britannia industries healthy indulgence cmp target...

Britannia Industries – Healthy Indulgence CMP

Rs.2,583

Target

Rs.3,005

Rating

BUY Executive Summary

Stock performance (%)

1m 3m 12m

BRIT -6% -13% 20%

Sensex 8% -5% -9%

BSE FMCG 6% -6% 1%

Financial summary

Year Revenues (Rs. mn) EBITDA (Rs. mn) PAT (Rs. mn) EPS (Rs.) P/E(x) ROE (%)

FY15 78,584 8,639 5,827 48.6 53.2 57.3%

FY16E 87,736 12,448 8,465 70.6 36.6 55.8%

FY17E 99,458 14,219 9,534 79.5 32.5 39.2%

FY18E 1,14,547 16,804 11,627 96.9 26.6 37.3%

Date 30th Mar 2016

Market Data

Bloomberg BRIT

Shares o/s 120mn

Market Cap Rs. 310bn

52-wk High-Low Rs. 3,435-2,007

3m Avg. Daily Vol Rs. 586mn

Index member BSE 200

Latest shareholding (%)

Promoters 50.7

Institutions 27.8

Public 21.4

Initiating Coverage Initiating on Britannia Industries (BRIT) at this stage can be viewed as discovering the genius of Sachin Tendulkar as late as in

2000s only. However, unlike human beings, companies can re-invent themselves, time and again, and can remain in the play for

a much longer innings. We believe BRIT is one such case in point with strong economic moats to help deliver returns in the

medium term.

BRIT, after a change in its leadership in 2012-13, scripted one of the finest non-linear earnings growth stories that the FMCG

sector has witnessed in the recent past (FY10-15 CAGR – Revenue: ~16% , PAT: 35%). By improving efficiencies in each facet of

its business – Organisation, Supply Chain and Customer Interaction - BRIT has expanded its EBIDTA margins by a whopping

~942bps in FY10-16E. Though most of the low hanging fruits on the cost optimisation have already been plucked, a leaner, fitter

organisation sets the right base for BRIT to consolidate its leadership in the biscuit segment and also expand its brand equity

and expertise into naturally adjacent food segments. Factoring in for near term drivers of premiumisation + distribution led

growth and scale led margin expansion, we forecast revenue & PAT CAGR of ~14% & ~17%, respectively, thru' FY16-18E. We

initiate coverage on BRIT with a BUY rating and a TP of Rs. 3005 (~31x FY18E EPS).

Distribution gap to aid penetration momentum: Given BRIT’s direct distribution reach of ~3.2mn outlets Vs ~6mn outlets of Parle, we

sense an exciting opportunity for BRIT to increase biscuits volumes through expanding distribution, especially in the ‘Hindi speaking belt’.

On analysis, cracking Uttar Pradesh market would be the key, as it is one of the largest biscuit consuming states in India but

BRIT currently has a negligible, single-digit market share in UP.

Premiumisation opportunities: Biscuit industry is continuing to see huge premiumization, triggered after the entry of ITC and driven by

rise in indulgence and demand for healthier offerings. BRIT, aided by incessant R&D investments has also capitalized on this trend and

has launched several premium offerings, by leveraging its power brands. We see this trend to persist and strengthen further with BRIT

leading the way for the industry.

Leaner-Fitter : We understand that instead of making cost optimisation a one-time exercise, BRIT’s commitment to the cause is constant

and result oriented in nature. Initiatives such as consolidation of factories, ‘close to market’ manufacturing locations and higher usage of

alternative fuels in production and others should continue to drive margin efficiency in near term-medium term.

‘WHITE GOLD’ – Dairy prospects: From our analysis of the peers in dairy sector, we believe that there is no uniform set of margins-

capital efficiency profile in the sector. However, except for a few pockets in the sector, margin-capital efficiency profile remains below

BRIT’s standalone business. With BRIT yet to confirm its expansion plans of this business, we have assumed cautious optimism on the

prospects of dairy business in our projections.

Fledgling prospects: Given the drive to emerge as a ‘total foods’ company, we believe there are natural operational and market place

efficiencies for BRIT that they can exploit to enter categories as Snacks, Breakfast Cereals, chocolates and many more.

Tejash Shah

[email protected]

+91 22 4228 8155

Gnanasundaram S

[email protected]

+91 44 4344 0062

Madhav PVR

[email protected]

+91 44 4344 0060

mailto:[email protected]




Rs.2,583

Target

Rs.3,005

Rating

BUY

Corporate Factsheet

Company Background

Established in 1892 and rechristened as Britannia Industries in 1979, the company is one of the largest food companies in the country with

operations in the segments of Biscuits & protein food, dairy, bread & rusk and cakes. With a legacy of over 125 years, the company is

currently owned by the Wadia group which also owns companies like Bombay dyeing, Bombay realty and Go Air among others. Though

promoter owned, the day to day operations of the company are professionally managed.

Distribution Network Britannia’s products are retailed in over ~3.2 mn outlets which are distributed through ~51 depots and ~3700 stockists.

Management depth

Board of Directors:

Mr. Nusli N Wadia, Promoter and Non-Executive Chairman; Mr. Varun Berry, Managing Director; Mr. A K Hirjee, Promoter and Non-

Executive Director, Mr. Jeh N Wadia, Promoter and Non-Executive Director; Mr. Ness N Wadia, Promoter and Non-Executive Director; Mr.

Nimesh N Kampani, Non-Executive and Independent Director; Mr. S S Kelkar Non-Executive and Independent Director, Mr. Avijit Deb, Non-

Executive and Independent Director; Dr. Ajai Puri, Non-Executive and Independent Director, Mr. Nasser Munjee, Non-Executive and

Independent Director; Mr. Keki Dadiseth Non-Executive and Independent Director, Dr. Vijay L Kelkar Non-Executive and Independent

Director, Mrs. Ranjana Kumar Non-Executive and Independent Director

Corporate Structure The company has around 23 subsidiaries and associate companies situated both in India and abroad. Outside India, BRIT has 2

subsidiaries in the middle east and has 3 joint ventures in the African subcontinent and the USA.

Revenues by Geography

(FY15)

Britannia Industries derives around ~95% of its revenues from India and rest from exports (exports to over ~70 countries) and subsidiaries

abroad.

Category wise revenue

share (FY15) Biscuits & high protein food: ~78%, bread & rusk:~10 %, cake:~5%, Dairy:~6 % and others:~1 %

List of Brands Good Day, 50:50, Time Pass, TOP, Nutri Choice, Marie Gold, Tiger, Milk Bikis, Jim-Jam, Bourbon, Little Hearts,

Power Brands Out of the 13 biscuit brands, BRIT has identified five power brands viz. Good Day, NutriChoice, Tiger, 50:50 & Marie Gold

Manufacturing Facilities The company has around 80+ manufacturing units (majorly third party suppliers) situated across the country which include 40 biscuit units,

13 dairy units, 12 bread units, 9 Rusk units and 6 cake units.

Credit Rating ‘CRISIL AAA/Stable’ for the long term bank loan facilities and ‘CRISIL A1+’ for the short term facilities signifying the highest degree of safety

Corporate Banking Bank of America N. A., Bank of Tokyo-Mitsubishi UFJ, Citibank N. A., HDFC Bank Limited, ICICI Bank Limited, Indian Bank, Standard

Chartered Bank, State Bank of India, The Hongkong and Shanghai Banking Corporation Limited, The Royal Bank of Scotland N. V.

Auditors B S R & Co. LLP

Company Factsheet


Rs.2,583

Target

Rs.3,005

Rating

BUY Corporate timeline – Snapshot of ownership change

Britannia, started out as a tiny operation in a modest house in Calcutta (now Kolkata), with an initial investment of Rs 295. 1892

The company was acquired by two Gupta brothers; The Guptas moved operations to Dum Dum, continuing them under the name V.S. Brothers. 1897

Incorporated as Britannia Biscuit Company, after English businessman C.H. Holmes teamed up with the Guptas. First biscuit maker in India to mechanise production. 1918

Britannia became a subsidiary of Peek, Frean & Co., a leading British biscuit maker. 1924

Company went public during which it was established as an Indian company with more than ~60% Indian shareholding. 1978

Danone believes Pillai was defrauding Britannia. Danone, along with Wadia, wrest Pillai's 38% stake in the company, forcing him to cede control of Britannia.. 1993

The company took over distribution of biscuits from Parry's taking control of both manufacturing and marketing. 1975

Company changes its name to Britannia Industries Ltd from Britannia biscuit company ltd. 1979

Rajan Pillai, bought ~5% in Britannia in addition to acquiring Associated Biscuits International stake for $44 million, making him the largest shareholder in Britannia. 1980’s

Sunil Alagh, then managing director of Britannia got sacked in June for allegedly misusing company money. Relationship between Danone and Mr.Wadia in turbulence 2003

