharashtra has been scaled up to 60,000 litres/day from 2,500 farmers in and around Ranjangaon.

Adjacencies business: 'Cream wafers' is INR75b category and is growing at a healthy pace. Britannia industry is the first branded player with a large national presence to enter this highly fragmented category.

Croissant continues to gain traction with the consumer's positive response and looking to re-launch it across all nations within the next two to three months. The In-house cheese processing unit is expected to get function in the next 2-3 months. A new dairy Greenfield factory is on the track for commercialization in the next few months. In addition, Britannia is also in the process of setting up 3 Greenfield units - in Uttar Pradesh, Tamil Nadu, and Bihar (requiring Capex of Rs 6,500 - 7,000 Mn).

Balance sheet and Cash flow analysis

• Inter-corporate deposits slightly reduce as compared to FY21 and dividend pay-out ratio of 89.3%: Britannia's inter-corporate deposits (ICD) slightly reduced to Rs 7,400 Mn in March 2022 as compared to INR 7,900 Mn in March 2021.
• The management has given guidance on ICDs will not increase from the current levels. Sustained reduction in ICDs to group entities and consistency in higher dividend pay-outs have the potential to rerate the stock.
• Cash flow from operating activities decreased to Rs 12,995 Mn for the year ended March 2022 from Rs18,755 Mn for the year ended March 2021.
• Cash flow used in acquiring fixed assets during the year ended March 2022 stood at Rs
• 5,501 Mn, compared to Rs 2,421 Mn during the year ended March 2021.
• Britannia's gross debt increased significantly from Rs 21.0 bn in FY21 to Rs 24.7 bn in FY22. The increase was partially driven by the issue of bonus debentures of Rs 7.2b to equity investors. These debentures have an interest rate of 8% and a term of 3 years.
• The total dividend payout for FY22 stands at Rs 13.6b (FY21: Rs 34.9bn). The board of directors recommended a dividend of Rs 56.5 per share amounting to a payout of 89.3% for FY22. With a higher dividend payout, Britannia's Return on Equity (RoE) improved from 46.9% in FY21 to 49.8% in FY22.
• Average net working capital days in FY22 increased to 6 days from nil days in FY21 primarily on account of higher inventory days. CFO/FCF declined by 29.8%/53.3% YoY during FY22.
• However, the Return on Capital Employed (RoCE) deteriorated from 45.26% in FY21 to 41.6% in FY22 on account of higher loans taken in FY22.

Brokerage maintains Accumulate recommendation with target price of Rs 3,755/share

"We assign 41.7x P/E multiple to FY24E EPS of Rs 90.05 and arrive at our target price of Rs 3,755 per share with an upside potential of 10.9% from the CMP. Accordingly, we maintain a "ACCUMULATE" recommendation on the shares of Britannia Industries," the brokerage has said.

Company Overview- Britannia Industries Ltd

Britannia Industries is one of India's leading food companies with a 100-year legacy and annual revenues in excess of Rs 1,40,000 Mn. The company had been gaining market share continuously YoY over the last 10 years. The company had been gaining market share continuously YoY over the last 10 years. Britannia's product portfolio includes Biscuits, Bread, Cakes, Rusk, and Dairy products including Cheese, Beverages, Milk, and Yoghurt. Britannia products are available across the country in close to 5 million retail outlets and reach over 50% of Indian homes. The company's Dairy business contributes close to 4.5% of revenue and Britannia dairy products directly reach 100,000 outlets. Britannia Bread is the largest brand in the organized bread market with an annual turnover of over Rs 4,500 Mn. The business operates with 13 factories and 4 franchisees selling close to 1 mn loaves daily across more than 100 cities and towns of India. Britannia has a presence in more than 60 countries across the globe.

Disclaimer

The stock has been picked from the brokerage report of KR Choksey Research. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.