India’s Second Largest Biscuit Maker In Sweet Spot, Credit Suisse Says
Credit Suisse initiated coverage on Britannia with an outperform rating and a target price of Rs 5,500,
India’s second largest biscuit maker, Britannia Industries Ltd., is in a “sweet spot”, as its increasing market share and possible margin expansion is likely to guarantee a healthy performance in the long run, according to Credit Suisse.
The brokerage firm hence initiated coverage on the stock with an outperform rating and a target price of Rs 5,500, implying an upside potential of 15.3 percent from current levels.
The 12-month target price on the stock stands at Rs 5,217.5, according to the consensus estimate of analysts tracked by Bloomberg. Of the 28 analysts who track Britannia Industries, 20 have ‘Buy’ rating, while seven have ‘Hold’ rating on the stock.
The company is “well positioned to gain market share in biscuits”, which is at 32 percent now and is expected to move up by 100 basis points every year over the next three to four years, the report said.
Launch of premium products, increasing distribution in the 'Hindi' belt and gradual shrinking of the unorganised sector after goods and services tax will help expand market share.
Moreover, falling input costs give a push to the company's erstwhile margin compression. Credit Suisse expects agricultural inflation to remain soft over the next two to three years, which, along with supply chain efficiencies, will aid in margin recovery.
We are only wary of the dairy segment, which is a very tough category to make money in.Credit Suisse Report
Risks
- Rise in competitive intensity from Parle or ITC Ltd.
- Sharp spike in input costs such as sugar, milk, palm oil and flour.
Credit Suisse values Britannia at 45 times the March 2020 earnings and at a 10-15 percent premium to other larger Indian domestic fast-moving consumer goods companies such as Godrej Consumer Products Ltd., Dabur India Ltd. and Marico Ltd.. It sees the firm clocking a 13 percent compounded annual growth rate in revenue over financial years 2018 to 2020.
