Recommendation From Food Processing Sector
This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year.
A MATTER OF TASTE
BRITANNIA INDUSTRIES LIMITED
HERE IS WHY Increasing distribution network. Established market position. Good capex plans.
Britannia Industries Limited has an established market position in the Indian biscuits’ industry with a leading presence across categories like cookies and milk biscuits supported by strong brands such as Good Day, Marie Gold and Tiger which has helped the company improve its market share steadily over the last few years. In addition to biscuits, the company also has a healthy market position in the rusk, bread and cream wafers’ segments, further supporting its business prospects. The company has also focused more on premium products, helping it maintain steady profit margins. These initiatives will help the business in the long term.
The company currently owns 10 manufacturing plants across India and has continuously upgraded capacities at its plants over the years. The company started setting up a greenfield integrated mega food park in Ranjangaon, Maharastra during FY 2018 and commenced operations during FY 2019. Yet, despite such capex, the debt level is low. Most of the capex has been funded by internal cash accruals. Currently, the entire dairy manufacturing operations of the company are outsourced. BIL now intends to integrate dairy manufacturing at its Ranjangaon plant over the next two years at a total cost of Rs. 500 crore. The focus will be on value-added dairy lines like cheese, milkshakes, etc.
BIL has also registered good expansion in distribution and reach in the past few years. It currently has direct access to 21.3 lakh retail outlets as against 7.3 lakh outlets as of FY 2014 end which has supported improvement in its market share over the last few years. Rural markets account for more than 40 per cent of the biscuits’ demand in the country and the company has increased its access to about 20,000 rural preferred dealers (RPDs) as on September 30, 2019 as against 7,000 RPDs as on March 31, 2015. This has also supported the company’s revenue growth and increased the contribution from rural areas which account for a significant portion of the market.
Going forward, while the company will continue to expand its distribution reach, it is also expected to focus on improving its market position in newer offerings like milkshakes, salty snacks, croissants, cream wafers, etc. by improving visibility and launching the same across various states. The company is also currently focusing on developing its international business by capitalising on its manufacturing footprint in Oman, Dubai and Nepal. BIL intends to enter one new territory every year to enhance its international business prospects.
On a consolidated basis, the gross sales have increased 3.84 per cent to Rs. 2,935 crore in Q3FY20 from Rs. 2,827 crore in Q3FY19. EBITDA showed an increase of 11.12 per cent to Rs. 502 crore in Q3FY20 from Rs. 451 crore in the same quarter last year. PAT for Q3FY20 stood at Rs. 369 crore as against Rs. 300 crore in the same quarter last year, showing an increase of 22.93 per cent. The company has posted good financial performance in the past. By virtue of these factors, we recommend our reader-investors to BUY this stock.
