Prices of some raw materials – wheat, edible oil and HDPE (packaging material) – have corrected. Only sugar prices have surged y-o-y.
Given the fact that the company has raised prices of some SKUs, reduced weights of some products, and with cuts in excise duty (by 400bps) on biscuits with MRP >Rs100, we expect margins to improve.
As the health and wellness segment is on the rise, the Nutrichoice portfolio (digestives, cream crackers, multi-grain and sugar-free biscuits) is doing well. As no competitor has differentiated products in this space, Britannia could grow rapidly without compromising on margins.
Britannia expects profitable growth without unduly worrying over market share. It plans to launch products where competition is low.
The company has also introduced a major range with extra iron and has removed Transfats. This is expected to help, as it is the only one to take such steps, educating customers about healthy snacks.
We retain our BUY rating on Britannia with a target price of Rs1,750 based on a target PE of 15x on FY10e earnings.