Fundamental AnalysisIndia

Britannia – Fundamental Research

  • Overall Rating: Race Car [🏎️]
  • What is the national economic outlook?
  • How well are we recovering from the pandemic? [High 🟢]
    • Overall Indian economy is posting a strong recovery post the 2nd COVID wave. Though there is recent concern on the rising inflations, the majority of the pundits still believe it to be transitory.
  • Change in purchasing power [High 🟢]
    • Based on FY20 data, the overall purchasing power of the Indian customer is on the rise and poses a strong economy in the immediate future.
  • What is the industry outlook?
  • What is the current industry category for the company?
    • FMCG – Foods
  • What are the growth prospects? [Medium 🟠] 
    • The adoption of western culture and changing lifestyle have been the key contributor to the growth of the FMCG sector in India. The growth for the sector is coupled with increasing youth and their dynamic lifestyle preferences.
    • In the coming years, the increase in the young population and government push in the sector is expected to drive the continued growth of the industry.
    • Though FMCG is expected to grow, the growth in specifically the biscuit segment is expected to be relatively at saturation.
  • What is the competitor landscape? [Medium 🟠]
    • Britania is one of the strongest players in the biscuit segment with ~40% and a growing market share. Britania is followed by Parle and ITC in the fairly concentrated industry.
    • Though Britania is the market leader, the industry is overall price sensitive with minimal switching costs. A strong push by ITC through the launch of Sunfeast and similar brands may pose some stiff competition in the coming years.
    • Additionally, the 50-50 diversification aim beyond Biscuit poses strong competition from ITC and other market players. With the current FMCG share of a mere 3%, it would be very hard for Britania to push into dairy(Amul & Mother Daily pose a strong barrier to entry) or another complementary product line.
  • What is the company profile?
  • Business Overview
    • Britania is one of the oldest and most trusted biscuits and bakery brands in India. Brands such as Good Day, Tiger, NutriChoice, Milk Bikis and Marie Gold are daily household names in India. Britannia’s product portfolio includes Biscuits, Bread, Cakes, Rusk, and Dairy products including Cheese, Beverages, Milk and Yoghurt.
    • Britannia products are available across the country in close to 5 million retail outlets and reach over 50% of Indian homes.
Britania Fundamental research
  • Financials
    • How are company financials changing?  [ Medium 🟠]
      • Britannia posted a relatively weak recent quarter. Though revenue declined 1% in Q1 FY22 as compared to Q1 FY21, overall operating Profit has declined by 29%. The majority of the decline in operating profit is attributed to hiked prices of Palm oil and Crude.
      • The E-commerce segment showed a relatively better Y-oY growth of ~4x.
      • The company has recently announced a 15750% dividend for FY 20-21 as compared to 3500% in FY 19-20. Though this could be a good sign of increasing profit potentials, this shows the companies limitation to use the money for fueling further expansion. 
      • The company has posted a +20.5% revenue in Q1 FY20 – the majority of this is fueled by growing biscuit demand during the lockdown.
    • What are the stand-alone future financial prospects? [ High 🟢]
      • Though the recent quarter was hard struck by rising inflation, the overall company has shown strong growth over years.
      • As highlighted in the recent quarterly report, the company is aiming for cost efficiencies as the immediate financial mitigation opportunity to improve margins.
    • Pipeline deals and possible future risk and gains [High 🟢]
      • The company has planned to invest Rs 130 crore to add two new manufacturing lines in Odisha’s Khurda district and Tamil Nadu facility that will increase its capacity by 85 per cent from the current 35,000 metric tonnes to 65,000 metric tonnes per annum.
      • The company also plans to invest ₹700 crores over the next two years to set up greenfield facilities and scale-up capacities of core products and another ₹300 crores in Barabanki District for new launches including dairy, taking total investment to over ₹1,000 crores.
      • Recently, Britannia & ITC 10 Months Feud has been resolved. Last year, Britannia dragged ITC to court claiming trademark infringement over its NutriChoice Digestive biscuits packaging and Now, ITC has modified their packaging of the products & Britannia has no objection.
      • Due to the hike in Raw Material Prices, Company’s Profit Margin has declined and Britannia plans to pass on this increase gradually to the end consumer.
  • Beyond the numbers – ProCapitas Think Tank 🧠
    • Limited Opportunity in Core Business – Though Britannia has been able to maintain a strong holding in the biscuit market, further penetration into the sector seems relatively hard to achieve area.
    • Strong Competition in Non-Core – Britannia faces strong competition in non-core business lines of both dairy and non-dairy products. Amul and Mother Dairy have long-established standing in the dairy sector, even though Britannia is pushing strong as a complementary product to its successful bread brand, the competition is fierce to establish a standing any near to biscuit market.
    • Low Pricing Power – Britannia recently announced that they plan to increase margins in future through cost efficiency and passing the increased cost to end consumers. Though it looks promising from a broad lens, on deep-dive the sector is very price sensitive and leave limited pricing power for the company. It would be exciting to watch how aggressive ITC would react to this move from Britannia.
britania fundamental research

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