BRIT plans to undertake 1) faster and bigger innovations 2) aggressive cost reduction 3) distribution expansion and 4) provision of delightful and affordable consumer experience Maintain ‘BUY’ with a target of Rs1,110

1. Lilladher
Prabhudas Britannia Industries
CMP: Rs849 TP: Rs1,110 Rating: BUY MCap: Rs101.5bn
BRIT plans to undertake 1) faster and bigger innovations 2) aggressive cost
reduction 3) distribution expansion and 4) provision of delightful and
affordable consumer experience to sustain profitable growth. We have
increasing FY14 and FY15 EPS estimates by 6% and 2% to Rs32.0 and Rs38.8,
respectively and estimate 22% PAT CAGR over FY14‐16. Maintain ‘BUY’ with a
target of Rs1,110. Key takeaways are:
Operating environment challenging: Indexed growth of the biscuit industry in
Q3FY14 is 40% of Q3FY13, although it is up QoQ. Competitive intensity has
increased, especially at the lower end. BRIT has grown faster than industry
across segments.
Distribution expansion: BRIT plans to increase depth of distribution in urban
India with availability of larger and premium assortments. BRIT aims to create
low-cost distribution in rural India as strong brand equity, rising aspirations
and improved purchasing power can increase growth rates meaningfully.
Capex to decline: BRIT had incurred accelerated capex (Est. Rs4bn over FY12-
14) to increase the share of own manufacturing to 50% (30% earlier). BRIT will
continue to add capacity; however, overall capex levels will be lower.
Innovation to step‐up: BRIT has seen lower pace of innovation in FY14;
however, the pace of innovation is expected to increase with hiring of a new
R&D and Innovation head. The company is looking at fewer but bigger
innovations.
Cost reduction and sales mix to increase margins: BRIT has seen cost
reduction due to owned units, biomass gasifiers (5 more to be added to the
current 3), hitech burners, ovens etc. BRIT has indicated huge scope to cut
costs and improve margins. Rising sales of value-added products will support
margin expansion.
Snacks not a priority; Dairy business has the right to win: BRIT does not plan
to enter the snacks business as of now. Dairy business has suffered due to
high milk prices; BRIT believes it has the right to win in this large but
competitive category. Daily Bread chain is not a strategic fit and has been put
on the block.
5/13/2014 65
Key Financials (Rs m)
Y/e March FY12 FY13 FY14E FY15E FY16E
Revenue (Rs m) 49,742 56,155 63,494 72,955 84,190
Growth (%) 17.8 12.9 13.1 14.9 15.4
EBITDA (Rs m) 2,792 3,716 5,910 7,217 8,648
PAT (Rs m) 1,868 2,339 3,807 4,641 5,705
EPS (Rs) 15.6 19.6 31.8 38.8 47.7
Growth (%) 27.3 25.1 62.7 21.9 22.9
Net DPS (Rs) 8.5 8.5 13.9 16.3 19.1
Source: Company Data, PL Research
Profitability & valuation
Y/e March FY12 FY13 FY14E FY15E FY16E
EBITDA margin (%) 5.6 6.6 9.3 9.9 10.3
RoE (%) 38.5 40.2 52.0 49.4 47.2
RoCE (%) 22.7 27.7 43.0 47.1 45.2
EV / sales (x) 2.1 1.8 1.6 1.3 1.1
EV / EBITDA (x) 36.6 27.6 17.0 13.6 11.0
PER (x) 54.3 43.4 26.7 21.9 17.8
P / BV (x) 19.5 15.8 12.4 9.6 7.5
Net dividend yield (%) 1.0 1.0 1.6 1.9 2.2
Source: Company Data, PL Research
Stock Performance
(%) 1M 6M 12M
Absolute 1.7 4.3 65.7
Relative to Sensex (2.0) (5.9) 43.7

