Britannia

Britannia

Britannia Industries

Britannia Industries

Britannia Industries

Britannia Industries

Britannia Industries

Britannia Industries

Britannia Industries

Britannia Industries

Britannia Industries, Divi's Labs, Godrej Properties, ILFs, India Strategy, Unichem, Sesa Goa

Britannia Industries, Divi's Labs, Godrej Properties, ILFs, India Strategy, Unichem, Sesa Goa

GMR Infrastructure, Tulip Telecom, Britannia Industries

GMR Infrastructure, Tulip Telecom, Britannia Industries

Britannia Industries

Britannia Industries

BEML, Berger Paints, Bharat Bijlee, Bharat Electronics, BOSCH, Britannia Industries

BEML, Berger Paints, Bharat Bijlee, Bharat Electronics, BOSCH, Britannia Industries

Tata Motors, Larsen Tourbo, IVRCL, Colgate Palmolive, BHEL, Tata Power, Thermax, Titan Industries, Unitech, Britannia , Colgate

Tata Motors, Larsen Tourbo, IVRCL, Colgate Palmolive, BHEL, Tata Power, Thermax, Titan Industries, Unitech, Britannia , Colgate

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.

Britannia Ltd

Britannia Ltd

Nestle India Ltd, Tata Motors Ltd, BPCL, Hindustan Petroleum Corp Ltd, Jindal Steel & Power Ltd, Bharti Airtel Ltd, Dabur India Ltd, Hindalco

Nestle India Ltd, Tata Motors Ltd, BPCL, Hindustan Petroleum Corp Ltd, Jindal Steel & Power Ltd, Bharti Airtel Ltd, Dabur India Ltd, Hindalco Industries Ltd, Reliance Communications Ltd, Britannia Industries Ltd

Reliance Communications, Apollo Tyres, Britannia

Reliance Communications, Apollo Tyres, Britannia

Bharati Shipyard, Britannia, GSPL, Deccan Chronicle, Jagran Prakashan, Jet Airways, Maruti, Shoppers Stop, Sterlite Industries, Suzlon Energy

Bharati Shipyard, Britannia, GSPL, Deccan Chronicle, Jagran Prakashan, Jet Airways, Maruti, Shoppers Stop, Sterlite Industries, Suzlon Energy, Tata Tea, Thermax

Britannia, Godrej, Glaxo, Indiabulls, Suzlon, Zee

Britannia, Godrej, Glaxo, Indiabulls, Suzlon, Zee

Britannia Industries

Britannia Industries

Britannia, Dishman, Gokaldas Exports, ITC, IVRCL, L&T, M&M, Nagarjuna Construction, NTPC, Shriram Transport, Vardhaman Textiles

Britannia

Dishman

Gokaldas Exports

ITC

IVRCL

L&T

M&M

Nagarjuna Construction

NTPC

Shriram Transport

Vardhaman Textiles

Lakshmi Machine Works, Crompton Greaves, Nagarjuna Constructions, Britannia, Maruti Udyog, Mahindra & Mahindra, Welspun

ENAM on Lakshmi Machine Works,

Revenue growth expected at 35% in FY08E and 22% in FY09E. A stable pricing environment and volume driven operating leverage is expected to deliver earnings growth of 34% CAGR over the next 2 years.

At CMP (Rs 2,636) the stock trades at P/E of 11x FY08E earnings of Rs 229 and 9x FY09E earnings of 298. We continue to maintain our sector Outperformer rating on the stock.

ENAM on Crompton Greaves

CG has acquired Microsol Holdings, a power automation company for an EV of Euro 10.5mn or 8.7x EV/EBIDTA. The acquisition has further strengthened CG’s power T&D product portfolio, making it a total T&D solutions provider, at par with global majors such as ABB, Siemens, etc. CG believes that it can scale up this acquisition by 5-7 fold to Euro 50-70mn over the next 2 years. Globally power automation is ~20% OPM business and going by CG past track record, we estimate that the acquisition will pay off in < 2 years.

Strong growth in global T&D market and surging corporate capex has enhanced visibility across CG’s segments. Hence, we believe that CG will surpass its guidance of 30% revenue growth and maintain its trend of margin expansion. At CMP (Rs 246), the stock trades at 9x FY09E EV/EBIDTA. Maintain sector Outperformer.

ENAM on Nagarjuna Constructions

NCC has guided for Rs 40bn in revenues in FY08 with an OPM of 9.5%. Further, the management has guided for a 30% tax rate in FY08 due to 80 IB benefits in certain projects. This is inline with our estimates and we maintain our FY08E earnings. We believe that the proposed QIP will accelerate earnings growth for NCC and will be a key trigger for re-rating. At CMP (Rs 161), adjusted for Rs 69/share of BOT + real estate value, the stock trades at an EV/EBIDTA of 6.7x FY08E and 5.7xFY09E. Maintain sector Neutral rating on the stock.

