MOSL: BRITANNIA | FY17 ANNUAL REPORT-Well positioned in a high-potential market-Scouting for more growth opportunities

​Britannia | FY17 Annual REport: Well positioned in a high-potential market; Scouting for more growth opportunities to stay ahead of competition

(BRIT IN, Mkt Cap USD6.8b, CMP INR3832, TP INR4450, 16% Upside, Buy)

• Key takeaways from Britannia’s (BRIT) FY17 annual report:-Considerable investments toward R&D in recent years leading to the launch of a slew of products
• Exhibited massive improvements in distribution, particularly direct distribution
• Ambitious expansion plans signify management's confidence on long-term growth prospects, despite near-term challenges
• Massive growth opportunity in each of its key product categories, such as biscuits, cakes, rusks and other adjacencies
• Company sees potential for joint ventures and distribution tie-ups

• Existing categories offer high-growth potential: (1) Biscuits: Low per capita consumption in India and premiumization are likely to present attractive growth opportunities, in our view. This is expected to be driven by the company's efforts on R&D, distribution expansion, understanding of consumer behavior, and large-scale capacity expansion. (2) Cakes: This segment is dominated by unorganized players. Thus, BRIT's capabilities on innovation/achieving longer shelf life for its products without compromising on quality place it well to take share away from unorganized names, especially post GST implementation. (3) Rusks: The company is well positioned to eat into the share of unorganized players in this segment too, driven by its efforts on innovation, market leadership and manufacturing scale. We note that both the cakes and rusks categories can also leverage significantly on BRIT's wide distribution reach of 4.7m outlets (including 1.55m outlets direct reach) in the biscuits segment.