For investors seeking a defensive option in choppy markets, the stock of Britannia Industries is an attractive buy. With a product basket comprising biscuits, bakery and dairy products and brands straddling several price points, Britannia’s portfolio is among the least vulnerable, even within FMCGs, to any consumption slowdown. A slew of product launches, efforts to position biscuits as snacking alternatives for adults and forays into new segments have helped the company register healthy sales growth and ward off threat to its market share. Low margins and spiralling input costs have been the only point of concern in the company’s financials in recent quarters. Here, signs of moderation in prices of key inputs promise a reprieve.

Despite a strong focus on the lucrative foods segment, Britannia Industries is among the cheapest FMCG stocks, with its current market price of Rs 1,165 discounting trailing 12-month earnings by just 14 times. This is a steep discount not only to Nestle India (32 times), but also to every other leading player in the FMCG space.

After ceding significant market share to ITC in biscuits until 2006, Britannia Industries has regained some market share over the past couple of years. A host of new product rollouts (iron fortified Tiger, Good Day Classic), expansion of the premium portfolio (Good Day and Treat), the positioning of NutriChoice as a snacking alternative and the launch of Nano packs at Rs 2 and Rs 5 price points have all helped revive Britannia’s sales. Britannia’s topline growth, at 18 per cent in FY08, has witnessed a steady improvement this fiscal and stood at 27 per cent for the September quarter. Going ahead, an expanding cakes and rusks portfolio (the business has doubled in two years), further expansion of the Daily Bread bakery business and new markets for Britannia’s brands in West Asia and Africa (through acquired subsidiaries), offer growth opportunities.

Though Britannia has managed to stabilise its market share and add new product lines, strong topline growth hasn’t translated into earnings growth over the past few quarters. A sharp spiral in prices of commodity inputs such as wheat flour, vegetable oils/fats and milk has resulted in earnings growth (12 per cent) lagging sales (25 per cent). However, a moderation in wheat prices and sharp decline in global prices of vegetable oils and milk have now significantly moderated cost pressures. The lag effect of these, as well as the price increases taken in September/October, may contribute to much better margins in the coming quarters.