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Edelweiss Research is also available on www.edelweissresearch.com, Bloomberg - EDEL, Thomson Reuters, and Factset Edelweiss Securities Limited
KEY DATA
Rating BUY Sector relative Outperformer Price (INR) 3,423 12 month price target (INR) 4,500 Market cap (INR bn/USD bn) 825/11.1 Free float/Foreign ownership (%) 49.4/16.0
What’s Changed Target Price
Rating/Risk Rating ⚊
QUICK TAKE
Turning tide
Britannia Industries’ (Britannia) Q1FY22 revenue (down 0.5% YoY) surpassed our estimate, whereas EBITDA (down 23% YoY) came in line. Volume inched up 1% YoY (base 21%) as mix included more value products compared to the base quarter.
We had highlighted the likely underperformance in Britannia’s stock
about six months back given Parle’s aggression, high base of H1FY21 and margin pressure. But now as base turns favourable in H2FY22, Britannia and Parle continue to gain market share from smaller players and margin should recover with gradual price hikes in addition to a good monsoon. Hence, we expect better performance. Retain ‘BUY’ with revised TP of INR4,500 and bring it among our top picks.
FINANCIALS (INR mn)
Year to March FY21A FY22E FY23E FY24E
Revenue 1,31,361 1,39,363 1,53,193 1,68,209
EBITDA 25,093 23,703 27,416 30,754
Adjusted profit 18,512 17,514 20,417 23,020
Diluted EPS (INR) 77.0 72.8 84.9 95.7
EPS growth (%) 31.1 (5.4) 16.6 12.8
RoAE (%) 46.6 43.0 39.2 35.3
P/E (x) 44.5 47.0 40.3 35.8
EV/EBITDA (x) 33.1 34.7 29.6 26.0
Dividend yield (%) 2.2 0.9 1.0 1.1
PRICE PERFORMANCE
Sales surprise positively; margin under pressure
What we liked: Sales growth was flattish on a high base, 8.4% ahead of our estimate.
The company posted healthy two year sales growth of 26% despite second wave
disruptions. Pantry loading wasn’t significant this time around. The company
relaunched ‘GoodDay Chocochips’ and launched 50-50 Potazos in the North East.
What we did not like: Gross margin fell 328bps YoY (Nestle, also a food company,
though raw material not strictly comparable, saw gross margin expansion by 67bps
YoY). In our view, this difference is due to down trading in biscuits and resurgence of
Parle. EBITDA margin was plunged 469bps YoY.
In terms of adjacency businesses, in-home categories did well, but on-the-go
categories were impacted. ICD at INR4.7bn is lower than March 2021 level of
INR7.9bn. It is good development considering this is an important investor concern
however we will have to wait to see how the year end number shapes up.
Q1FY22 conference call: Key takeaways
Nepal continued to grow in double digits. Revenue was stable in July. The company
didn’t cut back on Milk Bikis’ advertisement. Milk Bikis has seen very good growth,
ahead of the company average. Inflation was about 7-8%.
Explore:
Outlook and valuations: Positive; maintain ‘BUY’
A robust product pipeline and deepening reach will help Britannia sustain
outperformance. A key monitorable is Parle gaining share from other players and
narrowing the share gap. We maintain ‘BUY/SO’ with revised TP of INR4,500 (from
INR4,195) as we roll forward to Dec-2022E. The stock is trading at 40.3x FY23E EPS.