2. Lilladher
Prabhudas Financials
Britannia Industries
5/13/2014 66
Income Statement (Rs m)
Y/e March FY12 FY13 FY14E FY15E FY16E
Net Revenue 49,742 56,155 63,494 72,955 84,190
Direct Expenses 36,680 41,015 44,526 50,620 58,049
% of Net Sales 73.7 73.0 70.1 69.4 68.9
Employee Cost 1,459 1,435 1,762 1,989 2,296
% of Net Sales 2.9 2.6 2.8 2.7 2.7
SG&A Expenses 5,376 6,375 7,331 8,572 10,020
% of Net Sales 10.8 11.4 11.5 11.7 11.9
Other Expenses 3,435 3,614 3,965 4,557 5,177
% of Net Sales 6.9 6.4 6.2 6.2 6.1
EBITDA 2,792 3,716 5,910 7,217 8,648
Margin (%) 5.6 6.6 9.3 9.9 10.3
Depreciation 473 571 653 791 866
PBIT 2,319 3,145 5,257 6,426 7,782
Interest Expenses 381 377 58 96 68
PBT 2,524 3,322 5,477 6,678 8,268
Total tax 656 983 1,671 2,037 2,563
Effective Tax rate (%) 26.0 29.6 30.5 30.5 31.0
PAT 1,868 2,339 3,807 4,640 5,705
Extraordinary Gain/(Loss) - - - (1) -
Adjusted PAT 1,868 2,339 3,807 4,641 5,705
Source: Company Data, PL Research
Balance Sheet (Rs m)
Y/e March FY12 FY13 FY14E FY15E FY16E
Share Capital 239 239 239 239 239
Reserves & Surplus 4,962 6,196 7,980 10,339 13,375
Shareholder's Fund 5,201 6,435 8,219 10,579 13,614
Preference Share Capital - - - - -
Total Debt 4,345 2,764 452 750 500
Other Liabilities(net) - - - - -
Deferred Tax Liability - - - - -
Total Liabilities 9,546 9,199 8,671 11,329 14,114
Gross Block 6,774 7,842 10,042 11,042 12,042
Less: Depreciation 2,983 3,325 3,978 4,769 5,635
Net Block 3,791 4,517 6,064 6,273 6,408
Capital Work in Progress 797 1,284 150 175 200
Cash & Cash Equivalent 5,199 3,441 3,668 6,175 8,867
Total Current Assets 10,396 9,133 9,956 13,658 17,772
Total Current Liabilities 7,096 7,495 9,341 10,720 12,332
Net Current Assets 3,299 1,638 615 2,938 5,439
Other Assets (82) (136) (54) 46 170
Total Assets 9,545 9,199 8,671 11,329 14,114
Source: Company Data, PL Research

3. Lilladher
Prabhudas
Disclaimer
5/13/2014 80
BUY : Over 15% Outperformance to Sensex over 12-months Accumulate : Outperformance to Sensex over 12-months
Reduce : Underperformance to Sensex over 12-months Sell : Over 15% underperformance to Sensex over 12-months
Trading Buy : Over 10% absolute upside in 1-month Trading Sell : Over 10% absolute decline in 1-month
Not Rated (NR) : No specific call on the stock Under Review (UR) : Rating likely to change shortly
This document has been prepared by the Research Division of Prabhudas Lilladher Pvt. Ltd. Mumbai, India (PL) and is meant for use by the recipient only as information and is not for circulation. This document is
not to be reported or copied or made available to others without prior permission of PL. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security.
The information contained in this report has been obtained from sources that are considered to be reliable. However, PL has not independently verified the accuracy or completeness of the same. Neither PL nor any
of its affiliates, its directors or its employees accept any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein.
Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will
depend upon the recipient's particular circumstances and, in case of doubt, advice should be sought from an independent expert/advisor.
Either PL or its affiliates or its directors or its employees or its representatives or its clients or their relatives may have position(s), make market, act as principal or engage in transactions of securities of companies
referred to in this report and they may have used the research material prior to publication.
We may from time to time solicit or perform investment banking or other services for any company mentioned in this document.
Prabhudas Lilladher Pvt. Ltd.
3rd Floor, Sadhana House, 570, P. B. Marg, Worli, Mumbai 400 018, India.
Tel: (91 22) 6632 2222 Fax: (91 22) 6632 2209
PL’s Recommendation Nomenclature
Rating Distribution of Research Coverage
27.2%
51.5%
21.4%
0.0%
0%
10%
20%
30%
40%
50%
60%
BUY Accumulate Reduce Sell
%ofTotalCoverage