Citigroup on Britannia

Britannia had emerged as the third most attractive candidate for a leveraged buyout (LBO) across our regional consumer universe in Feb-07. While the stock is up 50% since then and no longer attractive in our LBO screen, it is still a good fit for companies like HLL and ITC, which are trying to enhance their presence in the foods segment.

Despite factoring in lower raw material costs we are cutting our FY08E-FY09E EPS estimates by 9.2%-23.5%, mainly reflecting 1) lower than expected FY07 and 2) higher ad expenses going forward. However we increase our price target to Rs1, 825 as we roll forward our target 20x P/E 1-year forward to mid-FY09E.

Citigroup on Maruti Udyog

Domestic sales rose modestly c.10% YoY due to slowdown in mid-size segment. High base effect has also led to a moderation in growth. Maruti is offering attractive finance schemes at around 8% in select cities aided by promotions to maintain steady growth.

Key risk factors are rising rates, changing model mix and higher promotional spends/discounts. Target of 945

Citigroup on Mahindra & Mahindra

Bouyed by strong UV sales (+23% YoY) and modest tractor sales (+2% YoY). Strong Scorpio sales (+28% YoY) led to a strong growth in UV sales. UV sales without Scorpio grew by +21% YoY. 3 wheeler sales also grew by a robust +22% YoY after a modest decline in April 07.

Key downside risks are: reduced market value of principal subsidiaries (off which our sum-of-the-parts target price is pegged); rising interest rates – which could curb growth; rise in input costs. Target of 1032 (37% upside)

Macquarie on Welspun

Appreciation of the Indian Rupee (versus US dollar) is a near term concern but should not dampen Welspun’s intention to grow through multiple routes. Its organic growth strategy aims to tap the 5% interest subsidy provided through the technology upgradation fund to fund massive capacity expansion.

The Christy acquisition is in line with the inorganic strategy of driving margins through increased contributions from designer brands. Welspun is currently trading at extremely compelling valuations, considering its multiple growth drivers (PEG is <0.4). Our revised price target of Rs95 provides 34% upside

ISEC - HPCL, Britannia, Tata Tea

ISEC on HPCL

HPCL’s Q4FY07 recurring net income at Rs5.5bn against Rs2.2bn in Q4FY06 was slightly above our expectations (Rs5.4bn). This was despite higher-than-expected subsidy sharing by upstream companies and the Government. This is primarily due to 82% QoQ increase in other expenditure and lower-than-expected Q4FY07 refining margins. HPCL’s reported net income fell 72.7% YoY to Rs5.5bn as FY06 oil bonds were issued and accounted in Q4FY06 results. The stock fell 10.7% YoY and underperformed the Sensex 45.2% YoY. We remain positive on the stock on the back of a robust margin outlook, favourable Government under-recovery sharing and proposed reforms on CST/octroi.

HPCL seems attractive on current valuations, given the robust outlook on refining margins and a benign Government policy on under-recovery sharing. Proposed reforms on CST, octroi and a possible fuel price increase post the
Uttar Pradesh elections would provide further impetus. The stock is currently trading at FY08E P/E of 7.1x and EV/EBITDA of 3.7x and has underperformed the Sensex by
45.2% YoY. Potential news on LPG/SKO, subsidy reforms and new E&P finds could
add further upside. We reiterate BUY on HPCL with a 12-month fair value of Rs424-
451/share.

ISEC on Britannia

Britannia’s Q4FY07 performance was ahead of our expectations; sales growth accelerated to a new high of 32% YoY despite a high base. Operating margins before ad spends expanded 419bps QoQ to 13.9%, notwithstanding the sustained inflationary pressure from input prices. With the enhanced excise exemptions up to Rs100/kg by the Budget, excise exemption benefit for 75-80% of Britannia’s portfolio would be reflected Q1FY08 onwards. We believe the worst is over for Britannia and expect 40% earnings CAGR through FY07-09E. Despite the recent run up, maintain BUY.

Maintain BUY. With the entire benefit of price hikes and excise exemption reflected Q1FY08 onwards, we expect Britannia’s profitability to boost significantly. We believe the worst is over for Britannia and expect 40% earnings CAGR through FY07-09E. The company has emerged stronger post past two years of intense cost & competitive pressures and is well positioned to capture growth in the fast-growing processed foods business. Despite the recent run up, we maintain BUY on the stock, which is trading at FY08E P/E of 23x.

ISEC on Tata Tea

With the entire adverse impact of the Glaceau acquisition being reflected in H2FY07 and the stock having significantly underperformed, this would be an opportune time to BUY from a long-term perspective.