Financials Year to March Q1FY22 Q1FY21 % Change Q4FY21 % Change
Net Revenue 34,035 34,207 (0.5) 31,308 8.7
EBITDA 5,538 7,169 (22.8) 5,054 9.6
Adjusted Profit 3,870 5,428 (28.7) 3,601 7.5
Diluted EPS (INR) 16.1 22.6 (28.7) 15.0 7.5
Above In line Below
Profit
Margins
Revenue Growth
Overall
36,000
39,600
43,200
46,800
50,400
54,000
3,325
3,450
3,575
3,700
3,825
3,950
Jul-20 Oct-20 Jan-21 Apr-21
BRIT IN Equity Sensex
India Equity Research Consumer Staples August 2, 2021
BRITANNIA INDUSTRIES RESULT UPDATE
Abneesh Roy Tushar Sundrani +91 (22) 6620 3141 +91 (22) 6620 3004
[email protected] [email protected]
Corporate access
Financial model Podcast
Video
BRITANNIA INDUSTRIES
Edelweiss Securities Limited
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Financial Statements
Income Statement (INR mn) Year to March FY21A FY22E FY23E FY24E
Total operating income 1,31,361 1,39,363 1,53,193 1,68,209
Gross profit 55,100 57,357 63,654 70,264
Employee costs 5,274 5,495 5,889 6,474
Other expenses 13,397 15,110 16,307 17,763
EBITDA 25,093 23,703 27,416 30,754
Depreciation 1,979 2,212 2,395 2,701
Less: Interest expense 1,109 1,256 1,120 1,040
Add: Other income 3,129 3,209 3,430 3,803
Profit before tax 25,142 23,447 27,332 30,817
Prov for tax 6,630 5,932 6,915 7,796
Less: Other adj 0 0 0 0
Reported profit 18,512 17,514 20,417 23,020
Less: Excp.item (net) 0 0 0 0
Adjusted profit 18,512 17,514 20,417 23,020
Diluted shares o/s 240 240 240 240
Adjusted diluted EPS 77.0 72.8 84.9 95.7
DPS (INR) 74.5 29.1 34.0 38.3
Tax rate (%) 26.4 25.3 25.3 25.3
Important Ratios (%) Year to March FY21A FY22E FY23E FY24E
Gross margin (%) 41.9 41.2 41.6 41.8
A&P (% of rev) 4.0 4.5 4.3 4.2
Other exp (% of rev) 6.2 6.5 6.4 6.3
EBITDA margin (%) 19.1 17.0 17.9 18.3
Net profit margin (%) 14.1 12.6 13.3 13.7
Revenue growth (% YoY) 12.6 6.6 9.9 9.9
EBITDA growth (% YoY) 36.1 (5.5) 15.7 12.2
Adj. profit growth (%) 31.2 (5.4) 16.6 12.8
Assumptions (%) Year to March FY21A FY22E FY23E FY24E
GDP (YoY %) (8.0) 9.0 7.0 7.0
Repo rate (%) 4.0 4.0 4.3 5.3
USD/INR (average) 75.0 73.0 72.0 71.0
Biscuits 11.5 6.5 10.0 10.0
Bread 15.5 7.5 8.5 8.5
Cake and rusk 15.5 7.5 7.5 7.5
Dairy 5.0 10.0 15.0 15.0
Int business 10.0 10.0 15.0 15.0
COGS % of sales 59.2 59.7 59.3 59.0
Valuation Metrics Year to March FY21A FY22E FY23E FY24E
Diluted P/E (x) 44.5 47.0 40.3 35.8
Price/BV (x) 23.2 17.9 14.1 11.4
EV/EBITDA (x) 33.1 34.7 29.6 26.0
Dividend yield (%) 2.2 0.9 1.0 1.1
Source: Company and Edelweiss estimates
Balance Sheet (INR mn) Year to March FY21A FY22E FY23E FY24E
Share capital 241 241 241 241
Reserves 35,236 45,744 57,994 71,806
Shareholders funds 35,477 45,985 58,235 72,047
Minority interest 363 361 359 357
Borrowings 20,872 15,000 13,000 13,000
Trade payables 13,148 13,031 14,228 15,564
Other liabs & prov 9,688 9,688 9,688 9,688
Total liabilities 80,088 84,606 96,051 1,11,197
Net block 16,571 22,063 24,168 25,966
Intangible assets 1,359 1,359 1,359 1,359
Capital WIP 1,165 500 500 500
Total fixed assets 19,095 23,922 26,027 27,825
Non current inv 13,874 13,874 13,874 13,874
Cash/cash equivalent 16,046 17,148 25,352 37,435
Sundry debtors 2,573 3,763 4,137 4,548
Loans & advances 12,291 12,291 12,291 12,291
Other assets 16,209 13,607 14,371 15,223
Total assets 80,088 84,606 96,051 1,11,197
Free Cash Flow (INR mn) Year to March FY21A FY22E FY23E FY24E
Reported profit 25,128 17,512 20,415 23,018
Add: Depreciation 1,979 2,212 2,395 2,701
Interest (net of tax) (2,347) (1,954) (2,310) (2,763)
Others 0 0 0 0
