India
NRI
Pick Of the Week – State Bank of India
Every week, we recommend a well-researched fundamental equity investment as our ‘Pick of the Week’. Handpicked after a thorough analysis of the business, industry, and economy, this recommendation has a higher potential of earning good returns over a horizon of 6 - 9 months.
Investment Rationale
Market share gains in core categories: Despite biscuits market growth slowing down, BRIT continued to gain market share ahead of competition and has narrowed its gap with the No. 1 player in the category during Q3FY20. Faster growth in premium segment ahead of value segment has aided in market share gains. In addition to biscuits, BRIT has gained market share in new categories like wafers and milk shakes
New categories and NPD fine tuning: Given the slowdown in biscuits category, BRIT has taken a conscious call to fine tune its products in new categories like croissants and salty snacks as demand pick up becomes more stable and visible. We believe, Government measures like support to rural economy, 4% raise in Dearness Allowance for Central Govt employees, consumption should get a boost
Distribution penetration offers headroom for growth: Britannia has an overall distribution reach of 5.5 million outlets. Of these, it reaches directly to 21.7 lakh retail outlets and 21,000 dealers (3,000 dealers added in Q3FY20). With consistent focus on distribution expansion, BRIT has narrowed the gap with the No. 1 player. The gap with largest distributed brand is now just 0.8 million outlets which it expects to bridge soon and thereby become the largest player over the medium to long term
Cost savings and easing inflation concerns to drive margins: BRITs key RMs like wheat, crude and crude palm oil prices have corrected sharply (20%/44%/25% resp) since making its highs in Jan 2020. All point towards a soft RM price scenario for Q4FY20 that could support margin expansion. BRITs EBITDA margins have displayed a healthy 170bps expansion since FY17 upto 9MFY20. Further, BRITs margins could further get an impetus from its cost saving target at 2% of net sales for FY20, tax savings from new plants and reduced plastic consumption along with pricing action which would aid BRIT report healthy margins going forward in FY20
We Recommend
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CMP
₹2,759
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Target Price
₹3,035
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Potential Upside
10%
* Note: Stock Investment horizon approx. 6-9 months. CMP as on 13th March, 2020.
Please refer the research report disclaimer before making an investment decision.