When we think of biscuits or bread, the first name that is most likely to cross our mind is that of Britannia, a popular name across households in India.
Established in the year 1892, the company has a strong presence in the packaged food segment in India and offers a wide range of food products all income groups. From its humble beginnings from a small house in central Kolkata, Britannia has become one of the largest companies in India, especially in biscuits and breads category.
In one of our earlier articles we have seen how a strong brand name or market popularity does not necessarily mean a very bright future for a company’s stock. You can read more about it here.
It is fundamental strengths of the company which will ultimately decide the direction of the share price in the long term. Get access to a well-researched and adequately diversified portfolio of 20-25 stocks by clicking here.
Through this article let’s take a look at whether it makes sense to invest in the stock of Britannia from a fundamental perspective.
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Table of Contents
Key Financials of the company
|
Consolidated (Rs. Mn.) |
Profit & Loss Statement | |||||
|
FY15 |
FY16 |
FY17 |
FY18 |
FY19 |
FY20 | |
|
Net Revenues |
78,584 |
83,972 |
90,541 |
99,140 |
110,547 |
115,996 |
|
YoY (%) |
13.7% |
6.9% |
7.8% |
9.5% |
11.5% |
4.9% |
|
EBITDA |
8,639 |
12,144 |
12,782 |
15,017 |
17,334 |
18,432 |
|
YoY (%) |
37.7% |
40.6% |
5.3% |
17.5% |
15.4% |
6.3% |
|
EBITDA Margins (%) |
11.0% |
14.5% |
14.1% |
15.1% |
15.7% |
15.9% |
|
Adjusted PAT |
5,827 |
8,245 |
8,845 |
10,042 |
11,591 |
14,155 |
|
YoY (%) |
|
41.5% |
7.3% |
13.5% |
15.4% |
22.1% |
|
PAT Margins (%) |
7.4% |
9.8% |
9.8% |
10.1% |
10.5% |
12.2% |
|
Adjusted EPS |
24.3 |
34.3 |
36.8 |
41.8 |
48.2 |
58.9 |
|
Consolidated (Rs. Mn.) |
Balance Sheet | |||||
|
FY15 |
FY16 |
FY17 |
FY18 |
FY19 |
FY20 | |
|
LIABILITIES |
|
|
|
|
|
|
|
Share Capital |
240 |
240 |
240 |
240 |
240 |
241 |
|
Reserves & Surplus |
12,211 |
20,677 |
26,724 |
33,822 |
42,292 |
43,788 |
|
Net-Worth |
12,451 |
20,917 |
26,964 |
34,062 |
42,533 |
44,028 |
|
Total Debt |
1,402 |
1,238 |
1,157 |
1,782 |
1,380 |
15,141 |
|
Other Long term Liabilities |
256 |
323 |
330 |
360 |
387 |
597 |
|
Minority Interest |
24 |
25 |
26 |
131 |
327 |
357 |
|
Net Deff. Tax Liabs |
(234) |
(444) |
(231) |
(226) |
(99) |
(69) |
|
TOTAL LIABILITIES |
13,900 |
22,058 |
28,246 |
36,110 |
44,528 |
60,054 |
|
ASSETS |
|
|
|
|
|
|
|
Net Block |
8,924 |
10,403 |
11,748 |
15,334 |
17,748 |
19,033 |
|
Long Term L&A |
1,025 |
2,750 |
2,180 |
2,140 |
1,555 |
3,391 |
|
Current Assets |
10,058 |
12,207 |
20,436 |
21,081 |
26,666 |
25,434 |
|
Other Non Current Assets |
251 |
375 |
264 |
292 |
303 |
64 |
|
Curr. Liabs & Provs. |
13,800 |
12,437 |
12,611 |
15,543 |
17,753 |
18,173 |
|
Investments |
5,179 |
7,884 |
5,021 |
10,943 |
14,910 |
29,077 |
|
Cash and Bank Balances |
2,263 |
877 |
1,208 |
1,864 |
1,098 |
1,229 |
|
TOTAL ASSETS |
13,900 |
22,058 |
28,246 |
36,110 |
44,528 |
60,054 |
|
Consolidated |
Key Ratios | |||||
|
FY15 |
FY16 |
FY17 |
FY18 |
FY19 |
FY20 | |
|
Debt/Equity (xs) |
0.1 |
0.1 |
0.0 |
0.1 |
0.0 |
0.3 |
|
Asset Turnover ratio (xs) |
4.6 |
8.1 |
6.7 |
5.9 |
5.1 |
4.5 |
|
Net Working Capital / Net Sales (%) |
-5% |
0% |
9% |
6% |
8% |
6% |
|
RoCE (%) |
61% |
61% |
46% |
42% |
39% |
32% |
|
RoE (%) |
57% |
49% |
37% |
33% |
30% |
33% |
|
P/E (xs) |
|
|
|
|
|
64.7 |
|
EV/EBITDA (xs) |
|
|
|
|
|
50.0 |
|
P/BVPS (xs) |
|
|
|
|
|
20.8 |
|
Consolidated (Rs. Mn.) |
Cash Flow | |||||
|
FY15 |
FY16 |
FY17 |
FY18 |
FY19 |
FY20 | |
|
Operating Cash Flow |
6,883 |
5,060 |
1,000 |
12,698 |
8,507 |
16,035 |
|
Free Cash Flow |
3,096 |
8,695 |
1,443 |
1,803 |
447 |
(1,741) |
Strengths of Britannia
Strong product portfolio with global presence across 60 countries