Less: Changes in WC (562) (1,295) (60) (72)
Operating cash flow 18,511 19,066 20,560 23,029
Less: Capex 4,000 4,500 4,500 4,500
Free cash flow 14,511 14,566 16,060 18,529
Key Ratios Year to March FY21A FY22E FY23E FY24E
RoE (%) 46.6 43.0 39.2 35.3
RoCE (%) 45.2 41.8 42.8 40.6
Inventory days 44 43 35 35
Receivable days 8 8 9 9
Payable days 58 58 56 56
Working cap (% sales) 18.8 17.5 21.3 26.6
Gross debt/equity (x) 0.6 0.3 0.2 0.2
Net debt/equity (x) 0.1 0 (0.2) (0.3)
Interest coverage (x) 20.8 17.1 22.3 27.0
Valuation Drivers Year to March FY21A FY22E FY23E FY24E
EPS growth (%) 31.1 (5.4) 16.6 12.8
RoE (%) 46.6 43.0 39.2 35.3
EBITDA growth (%) 36.1 (5.5) 15.7 12.2
Payout ratio (%) 96.8 40.0 40.0 40.0
Edelweiss Securities Limited
BRITANNIA INDUSTRIES
Edelweiss Research is also available on www.edelweissresearch.com, Bloomberg - EDEL, Thomson Reuters, and Factset 3
Trends at a glance
Q2FY20 Q3FY20 Q4FY20 Q1FY21 Q2FY21 Q3FY21 Q4FY21 Q1FY22
Domestic volume growth (% YoY) 3.0 3.0 0.1 21.5 9.0 4.0 8.0 1.0
Consolidated sales growth (% YoY) 6.2 3.8 2.5 26.7 12.1 6.1 9.2 (0.5)
Standalone sales growth (% YoY) 7.1 3.1 0.9 24.8 11.4 5.7 9.7 0.5
Consolidated EBITDA margin (%) 16.1 16.8 15.8 21.0 19.8 19.3 16.1 16.3
Standalone EBITDA margin (%) 16.2 17.1 15.9 20.9 19.2 19.2 16.5 16.2
Consolidated Gross margin (%) 39.7 39.9 38.4 41.0 41.4 42.0 38.7 37.8
Standalone Gross margin (%) 39.4 39.9 38.3 40.2 40.5 41.6 39.4 37.2
Source: Company
Innovations during the quarter
Source: Company
Q1FY22 conference call takeaways
Overall
Rural segment saw strong negative impact due covid 2nd wave.
Company relaunched Goodday Chocochips with a surprise campaign and
launched 50-50 Potazos in the North East.
As on June 2021 end company had direct reach of 20.8 mn outlets.
The number of rural preferred dealers as on June 2021 end was 23000.
Focus states saw 1.33x growth compared to rest of the country.
Growth across channels was at 1.12x of FY20 levels.
Company continued to gain market share in the quarter.
Distribution and marketing ground operations saw some impact due to second
covid wave.
On air marketing campaigns were on track.
The company reduced inventory at distributors by 25% with better inventory
management system.
July month has seen some resurgence in sales as people move towards more
trusted brands.
BRITANNIA INDUSTRIES
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No major cutback on Milkbikis ad campaigns, company continues to be focused
on this brand including Milkbikis Atta.
Operation on ground are coming back on track gradually.
Supply chain and factories continued to perform normally.
Some of the upcoming products include Wafer sticks, Milkbikis classic (already
rolled out now) and variants in Nutrichoice. These products are mostly in
premium range.
The Ranjangaon plant has 8 lines fully operational, company is putting up few
more lines. 110 percent of investment here is available for tax benefit.
Dairy facility will be added to the Ranjangaon, it will be ready by Q2FY23.
The Ranjangaon plant took an investment of INR6.5bn and produces revenue of
INR12bn, once all lines are fully utilized around 15-16bn turnover.
Company has planned a new plant in Tamil Nadu and in Uttar Pradesh, apart
from Ranjangaon expansion, totalling to about INR1.3bn capex.
The company saw an overall volume growth of 1% YoY.
Company aims to increase ecommerce contribution to 5% from present 2% level.
Company has applied for incentive under PLI, it is difficult to estimate extent of
benefit now.