Wadia accuses Danone of registering the Tiger biscuit brand, developed in India, in 70 other countries without Britannia's consent. 2006

Wadia sues Danone for breach of a non-compete agreement. by signing an agreement with another company as Avesthagen in India. 2007

Britannia supplies biscuits to soldiers during World War II 1939-45

In April 2009 Danone agreed to sell its 25.48 per cent stake in Britannia to Wadia thereby increasing the holdings of Wadia group to 50.6% 2009

Pillai brings in Danone as an equal partner into Britannia towards the end of the 1980s, with the firm holding a 38 per cent stake. 1980-92

Britannia announces a joint venture (Britannia New Zealand Foods) with Fonterra Co-operative Group of New Zealand. 2001

Britannia Industries acquires Fonterra’s 49% stake in Britannia New Zealand Foods; becomes 100% owned subsidiary 2009

2005-06 Vinita Bali appointed the CEO of Britannia Industries and takes over as the managing director in 2006

2014 Britannia appoints Varun Berry as new managing director


Rs.2,583

Target

Rs.3,005

Rating

BUY Timeline – A brief history of the brands

Britannia launches the delicious Bourbon biscuit in India. 1955

Britannia Cakes hit the markets. 1963

Britannia Bread is introduced in Calcutta and Chennai 1976

Good Day, a new biscuit was launched during the year

2004

The Company launched new brand of biscuit, namely, CIRCUT

1986

Brand PURE MAGIC was extended nationally

1997

Good Day adds Choconut to its range.

1990

Britannia launches Good Day ‘Chocolush’ and Deuce

1989

Pista Badam was added to GOOD DAY range of biscuits

1989

Elaichi Cream and Petit Beurre are launched

2016

Cashew Badam variant of the brand Milk Bikis and Pure Magic biscuit vanilla flavour is launched

Britannia also launches Tiger biscuits, Chekkers and Jim Jams.

1989

Launches Little Hearts and 50-50 biscuits.

1990

1993

1999 Britannia launches its brand of flavoured milk and the famous Britannia Encyclopaedias

2000 It also launches the product Vita Mariegold Milkman Lassi and Mlikman Cold Coffee

2009 Britannia Bread launched Honey & Oats Bread, Multi-Grain Bread, Whole Wheat Bread and Multi-Fiber Bread.

2015 Britannia launches Good Day ‘Chunkies’ & ‘Chocolush’, Deuce, Nutrichoice Heavens

2005 Relaunches the brand Tiger also launches 50-50 Pepper Chakkar.

POWER BRANDS

Page 4


Rs.2,583

Target

Rs.3,005

Rating

BUY Snapshot of company profile

Britannia’s revenues have grown at a CAGR of ~14% over last five years

Source: Spark Capital Research

Biscuits continue to remain the major product offering of the company


Non-linear growth in margins witnessed over the last five years


BRIT’s capital efficiency is robust, at par with best in the industry


Biscuit & High

protein food, 78%

Bread & Rusk,

10%

Cake, 5%

Dairy, 6% Others, 1%

46 55 61 68

78 87

99 114

0

20

40

60

80

100

120

FY 11 FY 12 FY 13 FY 14 FY 15 FY 16E FY 17E FY 18E

In R

s.b

n

Net Sales

44%

54% 54%

59% 57%

56%

39%

16%

25%

35%

42%

49% 51%

38%

0%

10%

20%

30%

40%

50%

60%

70%

FY 11 FY 12 FY 13 FY 14 FY 15 FY 16E FY 17E

ROE ROCE

34.3% 35.6% 37.6%

39.7% 40.3% 42.6% 42.2% 42.2%

5.1% 5.7% 6.8% 9.1%

11.0% 14.2% 14.3% 14.7%

2.9% 3.6% 4.2% 5.7% 7.4%

9.6% 9.6% 10.2%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%


Gross Margins EBITDA Margins PAT Margins


Rs.2,583

Target

Rs.3,005

Rating

BUY Product & Brand Overview

Total Offerings

Bread & Rusk

(~10% of revenues*)

International

(~1% of revenues*)

Biscuits & Protein food

(~78% of revenues*)

Cakes

(~5% of revenues*)

Dairy

(~6% of revenues*)

Source: Spark Capital Research, *FY15


Rs.2,583

Target

Rs.3,005

Rating

BUY

Brand

Positioning

Power

Brands

Rural

Innovation

Brand

'Britannia'

Healthy offering

"We have looked at adding what is good in our products and removing

what is not good, for example transfat; removing that doesn't do

anything to the taste.”

– Ms Vinita Bali

Traditional

"The company was sitting on past laurels, was laid back, and not really

bothered about offering consumers delightful products, the fundamental

ingredient for the success of any food company,“

– Mr.Varun Berry

Creating brands

“Tiger, Good Day, Milk Bikis, Treat, Marie Gold, 50-50 and Nutri Choice

are the seven power brands behind which we provide every element of

marketing mix.”

– Ms Vinita Bali

Rural, an opportunity

"We identified rural as a weakness in certain states and launched some

initiatives in rural distribution, making sure we got better coverage. That

gave us very good returns”

– Ms Vinita Bali

Innovate & renovate

“If you think about it differently, you cannot engineer a 20% plus

growth without really, having lot of innovations, as well as, a lot of

renovations. Within the biscuit portfolio, we have been innovating and

renovating for a long time”. – Ms Vinita Bali

Organoleptic

"It was a fact that we were not focusing on the organoleptic part of our

portfolio. We had somehow become industrial in our outlook.”

– Mr.Varun Berry

Contemporary

"It is much more competitive now. There is absolutely no room for

inertia.“

– Mr.Varun Berry

Leveraging brands

“Britannia used to advertise 16 brands with negligible spends behind

each brand. This has been cut to five focus brands, resulting in

significant improvement in visibility, offtake and market share”

– Mr.Varun Berry

Rural, A growth driver

"We set up a hub-and-spoke rural distribution model and within a year

increased our rural reach by over 8,000 outlets. Today, rural is growing

faster than urban.”

– Mr.Varun Berry

Consolidate & Innovate

"I was clear we needed to get the foundation in place before we do

anything extraordinary. Now that we have our distribution in place you

will see a lot of innovations coming from Britannia,”

– Mr.Varun Berry

19.2%

17.1%

Britannia revenue growth Biscuits Industry growth

FY07-12 CAGR

12.5%

12.0%

Britannia revenue growth Biscuits Industry growth

FY12-16 CAGR FY07-12 CAGR FY12-16 CAGR

Differentiated approach towards brand and revenue growth drivers


Rs.2,583

Target

Rs.3,005

Rating

BUY Raw material savings determined the approach to cost control mechanism

Raw

material/

Price

Increase

SKU's

Premiumization

Competition

Production

facilities

Cost-control through revenue management

“Through a combination of revenue management and cost

effectiveness, we have adopted various measures to cut costs and

improve productivity to maintain margins. We have also focused on

reducing energy requirements and cutting out waste through better use

of energy”

Contract manufacturing-integral process

"We have been increasing our capex in the last 2-3 years than the Rs

50 crore we usually used to invest annually," Bali said. "Even last fiscal,

we had set up two plants in the east apart from expanding capacity in

our contract manufacturers."

More SKU's, more choices

“You see if you’re out of home, and we sell a lot at railway platforms,

and bus terminals, and you’re looking for something substantial to eat,

and you buy a pack of biscuits, you would get 17-18 biscuits – you

wouldn’t want to eat so many, what would you do with the rest? That’s

why people were not buying those packs which were designed to be

take-home packs.”

Focus remains on staples

"Even though the rate of growth is much higher in the premium

segment, in terms of sheer volume, the staples contribute to a very

significant proportion of the total market and therefore, our business.

So, we will see a gradual shift as we have begun to see in the last few

quarters.”

Competition drives category growth

"Competition is good. What competition does is it brings in new

investments. New investments in a category leads to higher growth."

Cost-control through energy efficiency

"We now have much larger plants which give us better efficiencies. We

have high tech ovens today, which consume less energy. But the most

critical point is that we have reduced waste dramatically"

Focus on in-house manufacturing

“In whichever state we have put a factory in, we have seen an

improvement. Also, it will help us to keep our technology in-house – the

technology we use to make differentiated products.”

Lesser SKU's, better focus

"We’ve reduced almost 15 SKUs (stock-keeping units) this year; last

year, we had reduced them even more. It just simplifies our operations

from a factory and a sales standpoint. And it’s helping us a lot. We

derive a lot more from reducing these SKUs and focusing on bigger

SKUs. It’s a continuous process and yes we will continue to evaluate

our portfolio and remove and add SKUs going forward."

Focus on premiumisation

"We are clear that we want to keep growing in the premium segment.

