Centrum Broking
Britannia Industries (Buy)
CMP: ₹3,132
Target: ₹3,616
Britannia Industries’ Q3FY20 revenues were below, while PAT grew faster than our estimates. Reported revenue, EBITDA and APAT grew 3.8 per cent, 11.1 per cent and 24.4 per cent y-o-y. Volume growth was at 2 per cent much below our estimates.
Biscuit category witnessed another muted quarter due to weak macro recovery largely driven by subdued rural growth said management. Decline in value biscuits segment continued, leading to consumer preference for premium products helped Britannia Industries to gain market share further (about 36 per cent). Nonetheless, pace of new product launches have slowed as management chose to focus on continuous replenishment of inventories and improve distributor health model by improving distribution reach (2.17 million outlets).
Management confirmed its emphasis on process improvement, tightening fixed costs, and reducing wastages yielded margin improvement. Considering management’s view on a prolonged slowdown, we trim our FY20/FY21E revenues and earnings by 2.5 per cent/5 per cent and 2.1 per cent/4 per cent, respectively. We have introduced FY22E earnings.
We retain our ‘Buy’ rating with DCF-based revised target price of ₹3,616 (implying 44x FY22E EPS) from earlier 3,714.