Company has commercialized partnership in Egypt and Uganda who will start
manufacturing soon.
Modern trade should gradually return to normal levels.
ICDs were at INR4.7bn down from INR7.9bn.
The adjacencies business is about INR25bn, Dairy business is about 5% of overall
revenue.
International business
Lack of container availability impacted export growth.
Company has revamped its distribution system in Middle East.
Company saw around 25%YoY revenue growth in Nepal despite covid impact.
Adjacency business
In-home category did well, but on-the-go category was impacted.
Flat wafers and rolls plant will be operational in Q2FY22.
Milk collection has been ramped up to 2x of last year to gear up for backend.
Raw material and margins
Flour and sugar saw a 5% and 2% deflation respectively.
Milk and RPO saw 13% and 49% inflation respectively.
Overall basket of commodities saw steep inflation of around 7-8%.
Company has started to take calibrated price increase.
Edelweiss Securities Limited
BRITANNIA INDUSTRIES
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Company has been aggressive on cost efficiencies.
Crude and palm oil prices saw continued inflation.
The price hikes taken have already been negated by inflation presently.
Outlook and valuation: Positive; maintain ‘BUY’
Britannia is the value leader in the biscuit category (ahead of Parle) and has
sustained market share gains. We believe the company’s growth will continue to
outstrip the industry in FY22. In the long term as well, Britannia’s deepening
distribution network, particularly in rural, with focus on driving growth in states it
has a weak standing in—Gujarat, Madhya Pradesh, Uttar Pradesh and Rajasthan—
will hold it in good stead. The company’s aggregate growth has improved with the
rise in its market share.
Britannia is also plugging gaps in its portfolio. It is evolving into a total foods
company with the launch of wafer biscuits, croissants, salty snacks, etc. Meanwhile,
the company is focusing on expanding and deepening its product offerings and
tapping into adjacent categories such as cake, rusk and bread. Going ahead, watch
out for a strong innovation pipeline in these categories. It also has big plans in the
dairy business, poised for a leg-up once the new plant comes on stream. We remain
optimistic on Britannia’s execution capabilities and potential to scale up its dairy
portfolio.
Britannia’s cost-saving initiatives (targeting ~2.1% of revenue per year) continue to
be robust, helping it sustain margin expansion. A gradual improvement in the
product mix will also aid gross and EBITDA margins. A key monitorable is Parle
gaining market share from other players and narrowing the market share gap. We
maintain ‘BUY/SO’ with revised TP of INR4,500 (from INR4,195) as we roll forward
to Dec-2022. The stock is trading at 40.3x FY23E EPS.
One year forward P/E
Source: Edelweiss Research
0
1,000
2,000
3,000
4,000
5,000
Au
g-1
7
Feb
-18
Au
g-1
8
Feb
-19
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g-1
9
Feb
-20
Au
g-2
0
Feb
-21
Au
g-2
1
(IN
R)
40x45x
50x
3
55x
60x
35x
30x
BRITANNIA INDUSTRIES
Edelweiss Securities Limited
6 Edelweiss Research is also available on www.edelweissresearch.com, Bloomberg - EDEL, Thomson Reuters, and Factset
Consolidated sales growth
Source: Company
Standalone sales growth
Source: Company
Gross margin
Source: Company
-5.0
2.0
9.0
16.0
23.0
30.0
Q4
FY1
8
Q1
FY1
9
Q2
FY1
9
Q3
FY1
9
Q4
FY1
9
Q1
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1