No amount of pricing change or trade discounts will help us gain share

in the value segment. There are enough and more players operating

there. Too much pricing or discount activity could reduce our gross

margins in the segment.”

Competition drives our growth

"I’m happy that we have competition, and we have good competition.

There is the old, established Parle and a new innovative ITC. So it’s a

good mix of rivals who keep us on our toes.“

FY07-12 CAGR FY12-16 CAGR


Rs.2,583

Target

Rs.3,005

Rating

BUY

Earnings

drivers

A&P

Dairy

Adjacencies

Employee's

'Increasing sales to increase profitability'

"As you know we have had 3 plans that we have been working on

primarily because what are the things we are determined to do is to

enhance the margin of our business. So we have been focussed on

how we manage the quality of revenue, how we manage the

effectiveness and efficiency of our cost and how we create innovation

not just in product and packaging, but business model innovation to

add new value and those three priority areas actually do not change for

you”

'Lower accountability'

"We had a lot of turnover of distributors, the organization structure

within sales was not putting accountability and responsibility together in

the same people.”

Cricket & Bollywood are lazy advertising

Agencies seem to be responding to the national obsession with

Bollywood and cricket by using film and cricketing stars to sell

everything from soaps to health foods to cars. She labels this

phenomenon as lazy marketing and lazy advertising. “Clients get the

advertising they deserve,”

"As of now, dairy is just 10% of the revenue and the potential is large,"

That remains our endeavor. If you look at the food pyramid in India, the

largest is cereal and cereal-based products. We are there with our

baked snacks. Mind you, we dominate baked snacks that are sweet.

'Pruning cost to drive profitability‘

"Fixed cost rationalization: Fixed costs increased dramatically to

prepare for high growth that the company had planned, but which did

not come through. Over the last three years, these costs have been

rationalized"

'Higher responsibility'

"Promotion of several in- house experienced hands by 2-3 levels of

hierarchy by giving challenging roles has been the biggest contributor

to the turnaround"

Cricket & Bollywood are what works in India

'Tell me what works in India? Cricket and films? We had earlier walked

away from sports and films. Now, we are getting back to that. We will

keep investing behind big properties in these two areas,'

"We will announce our dairy strategy in the next three-four months."

The plan, he says, is to look at an integrated strategy, which will

include a clear milk collection and processing model."

These were deflecting focus from Britannia's core business of biscuits,

from where it derived 80% of its revenues. He did away with breakfast

cereals and snacks, which predecessor Bali launched in 2012. He cut

back on size variants.

FY07-12 CAGR FY12-16 CAGR

Growth in profitability Vs Profitable growth


Rs.2,583

Target

Rs.3,005

Rating

BUY Investment Thesis

Britannia Industries CMP

Rs.2,583

Target

Rs.3,005

Rating

BUY #1 Distribution gap to aid penetration momentum – Reach & throughput opportunities

Urban consumption for the industry higher in value terms…

Source: Industry sources & Spark Capital Research

Biscuits distribution continues to be dominated by ‘kirana’ stores…

Source: Industry sources & Spark Capital Research

…as ‘push’ and ‘pull’ factors aid in driving demand


…as ‘premium’ categories with niche benefits gain acceptance

Source: Media reports & Spark Capital Research

Unlike several other FMCG categories, Biscuits distribution expansion promises varied benefits across urban and rural spectrum

P

U

S

H

P

U

L

L

1. Remains largely

impulse due to

higher number

of LUP’s

2. Higher volume

share of value

based offerings

3. Presence of

smaller players

1. Increase in

health &

indulgence

positioning

2. Increase in

media

investments

3. Rising brand

loyalty

6 6 6 7 7 7 7 3 3 4 4 4 4 4

82 82 82 82 82 82 81

9 8 8 8 8 8 8

0

20

40

60

80

100

2009 2010 2011 2012 2013 2014 2015

Modern trade Paan' Shops Kirana' stores Others

37% 38% 38% 38% 39% 39% 39%

63% 63% 62% 62% 62% 61% 61%

0%

20%

40%

60%

80%

100%

2009 2010 2011 2012 2013 2014 2015

Rural Urban

Brand ~Size (Rs.bn) Functionality Rural Vs Urban

Glucose 40 Need based Rural

Cookies 70 Partly Indulgent Both

Creams 50 Indulgent Urban

Crackers 40 Need Based Rural

Marie 30 Indulgent Rural

Health 8 Health based Urban

Others 10 NA Both


Rs.2,583

Target

Rs.3,005

Rating

BUY

Britannia rightly employing dual strategies to capitalize on urban ‘premiumizing’ trend and rural ‘penetration’ trend

Source: Company presentations, media interviews & Spark Capital Research

BRIT is targeting to increase its reach in Uttar Pradesh, Madhya Pradesh, Gujarat and Rajasthan to bridge gap with

Parle

BRIT has doubled its reach in 4yrs & expects to further double in 4yrs

Source: ROC filings, Company Reports & Spark Capital Research

Scope for expansion seems humongous considering rivals reach


Rural,30%

Urban, 70%

Britannia Rural market - Increasing reach Britannia Urban Market - Throughput increase

1. Split route (2 sales person visiting stores

with different set of goods)

2. Expansion of direct reach & focus on

Route to Market Strategy

3. Increase in technology usage, urban

extraction programs and loyalty programs

1. Hub & Spoke Model – to increase the width

of distribution (number of stores)

2. Concentrating on expanding distribution

in the Hindi Speaking belt (4 states)

3. Focussed brands for selective

geographies

RESULT: Lines sold have increased by~25% RESULT: Rural distributors higher by ~50%

0.60 0.75 0.80

1.00 1.20

0.00 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90 1.00 1.10 1.20 1.30

FY12 FY13 FY14 FY15 FY16

Number of direct reach outlets (mn)

3.2

6 7

2.8

1

0

1

2

3

4

5

6

7

8

Britannia Parle Biscuits industry

mn outlets reached

Largely,

Hindi

speaking

belt

Rural

interiors

#1 Distribution gap to aid penetration – Dual strategy from BRIT augurs positively


Rs.2,583

Target

Rs.3,005

Rating

BUY

Biscuits Industry Size: Rs.~63bn

Value Contribution Share: ~25%

Volume Contribution Share: ~32%

CAGR : 2010-15 : ~13% , 2015-20E: ~11%

Plain biscuits volume share:~59%

Plain biscuits Value share:~24%

NORTH INDIA

SOUTH INDIA

NORTH EAST & EAST INDIA

WEST INDIA

• Britannia is looking to increase its presence in the ‘Hindi

Speaking Belt’ states comprising of Uttar Pradesh.

Madhya Pradesh, Rajasthan and Gujarat,

• Given these are predominantly ‘glucose’ biscuit markets,

Britannia has re-launched Tiger brand biscuits signalling

its intentions to focus on this market

Source: Bloomberg BI & Spark Capital Research


Contribution Share: ~25%


CAGR : 2010-15 : ~13% , 2015-20E: ~12%






CAGR : 2010-15 : ~15% , 2015-20E: ~14%

Plain biscuits volume share: ~51%





CAGR : 2010-15 : ~16% , 2015-20E: ~14%



OPPORTUNITY STRENGTHS

#1 Distribution gap to aid penetration – North & West India promises opportunity


Rs.2,583

Target

Rs.3,005

Rating

BUY

Parle holding a dominant market share (higher than

Britannia by 1500 market share points)

Britannia holding a dominant market share (higher than

Parle by 1500 market share points)

Equally contested markets (Market share difference

between the two players within 1500 market share points)

• Despite BRIT indicating to

target 4 states, we believe the

real opportunity lies in Uttar

Pradesh (UP), which

contributes to ~14% of overall

biscuit market size and where

BRIT has negligible single digit

share.

• UP is predominantly rural

oriented where Parle’s glucose

variant remains the strong

market leader. Our channel

checks reveal that Parle’s

superior supply chain enables

them to promise better returns

to distributors/dealers.

• Parle’s strategy to sustain its

coinage pricing point across

raw material cycles have given

them a stronghold in the UP

market.

