Britannia (Buy Commodities, Sell Brands)

(Yogesh Sane) #21

Britannia is one story that I got attracted to as a margin expansion story.

Margins appears to have topped out for the time being although comparing to other FMCG players there is some scope for further expansion.

anyone here thinks margins can reach 20%+ in next 3-5 years? That can give a big push to EPS growth otherwise EPS growth is now flat lining.

(Ketan) #22

As per my understanding of Britannia’s performance, premiumization and cost control were two levers used by the Company. Lower commodity prices and hence RM costs helped the company while optimization of marketing/logistics cost added to the kitty.
Going forward, IMO, cost control may yield less as it will reach a limit. That said, fresh ammunition in form of own plant vs job-work will have to be seen once proposed Maharashtra plant starts. On premiumization also, there would be a limit, especially with competition heating up.
So all in all, 14% to 20% OPM journey in couple of years looks difficult, if not impossible.

Disc: Invested since long, no fresh transactions in last six months.

(frj) #23

good to see so much discussion and I don’t any other script position better fundamentally at this point of time to talk other than Britannia

  • Zero D/E
  • Zero Pledged shares
  • NPM 10%
  • Profit growth 5 Years: 38%
  • Sales growth 5 Years: 11%
  • Dividend payout 30%
  • RoE 36%

I don’t see a reason why this company can’t double in 3 yrs

(sarangg) #24

Playing devil’s advocate here, here is why profit growth has been 38% for the past 5 years:

Look at Brittania’s margins - they have increased from 5.61% to 14.24% (tripled over the last 5 years). Do you expect a simliar tripling over the next 5 years (to a 45% OPM?).

Lets look at it another way. Given a 11% CAGR over the next 3 years, we can expect sales to be ~Rs. 11400 crore. Assuming a 18% OPM (average of other FMCG players), we get operating profit of Rs. 2050 crore. After OI of ~150cr and similiar depreciation, we can assume a 2050 PBT or Rs. 1350 cr PAT given current tax rate of 33%. That means we are trading at ~38x FY20 earnings. Not sure what exit multiple you expect once the current FMCG euphoria dies down (for a sector growing at 6-12% PA), but the risk-reward doesn’t seem favourable to me.

Disc. Not invested. May initiate a short/long position without any updates to this post.

(pradip) #28

The 100 Yr old company just doesn’t want to rest on its laurels!