Britannia is premium brand in the packaged food segment with a wide range of product offerings such as biscuits, cakes, rusks, breads, cream wafers, and dairy products. Some of its popular biscuit brands include Tiger, Nutrichoice, Good Day, Marie Gold and Jim Jam. Britannia Bread is the market leader in the organized bread market with a yearly turnover exceeding 1 lac tons in volume. The business operates with 13 factories and 4 franchisees selling whole wheat breads, white sandwich bread, bread, fruit bread, burger bun, Kulcha etc. across more than 100 cities and towns of India.
The company’s dairy business contributes around 5 per cent of revenue and Britannia dairy products directly reach 100,000 outlets.
The company also caters to markets across North America, Europe, Africa and South East Asia through exports as well as through local manufacturing in UAE and Oman, and currently ranks as the second biggest biscuit player in UAE. Britannia is a market leader in Nepal and is looking to enter production in Bangladesh.
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Strong brand recall value
Brand Britannia is recognized as one of the most trusted, valuable and popular brands among Indian consumers in surveys conducted by various market research organizations.
Scalable business model
One side while Covid 19 severely affected many businesses leading to degrowth, Britannia’s business has witnessed a growth. This can be attributed to two factors. Firstly, Britannia’s aggressive push in rural areas which were largely unaffected during the initial phase of Covid 19 in the country and secondly changing consumer habits with preference for packed food ranking high as compared to eating out due restrictions/fear of contracting Coronavirus.
By maintaining its focus on five strategic planks such as distribution, marketing, innovation, cost focus and developing adjacent businesses, Britannia has not only increased its market penetration but also profitability. Britannia’s profit margins have jumped from 5.7 percent in fiscal 2013 to 14.5 percent in fiscal 2020, PAT margins have increased from 4.2 percent to 12.3 percent during the same period.
Britannia’s aggressive marketing and distribution strategy in rural India has paid rich dividends as its business in four states such as, Rajasthan, Uttar Pradesh (UP), Gujarat, and Madhya Pradesh have grown at a 16% CAGR between 2017 and March 2020.
The massive unorganized market for biscuits, cookies, rusks and similar products in India, currently catered to by local bakeries presents a huge growth opportunity for Britannia.
The company also plans to increase its international presence in the next few years. According to Britannia’s website, the company’s strategic expansion plan is based on the principle of ‘One new market a year’ and plans to expand its business through local operations in Africa and South East Asia over the next few years.
Consistent dividend payouts
Britannia has consistently declared dividends over the last five years. For the last financial year, Britannia had declared a dividend of Rs 35 per share which in terms of the current market price of Rs 3737.35, amounts to a dividend yield of 0.94%.
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Bottom line – Is it worth investing in the stock of Britannia?
Britannia has several positive factors like high brand recall value, low debt, consistency in dividend payouts and a scalable business model.
However, it operates in segment with intense competition from companies like HUL, Nestle ITC and Parle as well as several regional players. It also operates in a segment which is price sensitive. With similar alternatives available across different brands customers may easily switch brands when there is slight change in prices. Besides this any increase in key raw material prices like flour, palm oil, milk and sugar can impact gross margin. Therefore, before investing in the stock of Britannia an investor should look at all the pros and cons and invest wisely.
Disclaimer:
The sole objective of this article is to help investors understand whether it is worth investing in the stock of Britannia from a fundamental perspective. This article should not be considered as an advice to invest in the stock of Britannia.
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