State Population % Rural % Urban

Himachal Pradesh 89.96 10.04

Bihar 88.70 11.30

Assam 85.92 14.08

Orissa 83.32 16.68

Uttar Pradesh 77.72 22.28

Chhattisgarh 76.76 23.24

Rajasthan 75.11 24.89

Jammu & Kashmir 72.79 27.21

Madhya Pradesh 72.37 27.63

Uttarakhand 69.45 30.55

India 68.84 31.16

West Bengal 68.11 31.89

Andhra Pradesh 66.51 33.49

Haryana 65.21 34.79

Punjab 62.51 37.49

Karnataka 61.43 38.57

Gujarat 57.42 42.58

Maharashtra 54.77 45.23

Kerala 52.28 47.72

Tamil Nadu 51.55 48.45

Mizoram 48.49 51.51

Goa 37.83 62.17

Nct Of Delhi 2.5 97.5

#1 Distribution gap to aid penetration – Central belt is the threat and opportunity

Source: Channel Checks, Census, Industry reports, Spark Capital Research

BRIT targeting states (in red) with

predominant rural population

Source: Census & Spark Capital Research


Rs.2,583

Target

Rs.3,005

Rating

BUY

Expansion in distribution touchpoints could result in BRIT enhancing its contribution from rural and in the value added segment…


Opportunity in expansion is exciting, but caution to be exerted given that the economics are not as favourable as in

current markets

…however the lucrativeness of the category seems challenged in terms of growth and margins given their low price points


0%

10%

20%

30%

40%

50%

60%

Britannia Parle

Contribution from Rural

0%

10%

20%

30%

40%

50%

60%

70%

80%

Britannia Parle

Contribution from value segment

~5x

0%

10%

20%

30%

40%

50%

Britannia Parle

Market Share in Value segment

~5x

0%

2%

4%

6%

8%

10%

12%

14%

Biscuits Plain biscuits

2015-2020E CAGR 10.5%

6.4%

0%

2%

4%

6%

8%

10%

12%

Britannia Parle

Operating Margins (%)

66

68

70

72

74

76

Britannia Parle

Price Point of Glucose variant (Per/Kg)

#1 Distribution gap to aid penetration – Expansion without upgradation has its perils

3.2

6

0

1

2

3

4

5

6

7

Britannia Parle

Distribution touch points (Mn outlets)


Rs.2,583

Target

Rs.3,005

Rating

BUY

Project ‘TIGER’’s success to be measured in breaking open the market and

premiumizing the market.

Source: Company Reports & Spark Capital Research

Brand ‘Tiger’s’ success to be a key monitorable, other brands at low SKU may add momentum but will not be base

growth driver

1. Volume growth in near term

could be challenging as

incremental distribution led

growth does not translate to

volumes.

2. Operating profitability could be

impacted due to the initial

investments incurred.

1. Failure to migrate could be

detrimental to margin profile

and impact operating

profitability.

2. Being stuck in a low growth

category without much

‘premiumization’ tail wind could

result in margins pressure

1. Having a strong incumbent in

Parle, Tiger’s acceptance by

dealers to be challenging

2. Ability to ensure consistent

supply by streamlining supply

chain.

3. Being pricier than Parle, brand

investments to advocate the

superiority of Tiger needed.

1. Migrating consumers could be

difficult given that glucose

variant remains a ‘need’ based

consumption habit

2. Given the limited shelf life,

trickier to anticipate demand of

a new market making supply

chain management crucial.

Rural Market S

T

A

G

E

1

S

T

A

G

E

2

Possible challenges Impact on P&L of a

failure

#1 Distribution gap to aid penetration – ‘Tiger’ to increase ‘prowling’ & ‘upgradation’

"If you look at the Hindi belt, it's very strong for the value segment and Parle rules here. We had not been able to get a strong distribution going in that

belt but last year we started and now we are at a stage where we feel confident. The entire Tiger brand is now getting relaunched. Next month we will relaunch value creams. I'm hopeful that will get us some more share here,“ – Varun Berry – Britannia CEO


Rs.2,583

Target

Rs.3,005

Rating

BUY #1 Distribution gap to aid penetration momentum – Certainty in uncertainty

#1 Distribution

gap to aid

penetration

momentum

DEVIL’S ADVOCATE

Market

Given that new markets are

predominantly rural markets,

rural growth drivers – Monsoon,

government spending,

infrastructure outlay are the key

monitorables

Industry

Undoubtedly in an attempt to

defend its existing turf, Parle

may undertake disruptive

actions that could impact

growth and margin levers.

Advent of Patanjali who is

significantly strong in North &

West markets could certainly

disrupt growth assumptions.

Britannia’s Actions

Expansion into these markets

through hub and spoke model

calls in for a competent supply

chain model, any inventory

mismatch could disrupt dealer

ROI’s thereby Britannia’s

fortune in these markets.

‘ALL IS WELL’

Market

Market could latch on to

premium products much quicker

than anticipated leading to

margin stability. Growth could

also exponentially improve.

Industry

Parle has also been offlate

looking to premiumize offerings

which could aid Britannia given

their superior offerings and

brand equity.

Conversion from traditional food

habits in states as Gujarat by

cross innovations (Aliva from

Pepsi) could lead to greater

acceptance of Biscuits as a

category.


Having already once failed with

‘Tiger’ brand, we believe

Britannia is well armored to

tackle challenges this time. Hub

& Spoke model ensures costs

are kept competitive .

Expansion into ‘Hindi Speaking Central India’ markets remains a key near term volume growth trigger, as per our calculation we believe if BRIT manages to gain

~300bps market share in a span of 2 years in the 4 states, biscuits revenue growth should increase ~14% CAGR over FY16-18.


Rs.2,583

Target

Rs.3,005

Rating

BUY

Savoury

Biscuits 14%

Cookies

39%

Plain Biscuits

18%

Sandwich

Biscuits 29%

Wafers

0%

#2 Premiumisation opportunities galore – Industry has been on ‘up trading’ track

Biscuit industry as other staples category has certainly been on the premiumizing path promoting indulgence and health based offerings

Source: Industry Reports & Spark Capital Research

Savoury

Biscuits 11%

Cookies

11%

Plain

Biscuits 65%

Sandwich

Biscuits 13%

Wafers

0%

2001

Savoury

Biscuits 14%

Cookies

35%

Plain

Biscuits 28%

Sandwich

Biscuits 23% Wafers

0%

2015 2020

2,495

>>>>>>>>>>>>>>>>>>NEED BASED>>>>>>>>>>>>>> INDULGENCE >>>>>>>>>>>>>> HEALTHY NEEDS

Hair Oil

Cooking Oil

Shampoo

Oral Care

Mosquito Repellent

Coffee/Tea

Biscuits

Loose Oil

Loose Oil

Soaps/Shikhakai

Tooth powder

Neem leaves

Loose powder

Glucose Biscuits

Coconut Oil

Refined Oil

Shampoo

Toothpaste

Coil

Branded SKU’s

Cookies & creams

Light Hair Oil/Value added

Rice Bran Oil/Olive Oil

Salon offerings

Value added toothpaste like

sensitivity etc

Insecticides

Green tea, Lemon tea etc

Indulgence & healthy offerings

471

1,688


Rs.2,583

Target

Rs.3,005

Rating

BUY

42.8 46.1

92.8 65.0

83.3 99.9

167.0

0.0%

0.1%

0.1%

0.2%

0.2%

0.3%

0

50

100

150

200

FY09 FY10 FY11 FY12 FY13 FY14 FY15

R&D (Rs.mn) % of sales

…thereby leveraging on its ‘power brands’

Source: Company Website & Spark Capital Research

Britannia too benefitted of the trend indicated by rise in price mix…


#2 Premiumisation opportunities – Britannia premium offerings led by innovation

…which were driven from innovative launches in the biscuits


BRIT has certainly made good use of the benign raw material environment by investing in brands through focussed

innovations

2.8%

8.9%

6.8% 6.1%

7.1% 7.0%

8.4%

4.6%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15

Price mix led growth (%)

BRIT’S innovation focusing on key brands to drive premiumization…


0 50 100 150 200 250 300

Current

Before

Number of Key SKU's


Rs.2,583

Target

Rs.3,005

Rating

BUY

Despite innovations being quickly replicated, Britannia’s strong brands straddling across price points to enable them fast forward premiumization benefits


#2 Premiumisation opportunities galore – Premiumization has been vertical

Premium

(Rs.100-

Rs.200 /kg)

Super

premium -

Above

(Rs.200/kg)

Mass -

Below

(Rs.100 /kg)

42%

24%

20%

Cookies

Britannia Parle ITC

70% 15%

15%

Filled Biscuits

ITC Mondelez Others

28%

56%

16%

Plain biscuits

Britannia Parle ITC

36%

15%

20%

Sandwich Biscuits

Britannia Parle ITC

Value for money Lifestyle Indulgence Indulgence Indulgence Lifestyle Nutrition

BRIT holds a dominant brands in mid market pricing which are expected to be leveraged for launching premium

offerings.