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Q4
FY2
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Q1
FY2
2
(%)
0.0
6.0
12.0
18.0
24.0
30.0
Q4
FY1
8
Q1
FY1
9
Q2
FY1
9
Q3
FY1
9
Q4
FY1
9
Q1
FY2
0
Q2
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Q3
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Q4
FY2
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Q1
FY2
1
Q2
FY2
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Q3
FY2
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Q4
FY2
1
Q1
FY2
2
(%)
30.0
33.0
36.0
39.0
42.0
45.0
Q1
FY1
9
Q2
FY1
9
Q3
FY1
9
Q4
FY1
9
Q1
FY2
0
Q2
FY2
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Q3
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0
Q1
FY2
1
Q2
FY2
1
Q3
FY2
1
Q4
FY2
1
Q1
FY2
2
(%)
Edelweiss Securities Limited
BRITANNIA INDUSTRIES
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EBITDA margin
Source: Company
Volume growth
Source: Company
Commodity watch
Source: Company
0.0
6.0
12.0
18.0
24.0
30.0
Q1
FY1
9
Q2
FY1
9
Q3
FY1
9
Q4
FY1
9
Q1
FY2
0
Q2
FY2
0
Q3
FY2
0
Q4
FY2
0
Q1
FY2
1
Q2
FY2
1
Q3
FY2
1
Q4
FY2
1
Q1
FY2
2
(%)
0.0
6.0
12.0
18.0
24.0
30.0
Q1
FY1
9
Q2
FY1
9
Q3
FY1
9
Q4
FY1
9
Q1
FY2
0
Q2
FY2
0
Q3
FY2
0
Q4
FY2
0
Q1
FY2
1
Q2
FY2
1
Q3
FY2
1
Q4
FY2
1
Q1
FY2
2
(%)
BRITANNIA INDUSTRIES
Edelweiss Securities Limited
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Market share movement
Source: Company
Edelweiss Securities Limited
BRITANNIA INDUSTRIES
Edelweiss Research is also available on www.edelweissresearch.com, Bloomberg - EDEL, Thomson Reuters, and Factset 9
Financial snapshot (INR mn)
Year to march Q1FY22 Q1FY21 % change Q4FY21 % change FY21 FY22E FY23E
Net sales 33,519 33,845 (1.0) 30,381 10.3 1,28,830 1,37,363 1,50,993
Other operating Income 515 362 42.3 926 (44.4) 2,531 2,000 2,200
Total Income 34,035 34,207 (0.5) 31,308 8.7 1,31,361 1,39,363 1,53,193
Cost of materials 20,865 19,959 4.5 18,636 12.0 76,261 82,006 89,539
Employee cost 1,393 1,370 1.7 1,242 12.2 5,274 5,495 5,889
Other Expenditure 6,239 5,709 9.3 6,375 (2.1) 14,041 15,797 17,213
Total Expenditure 28,497 27,037 5.4 26,254 8.5 1,06,269 1,15,660 1,25,777
EBITDA 5,538 7,169 (22.8) 5,054 9.6 25,093 23,703 27,416
Depreciation 491 480 2.3 528 (7.1) 1,979 2,212 2,395
EBIT 5,047 6,690 (24.6) 4,526 11.5 23,114 21,491 25,021
Other inc 605 937 (35.5) 632 (4.3) 3,129 3,209 3,430
Interest net 342 256 33.6 237 44.4 1,109 1,256 1,120
Profit Before Tax 5,310 7,370 (28.0) 4,921 7.9 25,134 23,445 27,330
Provision for Tax 1,442 1,944 (25.8) 1,326 8.7 6,630 5,932 6,915
Exceptional Items (Net of Tax) - (1) - -6 0 0
Reported Profit 3,870 5,427 (28.7) 3,601 7.5 18,506 17,514 20,417
Adjusted Profit 3,870 5,428 (28.7) 3,601 7.5 18,510 17,514 20,417
No. of Shares outstanding (mn) 240 240 - 240 - 240.5 240.5 240.5
Adjusted Diluted EPS 16.1 22.6 (28.7) 15.0 7.5 77.0 72.8 84.9
As % of net revenues
Cost of materials 62.2 59.0 328 61.3 91 59.2 59.7 59.3
Employee cost 4.1 4.0 9 4.0 13 4.0 3.9 3.8
Other Expenditure 18.3 16.7 164 20.4 (203) 10.7 11.3 11.2
EBITDA 16.3 21.0 (469) 16.1 13 19.1 17.0 17.9
Net profit 11.4 15.9 (450) 11.5 (13) 14.1 12.6 13.3
Tax Rate 27.2 26.4 78 26.9 21 26.4 25.3 25.3
Source: Edelweiss Research, Company
BRITANNIA INDUSTRIES
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Company Description
Britannia is the value leader in the biscuit category and one of the oldest brands in
India. Britannia has a presence in the biscuit, bread, cakes, rusk and dairy segment.
