MOSL: BRITANNIA (Buy)-Growth momentum getting stronger-Continuing new launches in low unit packs aiding growth
BRITANNIA: Growth momentum getting stronger; Continuing new launches in low unit packs aiding growth
(BRIT IN, Mkt Cap USD8.9b, CMP INR4733, TP INR6100, 29% Upside, Buy)
Britannia’s (BRIT) recent launch of lower unit packs (LUPs) in the creams segment (under Treat JimJam brand) offers ‘value for money’ and also caters to customer aspirations. The creams category is large (INR18b) and highly profitable (net margins 2x that of category), but has so far been urban-focused. We note that the company has already done well with LUPs for its premium cookie brand Good Day – also in rural areas where demand for LUPs is good. Thus, creams LUPs should help the company to penetrate well in the rural markets and drive incremental volume growth.
Strategy (current and future) for incremental volume growth is focused on:
- Increasing rural salience: A combination of efforts (rural distribution expansion, dedicated focus on five key states in central India, new products and new pack sizes) over the past few years has helped BRIT to double its rural sales to INR15.56b. The company sees huge headroom for growth in rural markets, and expects revenue contribution from rural to increase to 30-35% (from ~20% now) over the next 2-3 years.
- Rapid growth in distribution: Distribution expansion for BRIT has been massive, with its direct reach doubling over the past three years to 1.56m (overall reach of 4.7m outlets at end-FY17, including 0.7m outlets added over the past year). Its direct reach as of 2QFY18 stands at 1.8m outlets (second highest after HUL), implying addition of ~0.24m outlets in 1HFY18. BRIT has also set up 13,000 distribution points across rural areas to cater to this market in a better way. We believe that the company should not be benchmarked against Parle's reach of 5.8m outlets (BRIT is narrowing the gap year after year on total reach; in terms of direct reach, BRIT already is twice as large as Parle), given that biscuits is a low-cost/high-velocity consumption product and that there is potential to boost the reach to ~9m outlets.
Britannia Industries is a food-products corporation based in India. Co.'s principal activity is the manufacture and sale of biscuits, bread, rusk, cakes and dairy products. Co. manufactures and distributes products such as biscuits, high protein foods for children as well as digestive-aided ingredients for older adults, convenience foods such as powdered dairy creamers, breads, cookies, snack-cakes and rusk, crackers, cheese, marine products and other related food products. Co.'s brand of products include Tiger, Mariegold, Treat, 50-50, Good Day, Milk Bikis, Little Hearts, Pure Magic, NutriChoice Bread and Milkman.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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