Rs.2,583

Target

Rs.3,005

Rating

BUY

New Launches:

Britannia Cookies

Treat–Choco Decker

Britannia Top

Vegetarian cakes

Treat–Chocoz

Nature Spice Cracker

Re-launches / new variants:

‘Pure Magic’ re-launch in new

vertical formats

#2 Premiumisation opportunities – Lower but focussed innovations in past 4 years

FY09….…..…..FY10……….....FY11…...……..FY12…...……..FY13…...……..FY14…………..FY15…………..FY16

New Launches:

50-50 Snackuits and

NutriChoice, Pure Magic Cream

Biscuits

Honey and Oats Marie Biscuits,

Nutri Choice Roasty–Roasted

Savory

Tiger Zor Chocolate, Britannia

rusk

Orange Cream,Pineapple

Cream,Mango Cream and

Strawberry Cream biscuits

GoodDay Chocochip and

Choconut, FreshBake

Butterscotch

New Launches:

Re-launch of Jim Jam

New chocolate variant in

Treat

New chocolate variant in Jim

Jam

Relaunch of Tiger Cream

Renovated pack for the Cake

range

"Renovated pack for the Pure

Magicand Bourbon ranges."

New Launches:

Chocolush

Deuce

Tiger Cream & Cookies

New Launches:

Nutrichoice – 5 Grain

Treat – Chocoz

New variants/re-launches:

Tiger–New Cream Range

Cakes-New flavours and

addition of fruit juice, Berry

Cherry, Chunk and

Vegetarian cakes

‘Bourbon’ relaunched in new

format

New Launches:

‘Treat-O’

‘Tiger Krunch’ cookies

Diabetic-friendly biscuits

under the Nutrichoice brand

‘Britannia Healthy Start

BREAKFAST CEREAL

Fruit Dhamaka & Almond

Cookies

Re-launches / new variants:

‘GoodDay Choconut’

New Launches:

"Differentiated variants of

Time PassClassic Salted."

New coffee variant in

Bourbon.

"Tighter pack for Good Day."

Tighter pack for Tiger.

New Launches:

Good Day Chunkies

NutriChoice Heavens

Re-launch of Bourbon

Re-launch of Tiger Glucose



Rs.2,583

Target

Rs.3,005

Rating

BUY

1. Stuck to ‘Value for Money’

price points even in adverse

raw material scenario

2. Established strong liaison

with suppliers & distributors

3. Launched premium offering

as Hide & Seek & Milano.

4. New age media promotions

1. Scale provides distribution

& sourcing leverage.

2. Attractive Brand equity

3. Robust supply chain to

ensure availability

4. Remains the largest and

dominating player in North

India.

1. Could leverage on the brand

and capitalise on changing

consumer preferences.

2. Remains a key hindrance to

any other player penetrating

into the north Indian market

3. Disrupt the premiumization

game for rest of the market

1. Under its mother brand

’Sunfeast’ has launched

products across pricing

range, with ‘hi-fi’ range

targeting value segment.

2. Innovative premium

launches

3. Higher A&P strength

1. Leveraging its Cigarette

business distribution

strength

2. Agri-business providing

sourcing advantages

3. Humongous cash flow to

support promotions and

innovations.

1. Reinvigorating focus on the

premium end with

innovation

2. High cash flow could enable

them to not only replicate

but also command better

advertisement space

3. Cut prices to gain share.

1. Has launched a portfolio

replicating all the offerings

available in the market.

2. However has not massively

undercut price to market as

in other categories

3. Has established a good

network of distributors.

1. Perceived ‘Natural’

proposition

2. Strong ‘word of mouth’

promotions

3. Large bouquet of offerings.

4. Increasing mileage and

popularity of ‘Patanjali’

1. Focus as of now does not

seem to be on biscuits, so

no immediate threat from

Patanjali on biscuits.

2. With taste remaining one of

the key purchase

consideration, acceptance

could be limited.

#2 Premiumisation opportunities – Minimal ‘disruptive’ competition from incumbents

Incumbents have largely played to their strengths in premiumization – BRIT & ITC focussing on super premium filled

categories while Parle focussing on cookie & creams category.

What have they done What they could do Strengths



Rs.2,583

Target

Rs.3,005

Rating

BUY #2 Premiumisation opportunities galore – Industry has been on ‘up trading’ track

Premium

(> ₹200)

Mid segment

(₹120-200)

Mass market

(₹75-120)



Rs.2,583

Target

Rs.3,005

Rating

BUY #2 Premiumisation opportunities – Certainty in uncertainty

#2

Premiumization

opportunity

DEVIL’S ADVOCATE

Market

Absence of inflation based

growth and slow down in

consumer spending could slow

down premiumization led

growth for the market.

Industry

Patanjali’s entry into biscuits

segment has certainly caused

jitters among incumbents. Lack

of focus in near term on biscuits

though to be minimal.

Parle has dominated the

glucose segment with Low unit

packs and coinage SKU’s, Parle

increasing focus on driving

glucose could prevent

premiumization in central Indian

markets.


BRIT has indicated to target the

central Indian markets with

Tiger glucose variants which

could de-rail its premiumization

led growth focus.

‘ALL IS WELL’

Market

Biscuits category has been

embarking on a premiumization

drive for some time now banking

on rising ‘indulgence’ and

‘health needs’ of Indian

consumers. Urban offerings to

be niche sophisticated offerings.

Rural offerings to be uptrading

from glucose variants.

Industry

ITC has built its ‘Sunfeast’ brand

by largely relying on innovation

led premium offerings. Mondelez

Oreo too has utilized

premiumizaton to gain share.

Absence of popular premium

western categories as Chocolate

coated biscuits, Alfajores

indicate further opportunity.


BRIT’s strategy to leverage its

power brands through

innovation should lead to better

traction. LUP packs of these

offerings to make it popular

Given that premiumization is the industry trend, BRIT’s lack of focus in driving premiumization could lead to price/mix led growth

flattening. Further volume could be impacted over the long term if BRIT begins to lose market share in the absence of innovative

premiumization.



Rs.2,583

Target

Rs.3,005

Rating

BUY #3 Marching Towards a fitter, leaner organisation – Savings visible in gross margins

‘PUSH’ EXPENSES EMPLOYEE

EXPENSES

RAW MATERIAL OPERATIONAL

EFFICENCY SUPPLY CHAIN

A&P

Outsourced

production reduced

to ~50% from ~60%

~40% of production

derived from

alternate fuel

Palm oil prices up

~2% FY12-15 CAGR

~20% Reduction in

carriage inwards

Recipe optimization

& Improvement in

stock freshness

Total Quality

Management,

Kaizen, Lean

Pruning of Portfolio

– SKU’s reduced

from 250 to 150

Larger and superior

technology factories

Cost- efficiency

programmes

Flour prices up

~10% FY12-15

CAGR

Sugar prices down

~2% FY12-15 CAGR

HDPE prices up ~2%

FY12-15 CAGR

Focused digital

marketing &

improved trade

displays

Trades spends

down by ~35%

Celebrity led

endorsements

Reduction in returns

by ~30%

Association with

marquee properties

– IPL, Filmfare

Reduction in truck

load by ~35%

Contract employees

for rural sales force

Pruning of sales

team from ~1400 to

~1,000

Internal promotions

– 50% with average

10 yrs in Britannia

Source: Company filings & Spark Capital Research


Rs.2,583

Target

Rs.3,005

Rating

BUY

Margin improvement has majorly

Source: Company Filings, Spark Capital Research

#3 Marching Towards a fitter, leaner organisation: Where have the savings come from

5.1%

11.0%

14.7%

598bps

-107bps

110bps

-19bps

28bps 3bps

-27bps

190bps

-79bps

82bps 21bps

-14bps

103bps

66bps

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

FY11 Gross Profit

A&P Freight Expenses

Power & Fuel

Employee Cost

Conversion Cost

Others FY15 Gross Profit

A&P Freight Expenses

Power & Fuel

Employee Cost

Conversion Cost

Others FY18

BRIT

refocusing

on cricket

and

bollywood

events has

led to

increased

A&P

Aided by benign raw material price

environment, production efficiencies and

supply chain realignment, BRIT managed

to improve its gross margins to ~40.3%

expanding by ~470bps.

BRIT’s gross margins

have expanded ~297bps

during 9MFY16. Factoring

in for increase in raw

material prices and cost

savings accruing from

production efficiency

measures we have

conservatively assumed

~190bps of expansion

over 3 years

On the back of setting up

manufacturing units

close to consumer

markets, rationalisation

of SKU’s, improvement in

product freshness and

reduction of trade

returns, BRIT managed to

save ~110bps in freight

costs.


