Whereas Britannia (BRIT) has been the perfect performing inventory in our Protection Universe since our ‘improve to Purchase’ stance on twenty fourth Feb, we imagine it provides engaging funding prospects from each a long- and near-term perspective.
Robust structural alternative: BRIT’s alternative for development is critical, with the general Biscuits class estimated to develop within the mid-single digits. Moreover, the chance by way of market share beneficial properties is even higher – BRIT’s market share is just within the mid-30s. The broad Packaged Meals market (estimated at $40–50 bn) presents the strongest structural alternative in India’s consumption area. BRIT’s FY21e income of ~$1.8 bn is a fraction of this addressable market.
Spectacular direct attain enlargement in FY21 continues to ship market share beneficial properties: Along with in-home consumption led demand development and sure ~40% EPS development in FY21, BRIT leads to 9MFY21 notably reported (i) continued market share beneficial properties – even in a robust rural consumption setting (Parle has traditionally fared higher owing to a better rural salience at over 50% of gross sales v/s BRIT’s 30%); and (ii) a continued speedy enhance in distribution to 2.3m shops – the second finest after HUVR in our Protection Universe.
Current traction in non-biscuit segments encouraging: As highlighted earlier, the corporate has additionally proven indicators of a scale-up within the non-biscuit portfolio to ~2% of gross sales – led by Cream Wafers and Milkshakes.
Second COVID wave might result in stronger FY22 earnings: In-home consumption might make a robust return amid the second wave of COVID. We’re not altering our forecasts but – given the early phases of lockdown and measures presently being carried out in just one state. Nonetheless, there’s a scope for each topline and earnings development for FY22 as a robust push for merchandise might lead to a lot decrease commerce reductions.
Benign commodity price development continues: Commodity prices stay gentle, which is necessary for a low gross margin enterprise like BRIT’s (~40% gross margins traditionally and 42.4% in FY21e).
Base much less difficult after Q1FY22: The problem for BRIT from a base perspective would come largely in Q1FY22 with the bottom changing into far much less difficult subsequently.
Robust structural outlook, bettering near-term narrative, cheap valuations: Regardless of (i) ~40% EPS development seemingly in FY21; (ii) a robust observe file of ~20%/27% EPS development within the previous 5/10 years ended FY20; (iii) an bettering outlook for FY22; (iv) the best-of-breed structural development alternatives; and (v) ROE of over 40%, the inventory trades at 40.7x FY23e; that is at a considerable low cost to its historic three- and five-year averages of 46–48x. Keep Purchase, with revised TP of Rs 4,575 (Rs 4,120 earlier), focusing on 50x FY23 EPS.