In biscuits the company has brands like Good Day, Crackers, Nutrichoice, Marie Gold,
Tiger, Milk Bikis, Jim Jam, Bourbon, Little Hearts, Pure Magic and Nice Time.
Britannia is focussed on driving growth through its 7 power brands – GoodDay, Tiger,
Marie, Milk Bikis, 50:50, Treat and Nutri Choice. Britannia is present in dairy with
value added products like cheese, yogurt, flavoured milk, butter etc and plans to go
for full integration of this business. Apart from this the company is also present in
cakes and rusks which remain a key focus area. On the international front Britannia
exports to many countries and has international subsidiary in Middle East.
Investment Theme
Britannia is expected to outperform the industry growth led by strong innovation
pipeline and distribution expansion. The company is focusing on reducing the gap
with Parle and is driving inroads in the market where it is weak i.e. the hinterland.
Britannia is not only launching new products but also relaunching its key brands (like
GoodDay, Milk BIkis and Tiger) which are yield good results. The company is soon
going to commission its R&D facility which will also give a boost to innovation.
Britannia is however targeting cost savings of INR2.3–2.7bn for FY20, which will
protect margins, while rising mix of premium products (versus the value segment)
will boost margins.
Key Risks
Increased competitive intensity: Rising competitive intensity (especially from players
like Patanjali) can potentially result in volume pressures. Also, it can result in
increased A&P spends and investments towards the brand resulting in margin
pressure. Maintaining market share becomes challenging in such a scenario.
Raw material prices: Rise in the raw material prices like wheat, flour, RPO, milk can
lead to pressure on the gross margins. Inability to pass on the pricing pressure to
consumers due to higher competition can result in further pressure.
Rural slowdown: Biscuit is a highly penetrated category and slowdown, particularly
in rural areas, will lead to slowing of the category growth rates.
Failure in new innovations and segments: Britannia has a strong pipeline of new
innovations and it also plans to solidify its hold in the dairy, cake, rusk and
international markets. However, failure of new launches and disappointing entry in
new segments cannot be ruled out completely.
Edelweiss Securities Limited
BRITANNIA INDUSTRIES
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Additional Data Management
MD Varun Berry
CFO Mr. N Venkataraman
CS Mr. T.V. Thulsidass
Non Ex Chairman Mr. Nusli N Wadia
Auditor Walker Chandiok & Co LLP
Holdings – Top 10* % Holding % Holding
LIC 6.64 Sbi Arbitrage 1.07
Arisaig Partner 1.51 Sbi Funds 1.07
Arisaig India 1.50 Nomura Holdings 0.95
Blackrock Inc 1.18 Vanguard 0.90
Icici Pru AMC 1.11 Fundrock Manage 0.74
*Latest public data
Recent Company Research Date Title Price Reco
20-May-21 ICDs ruffle investors; focus on GoAir IP; Edel Flash
3534 Buy
27-Apr-21 Volumes strong; high costs dent margin ; Result Update
3540 Buy
08-Feb-21 Growth moderates as expected; Result Update
3542 Buy
Recent Sector Research Date Name of Co./Sector Title
30-Jul-21 Marico Gross margin disappoints; H2 brighter; Result Update
29-Jul-21 Colgate-Palmolive Market share growth critical for re-rati; Result Update
28-Jul-21 Nestle India Consistent despite covid blues; Result Update
Rating Interpretation
Source: Bloomberg, Edelweiss research
Daily Volume
Source: Bloomberg
Rating Distribution: Edelweiss Research Coverage
Buy Hold Reduce Total
Rating Distribution* 173 54 19 247
>50bn >10bn and <50bn <10bn Total
Market Cap (INR) 215 39 5 259
*1 stocks under review
Rating Rationale
Rating Expected absolute returns over 12 months
Buy: >15%
Hold: >15% and <-5%
Reduce: <-5%
TP3,261
TP3,588
TP4,140
2125
2530
2935
3340
3745
4150
Jul-18 Jan-19 Jul-19 Jan-20 Jul-20 Jan-21
(IN
R)
BRIT IN Equity Buy Hold Reduce0
2
4
6
8
10
Jul-18 Jan-19 Jul-19 Jan-20 Jul-20 Jan-21
(Mn
)
BRITANNIA INDUSTRIES
Edelweiss Securities Limited
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Aditya Narain
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