Rs.2,583

Target

Rs.3,005

Rating

BUY #3 Marching Towards a fitter, leaner organisation – Operational savings led expansion

Margin expansion kicked off in a big way post FY11 led by external (subdued raw material prices) and internal (cost efficiencies) factors


FY 07 FY 08 FY 09 FY 10 FY 11 BPS FY 12 FY 13 FY 14 FY 15 BPS

Raw Materials Consumed 59.8% 55.7% 56.1% 53.4% 58.9% -1.0% 56.7% 54.2% 52.9% 52.4% -4.3%

Purchase /stock in trade 6.1% 4.5% 6.1% 10.9% 7.1% 1.1% 8.0% 8.4% 7.6% 7.7% -0.3%

COGS 63.9% 60.8% 61.7% 63.6% 65.7% 1.8% 64.4% 62.4% 60.3% 59.7% -4.7%

Gross Profit 36.1% 39.2% 38.3% 36.4% 34.3% -1.8% 35.6% 37.6% 39.7% 40.3% 4.7%

Employee Cost 3.5% 4.5% 4.6% 4.3% 3.9% 0.4% 3.8% 3.7% 3.8% 3.6% -0.3%

A&P 6.1% 6.6% 6.9% 7.9% 7.2% 1.2% 7.6% 8.6% 8.7% 8.3% 0.6%

Conversion charges 7.9% 6.4% 6.5% 6.6% 6.2% -1.7% 6.5% 6.8% 6.6% 6.2% -0.3%

Stores Consumed 0.2% 0.2% 0.3% 0.3% 0.2% 0.0% 0.2% 0.2% 0.3% 0.3% 0.1%

Repairs 0.4% 0.5% 0.7% 0.6% 0.5% 0.1% 0.5% 0.5% 0.5% 0.6% 0.1%

Rates & Taxes 0.4% 0.5% 0.6% 0.7% 0.4% 0.1% 0.5% 0.3% 0.4% 0.4% -0.1%

Miscellaneous Expenses 2.7% 3.2% 2.8% 2.7% 2.7% 0.0% 3.2% 3.2% 2.9% 2.% -0.5%

Delivery Expenses 7.4% 6.7% 6.8% 6.7% 6.5% -0.8% 6.1% 5.7% 5.6% 5.4% -0.6%

Power and fuel 1.1% 1.5% 1.5% 1.2% 1.2% 0.2% 1.3% 1.5% 1.6% 1.4% 0.1%

EBITDA 6.2% 8.8% 7.4% 4.8% 5.1% -1.1% 5.7% 6.8% 9.1% 11.0% 5.3%


Rs.2,583

Target

Rs.3,005

Rating

BUY

Lower raw material prices have been a key factor in enabling BRIT to experiment on innovations & other initiatives

#3 Marching Towards a fitter, leaner organisation – Key Raw material price trends

Flour prices have shot up by ~25% in last five years

Indexed to 2012, Source: Company , Spark Capital Research

Sugar prices have marginally fallen from 2013 levels

Indexed to 2012, Source: Company , Spark Capital Research

Palm oil prices have fallen by ~10% in a quarter

Indexed to 2012, Source: Company , Spark Capital

Research

HDPE prices have tapered with lower crude oil

prices

Source: Bloomberg , Spark Capital Research

Gross Margins vulnerable to raw material volatility

Source: Company filings , Spark Capital Research

Cashew prices have been on a downtrend

over the last four years

Source: Bloomberg , Spark Capital Research

42% 42%

36% 39% 38%

36% 34% 36%

38% 40% 40%

43% 43% 42%

Gross Margin

100

117

134 135

124

80

90

100

110

120

130

140

2011 - 12 2012 - 13 2013 - 14 2014 - 15 Q1'15 - 16

100 101

98

100

91

90

92

94

96

98

100

102

2011 - 12 2012 - 13 2013 - 14 2014 - 15 Q1'15 - 16

100

112

107

102

92

80

85

90

95

100

105

110

115

2011 - 12 2012 - 13 2013 - 14 2014 - 15 Q1'15 - 16

100 101

110

107

89

80

85

90

95

100

105

110

115

2011-12 2012-13 2013-14 2014-15 2015-16

100

84 83 83

90

80

85

90

95

100

105

2011-12 2012-13 2013-14 2014-15 2015-16


Rs.2,583

Target

Rs.3,005

Rating

BUY

Power and fuel costs trending lower as …

Source: Company filings, Spark Capital Research

…electricity cost were lower due to rise of alternate bio-mass fuel


Reduction in conversion & related charges…


…as savings accrue from shifting to in-house production


Conversion charges to improve with higher in-house production and improvement in freshness and cost efficiency

programs

123.71

117 119

137 134

128

105

110

115

120

125

130

135

140

FY10 FY11 FY12 FY13 FY14 FY15

Electricity (kwh/MT)

65% 50%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Earlier Current

Outsourced Manufacturing In-Source Manufacturing

#3 Marching Towards a fitter, leaner organisation – ‘Cost control’ initiatives to prolong

140 227 244 410

515 455 565

729 910

1,107 1,110

0.9%

1.3%

1.1%

1.5% 1.5%

1.2% 1.2% 1.3%

1.5% 1.6%

1.4%

0%

0%

0%

1%

1%

1%

1%

1%

2%

2%

0

200

400

600

800

1,000

1,200

FY 05 FY 06 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 FY 13 FY 14 FY 15

In R

s.m

n

Power and fuel % of Sales

1.2 1.3 1.8 1.8

2.2 2.5 2.9 3.6

4.2 4.5 4.9

7.6% 7.7% 7.9%

6.4% 6.5% 6.6% 6.2% 6.5%

6.8% 6.6% 6.2%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

0

1

2

3

4

5

6

FY 05 FY 06 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 FY 13 FY 14 FY 15

In R

s.b

n

Conversion & related charges % of Sales


Rs.2,583

Target

Rs.3,005

Rating

BUY #3 Marching Towards a fitter, leaner organisation – Other operational cost savings

Production units closed to consumer markets…


…along with rationalized SKU have assisted in…


…reduction of truckload costs…


…and reducing trade returns.


Supply chain efficiencies and improved distribution network and efficient technology based sales force to drive savings

7.4% 6.7% 6.8% 6.7% 6.5%

6.1% 5.7% 5.6% 5.4%

5.0% 4.8%

4.4%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY18E

Carriage data (% of sales)

100 93

74 66

0

10

20

30

40

50

60

70

80

90

100

FY13 FY14 FY15 1QFY16

Truck Load

100 100

73 69

0

10

20

30

40

50

60

70

80

90

100

FY13 FY14 FY15 1QFY16

Trade Returns

0

50

100

150

200

250

300

Earlier Current

SKU rationalisation


Rs.2,583

Target

Rs.3,005

Rating

BUY #3 Marching Towards a fitter, leaner organisation – From ‘PUSH’ to ‘PULL’

A&P as a % of sales expected to be on the rise…


…but focused majorly on ‘power brands’


Celebrity endorsements, attractive aisle placements, sponsoring marquee properties – IPL & FILMFARE and digital promotions are yielding desired results


Despite cost cutting measures, BRIT continues to invest A&P aligning its long and short term revenue growth drivers

POWER BRANDS 6.1%

6.6% 6.9%

7.9% 7.2%

7.6%

8.6% 8.7% 8.3% 8.6%

9.1% 9.6%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY18E

A&P (% of sales)

Celebrity Endorsements Store placements Digital promotions Sponsorship of marquee properties


Rs.2,583

Target

Rs.3,005

Rating

BUY #3 Marching Towards a fitter, leaner organisation - Certainty in uncertainty

#3

Marching

towards a fitter,

leaner

organisation

‘ALL IS WELL’

• We note that majority of

margins have come largely

through higher gross margins,

Aided by subdued raw material

prices and manufacturing

savings, operating profitability

to sustain in near to medium

term.

• Conversion charges and

carriage costs to further decline

led by increase in in-house

production and rationalisation

of trade discounts and

promotions.

• Improvement of contribution

from international geographies

to also benefit margin

expansion.

Sustaining current level of margins and marginally increasing them in near to medium term monumental for earnings growth to sustain. Despite stable revenue

growth drivers, BRIT’S ability to sustain margins and also creating additional growth drivers would be keenly monitored.

‘DEVIL’S ADVOCATE’

• With subdued raw material

prices beginning to show signs

of inching up as inflation rises,

gross margins could contract in

near to medium term.

• Given that earnings growth has

been largely led by

improvement in operating

margins, sustaining margins

monumental in maintaining

current steep valuations.

• With BRIT targeting several new

segments and in the value

segment, margin lucrativeness

could be severely hampered in

medium term.

• Rise in media related costs.



Rs.2,583

Target

Rs.3,005

Rating

BUY #4 ‘WHITE GOLD’ – Post many changes, BRIT’s dairy remains a trading business now

Cheese & Ghee segments are the largest category for BRIT…

Source: Company, Spark Capital Research

BRIT’s Dairy trip has just hit smooth road post a bumpy ride


1997

…however dairy remains a category with limited gross margins…


Britannia industries ventures into the ‘Dairy’ vertical

2000 Britannia acquires a 11% stake in Dynamix Diary for Rs 58mn with an

option of hiking its stake in the company to 50 per cent till September 2001

2001 Britannia envisions to develop Milkman as its master brand, with a portfolio

of milk-based products - cheese, ghee, flavoured milk, milk, packed milk

2001 Britannia announces a joint venture (Britannia New Zealand Foods) with

Fonterra Co-operative Group of New Zealand.

