The cookie maker seems to be making the most of the increased awareness about hygiene in the wake of the Covid-19 outbreak, which has triggered a consumer shift from unbranded to branded packaged food products.
iStockAnalysts says the company’s execution capability has been impressive over the past six years. Data showed its direct reach has expanded despite the pandemic.
Britannia Industries posted a solid 120 per cent year-on-year profit growth for the Covid-disrupted June quarter. Revenues, excluding other income, swelled 26.67 per cent.
The cookie maker seems to be making the most of the increased awareness about hygiene in the wake of the Covid-19 outbreak, which has triggered a consumer shift from unbranded to branded packaged food products.
Analysts expect this trend to sustain and continue to favour Britannia Industries, which has had a record of delivering double-digit profit growth every subsequent year in last 10 years (except in FY17).
The stock has been growing in tandem with the superlative business performance of India’s second largest biscuit maker, rallied nearly 1,586 per cent in last 10 years to trade at Rs 3,680 on Friday, September 25. hit its all-time high of Rs 4,015 on July 21, 2020.
Post the recent correction, Britannia trades at a price-to-earnings ratio of 40 times FY22E, and analysts find that valuation attractive given the strong volume trends and margin gains that the company has been showing.
“High dividend payout is likely to have a marginal impact on FY21-23 estimates. We forecast 20 per cent earnings CAGR over FY20-23E. Britannia still offers the best growth and earnings outlook in staples. We reiterate a ‘Buy’ rating with a price target of Rs 4,500,” said Emkay Global Financial Services.
Consolidated net profit of the FMCG major has grown 14-52 per cent during FY11-20. The company’s bottom line grew 7 per cent in FY2017 and gross sales expanded at an annualised rate of 30 per cent in the same period.
Gross margins of the company stood almost flat in the 38-41 per cent range in last six years due to higher input cost and competition. There is hope that softening commodity prices and low competition will drive growth going forward.
Emkay said the volume trends appear to be strong led by increased at-home consumption and market share gains. Gross margin outlook has improved further thanks to the recent 10 per cent correction in wheat prices.
“Britannia has brands like Tiger, Good-Day, 50:50 hold an estimated market share of 33 per cent in the Indian biscuits industry. Biscuits contribute more than 80 per cent of the company’s turnover. The company continues to gain market share ahead of the competition and narrowed its gap with the number one player in the category,” said Amarjeet Maurya, AVP, MidCaps at Angel Broking.
Analysts says the company’s execution capability has been impressive over the past six years. Data showed its direct reach has expanded despite the pandemic. As of June 30, the company had direct reach to 21.50 lakh outlets against 19.70 lakh as of March 31, 2020 and 7.30 lakh in March 2014. The number of rural preferred dealers increased to 22,000 in June 2020 from 19,000 in March 2020.
As of Thursday, the stock had 14 ‘buy’, 6 ‘outperform’, 7 ‘hold’ and 3 ‘underperform’ ratings on the Reuters Eikon database. There was no ‘sell’ rating.
Brokerage IDBI Capital Market is bullish on the stock with a price target of Rs 4,267. “The ongoing health crisis has led to a significant shift in demand from out-of-home consumption to in-home consumption, primarily led by the rise in work-from-home culture. With dominant presence in urban cities and a variety of value-to-premium products at popular price points (Rs 5/10), we expect Britannia to be the biggest beneficiary of the positive industry tailwinds,” it said.
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