2004 Britannia exits liquid milk business

2005 The JV - Britannia New Zealand Foods, witnesses some turbulence with

churn at management level and exit from plain/flavoured milk segment.

2006 Britannia charts a new strategy with focus on top 45 cities via 15-day

factory-to-market initiative and building visible presence in modern retail.

2009 Britannia Industries acquires Fonterra’s 49% stake in Britannia New

Zealand Foods; becomes 100% owned subsidiary

2009 Britannia re-enters the packaged milk market, introduces UHT (Ultra High

Temperature) milk in regular and 'Slimz' format

2002 Schreiber acquires Britannia's 11% stake in Dynamix dairy

2012 Tiger-Zor chocolate and almond milk. Dairy and bakery distribution and

sales integrated enhancing coverage and distribution.

2016 Britannia indicates to invest Rs.3000mn on a green field facility for

Dairy. With a proposed investment in the back end.

24%

19%

25%

11%

2% 8%

11%

4%

9%

0%

10%

20%

30%

FY 13 FY 14 FY 15

Gross Margins EBITDA Margins PAT Margins

74%

20%

41% 76%

21% 41%

0%

50%

100%

FY 13 FY 14 FY 15 ROCE% ROE%

38% 43% 45%

19% 14% 14% 2% 1% 2%

41% 42% 39%

0%

50%

100%

FY 13 FY 14 FY 15 Cheese Dairy Whitener Butter Ghee

…given that currently BRIT is procuring finished goods



Rs.2,583

Target

Rs.3,005

Rating

BUY #4 ‘WHITE GOLD’ – Opportunities for organised market in dairy segment lucrative

Overview of

Dairy Market

size –

segment

wise in India

Liquid Milk

UHT Milk

Flavoured Milk

Curd

Flavoured & Frozen

Yoghurt

Lassi

Buttermilk

Cheese

Butter

Ghee

Paneer

Skimmed Milk

Powder

Cream

Whey (powder)

~2,621

~26

~13

~217

~2

~13

~14

~12

~168

~618

~293

~50

~13

~3

20%

100%

100%

6%

100%

NA

NA

100%

13%

18%

2%

100%

NA

100%

~6,068

~104

~48

~493

~12

~39

~43

~59

~382

~1367

~654

~113

~30

~10

26%

100%

100%

7%

100%

NA

NA

100%

16%

21%

3%

100%

NA

100%

15%

26%

25%

15%

32%

21%

21%

31%

15%

14%

14%

15%

15%

22%

21%

26%

25%

20%

32%

21%

21%

31%

19%

17%

24%

15%

15%

22%

Category Size (Rs.bn) Org share (%) Size (Rs.bn) Org share (%) Total Org market

2014 2020 2014-20 CAGR

Source: IMARC report, Spark Capital Research


Rs.2,583

Target

Rs.3,005

Rating

BUY #4 ‘WHITE GOLD’ – However margins and returns way lower than current BRIT profile

Revenue (FY15)

Hatsun Agro

Rs.29.33bn

Heritage

Foods*

Rs.20.73bn

Kwality Dairy

Rs.58.78bn

Prabhat

Dairy**

Parag Milk

Foods

Britannia

Industries

Source: Spark Capital Research; *73% of company’s revenues from Dairy;**FY14 Financials

Rs.8.74bn Rs.14.42bn Rs.3.30bn

Segment-wise

contribution

Milk/skimmed/

toned etc: ~72%

Milk

Products:~18%

Ice Cream: 7%

Others: ~3%

Gross Margin ~19.8% ~17.7% ~10.3% ~22.8% ~23.6% ~40.3%

PAT Margin ~1.3% ~1.4% ~2.8% ~0.4% ~2.0% ~7.4%

EBITDA Margin ~6.8% ~4.0% ~6.0% ~4.8% ~7.6% ~11.0%

Capital Efficiency ROCE:~20% ROCE:~15% ROCE:~30% ROCE: ~13%** ROCE: N.A ROCE:49%

Milk/skimmed/

toned etc: ~72%

Value-

added:~20%

Fat Food: 8%

Milk/skimmed/

toned etc: ~46%

Butter/Ghee/

Cream: ~17%

Milk Powder:

~29%

Dahi – 8%

Milk/skimmed/

toned etc: ~77%

Ghee: 12%

Cream: 8%

Dahi: 2%

Milk/skimmed/

toned etc: ~21%

Ghee: ~18%

Cheese/

Paneer: ~19%

Milk Powder:

~3%

Others: ~20%

Cheese: ~45%

Ghee: ~39%

Dairy Whitener:

~14%

Butter: ~2%

4/5 Yr. Revenue CAGR ~21% ~18% ~38% ~32% ~22% ~16%

Working Capital Days

Debtors: 2

Inventory: 32

Creditors: 14

WC: 20 days

Debtors:4

Inventory:25

Creditors:14

WC: 15

Debtors: 82

Inventory: 18

Creditors:3

WC: 97

Debtors: 16

Inventory: 9

Creditors: 18

WC: 6

Debtors:43

Inventory:53

Creditors:44

WC:51

Debtors: 6

Inventory: 19

Creditors: 33

WC: -8

BR

ITA

NN

IA S

TA

ND

AL

ON

E B

US

INE

SS


Rs.2,583

Target

Rs.3,005

Rating

BUY #3 ‘WHITE GOLD’ – Dairy prospects - Certainty in uncertainty

#4

‘WHITE GOLD’

Dairy prospects

DEVIL’S ADVOCATE

Market

Though demand remains

robust, presence of a wide

unorganized market could lead

to growth for organized market

being subdued

Industry

Dairy segment in India is largely

dominated by co-operatives

who produce value added items

with excess milk

We understand that cracking

the back-end is the key for

meaningful long term growth in

dairy segment, however with

several players already being

present, a new player as BRIT

could find it difficult for milk

procurement in initial period.


Though exciting, it has to be

accepted that incumbents in

this space currently operate

with lower margins and returns

when compared to BRIT

standalone numbers.

‘ALL IS WELL’

Market

With demand continuously

outpacing availability of milk and

increasing prominence of value

added offerings, Indian dairy

sector growth rates have never

been so promising.

Industry

Though market has plenty of

existing players, we see that

there is always scope for a new

entrant given the incessant rise

in demand.

Industry profitability has been

aligned towards players with

better mix towards value added

market.


BRIT’s should leverage its brand

and distribution strength to

crack the dairy segment. Given

that brand Britannia is a well

trusted brand for quality, plenty

of synergies could emerge

between existing business and

dairy segment.

Given that BRIT is yet to finalize its plan on the sector, capital commitment and targeted segment(s) for growth remains the key monitorable. We believe, unlike

the biscuits category, where GO TO MARKET strategy is key for the supply chain efficiency, in dairy, sourcing efficiency is the key for both scale and margins.



Rs.2,583

Target

Rs.3,005

Rating

BUY

BRAND BRITANNIA

BISCUITS

DAIRY

CHOCOLATES

BREADS, RUSK & CAKES

BREAKFAST CEREALS

SNACKS

#5 Fledgling prospects – BRIT transforming from a biscuit to a ‘food’ company

CAGR 2009-14 : ~21%, 2014-19: ~20%

Changing consumption habits as

urbanisation and lifestyle changes to

be key drivers

Value added segments as Paneer and

Khoa (32%), Ghee (30%) and curd

products (22%) account for major

portion of the value added milk

products segment.

Major brands in this segment includes

GCMMF’s Amul, Kwality Dairy, Hatsun

and Heritage foods.

Given BRIT’s brands command a mind recall, brand extension in related and rapidly growing categories could add to

growth momentum in medium to long term

CAGR 2009-14 : ~18%, 2014-19: ~15%

Chocolates are driven by growing

trend of gifting chocolate during

festivals and on special occasions,

increasing acceptance of chocolate as

a dessert and also decreasing

preference for Indian sweets.


Dairy Milk and 5 Star (Cadburys India),

Munch & Kit Kat (Nestle) Amul, Kwality

Dairy, Hatsun and Kinder Joy (Ferrero)

CAGR 2009-14 : ~20%, 2014-19: ~14%

The consumers for breakfast cereals

continues to be health conscious

urban consumers.

Preference for breakfast cereals

though remains limited given that

Indian consumption food habits are

culturally oriented


Kellogg’s, Quaker, Marico Oats,

GSKCH Oats and Bagrry’s .

Snacks (Rs.~150bn)

CAGR 2009-14 ~26%, 2014-19E

~12%

Snacks category is dominated by

traditional snacks and extruded

snacks in India.

Increasing disposable income and

rapid urbanisation should contribute

to the growth of snacks.

Major brands in this segment

includes Pepsi Lays, ITC Bingo,

DFM’s Crax and Prataap Snacks

Yellow Diamond.

Dairy (Rs.~3700bn)

Breakfast Cereals (Rs.~12bn) Chocolates (Rs.~101bn)

Source: Industry reports & Spark Capital Research


Rs.2,583

Target

Rs.3,005

Rating

BUY #4 Fledgling prospects – Snacks business’s cashflow and returns are robust

Sales

FY13: 2,402mn

FY14:2,943mn

FY15: 3,597mn

FY13: 9.3%

FY14: 7.0%

FY15: 8.3%

PAT Margin

EBITDA Margin

FY13: 16.1%

FY14: 15.5%

FY15: 17.8%

FY13: 61,359mn

FY14: 68,293mn

FY15: 77,751mn

FY13: 4.2%

FY14: 5.8%

FY15: 8.9%

FY13: 6.9%

FY14: 9.2%

FY15: 11.0%

FY13: 7,872mn

FY14: 7,622mn

FY15: 7,562mn

FY13: 5.3%

FY14: 5.6%

FY15: 4.9%

FY13: 8.3%

FY14: 9.2%

FY15: 8.2%

FY13: 2,250mn

FY14: 2,629mn

FY15: 2,887mn

FY13: 2.8%

FY14: 2.7%

FY15: 3.8%

FY13: 10.0%

FY14: 9.7%

FY15: 10.7%

FY13: 22,077mn

FY14: 24,617mn

FY15: 27,346mn

FY13: 2.5%

FY14: 3.2%

FY15: 2.7%

FY13: 11.1%

FY14: 10.8%

FY15: 9.7%

Manpasand

Beverages

Britannia

Industries (C)

Agro Tech

Foods DFM Foods LT Foods

OCF

FY13: 441mn

FY14: 79mn

FY15: 637mn

FY13: 3061mn

FY14: 6758mn

FY15: 6113mn

FY13: 217mn

FY14: 335mn

FY15: 397mn

FY13: 159mn

FY14: 154mn

FY15: 202mn

FY13: -1453mn

FY14: -39mn

FY15: -1383mn

ROE FY13: 34.6%

FY14: 23.9%

FY15: 20.9%

FY13: 54.1%

FY14: 58.8%

FY15: 57.3%

FY13: 18.5%

FY14: 16.2%

FY15: 12.4%

FY13: 19.8%

FY14: 24.9%

FY15: 32.6%

FY13: 19.8%

FY14: 22.3%

FY15: 17.0%

WC Days

FY13: 53 days

FY14: 89 days

FY15: 82 days

FY13: 6 days

FY14:-1 days

FY15: -8 days

FY13: 26 days

FY14: 38 days

FY15: 44 days

FY13: -3 days

FY14: 5 days

FY15: 5 days

FY13: 211 days

FY14: 226 days

FY15: 211 days

CY12:Rs.83,345mn

CY13:Rs. 91,011mn

CY14:Rs. 98,548mn

CY12:12.8%

CY13:12.2%

CY14:12.0%

CY12: 22.3%

CY13: 22.5 %

CY14: 21.6%

Nestle India

CY12: 16,934mn

CY13: 17,964mn

CY14: 16,440mn

FY13: 53.6%

FY14: 45.5%

FY15: 19.9%

CY12: -6 days

CY13: -7 days

CY14: -6 days

Given that premiumization is the industry trend, BRIT’s lack of focus in driving premiumization could lead to price/mix led growth faltering.

Further volume could be impacted in the long term if BRIT begins to lose market share due to lack of innovative premiumization.

Source: Company filings & Spark Capital Research


Rs.2,583

Target

Rs.3,005

Rating

BUY #4 Fledgling prospects – Chocolates & breakfast cereal seems a natural extension

With the launch of Deuce from BRIT, chocolates seem a perfect fit

Source: Company Reports, Industry reports & Spark Capital Research

Breakfast category valued at ~14bn to grow at ~12% FY15-20 CAGR


Market dominated by MNC’s


BRIT though will have to counter the dual giants in chocolates


BRIT might elevate one of its top 5 power brands to give itself a better mileage in brand extension(s) in this space(s)

5 6 7

9 12

14 18

21

25

30

35

0

5

10

15

20

25

30

35

40

2010 2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E

In R

s.B

n

Breakfast Cereals

37.5 49.0 63.3

81.2 101.6

125.5 152.1

181.9

215.0

252.3

294.5

0

50

100

150

200

250

300

350

2010 2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E

In R

s.B

n

Chocolate Confectionery

Kellogg Co, 37%

Bagrry's India

Ltd, 18%

PepsiCo Inc,

13%

Cargill Inc, 7%

Mohan Meakin ,

7%

Others, 19%

Mondelez

International Inc, 55%

Nestlé SA, 14%

Ferrero Group,

5%

Mars Inc, 1%

Gujarat Co-

operative Milk Marketing

Federation Ltd,

1%

Others, 24%


Rs.2,583

Target

Rs.3,005

Rating

BUY #4 Fledgling prospects – International business majorly catering to Indian diaspora

Snapshot of Britannia’s international subsidiaries


Revenues from the segment have grown at a CAGR of ~27%


Increasing contribution from intern. segment with co. targeting to

derive ~25% of revenues from intern. in medium to long term


While contribution of international segment is currently small at ~7%, we believe going forward the prominence of the

same is expected to magnify with sharper focus on the division

2.3

3.2

3.8

4.5

5.9

0

1

2

3

4

5

6

7

FY 11 FY 12 FY 13 FY 14 FY 15

In R

s.B

n

International revenues

Britannia Industries – Plans for international segment

“Our ability to double exports from India and to substantially increase the

manufacturing footprint in the Middle East can increase our international

sales to Rs.7bn or so in a year to 18 months. But to get beyond this

number, you have to think of setting up manufacturing facilities in different

markets and that can happen through acquisitions, joint ventures or a

greenfield (project). Our plan is to take this business to Rs.10bn – 15bn,” -

Mr. Varun Berry, MD

We understand that the company is also likely to finalise a joint venture or

acquire an international brand in the short to medium term.

5% 6% 6% 7% 7%

95% 94% 94% 93% 93%

0%

20%

40%

60%

80%

100%

FY 11 FY 12 FY 13 FY 14 FY 15

International revenues Revenues from domestic operations

(In Rs.Mn) FY15 FY14 FY13 FY12

Sales PAT Sales PAT Sales PAT Sales PAT

Al Sallan Food

International Co. SAOC 1637 3.2 1356 - 1254 1.2 1073 -16.3

Strategic Food

International, Dubai 3379 323.4 2722 - 2323 -49.1 1884 -43.4

Britannia and Associates

(Dubai), Dubai 21 -11.8 39 - 30 -6.8 24 -14.0

Britannia and Associates

(Mauritius, Mauritius 30 10.4 38 0.2 35 4.3 39 3.0

Britannia Dairy Holdings

, Mauritius -23.3 - -21.0 -18.4

Strategic Brands Holding

Company Limited, Dubai -0.6 - -0.3 -0.8


Rs.2,583

Target

Rs.3,005

Rating

BUY #4 Fledgling prospects - Certainty in uncertainty

#4

Fledgling

prospects

DEVIL’S ADVOCATE

Market

Given that each of the new

categories is a large enough

category, any unwanted

extensions could take out

significant focus from the

biscuits business.

Industry

Given that there are large

incumbents dominating these

categories, BRIT will have to

spend heavily on brands.

International geography is

plagued with several MNC’s who

deliver technological superior

offerings in the market. BRIT to

remain a fringe player targeting

Indian diaspora tastes.


BRIT has indicated to increase

its revenues from international

operations that could improve

margins too. Extensions could

lead to focus on core categories

slowing

‘ALL IS WELL’

Market

Markets as extruded snacks,

chocolates, breakfast cereals

and dairy are targeting the

lucrative urban, lifestyle and

convenience oriented and ‘not

shy to spend’ demographic

which is said to be the key

spending consumers in near to

medium term.

Industry

Given that Biscuits category

penetration is one among the

highest in foods category,

diversification into

complementing categories a

long term necessity.

Though incumbents are present,

BRIT’S brand image provides

them a leeway.


BRIT has definitely expanded

their horizon with a vision to

become a foods company which

can provide with tremendous

growth & expansion synergies.

International operations as per estimates are expected to contribute to ~7% to ~8% of total revenues mainly catering to the Indian Diaspora. Investment in

adjacent categories expected to be capital intensive which could erode return ratios.



Rs.2,583

Target

Rs.3,005

Rating

BUY

BOD Remuneration as a % of PAT


Average dividend payout of ~35% over last three years


Member Remuneration-Rs.mn % of PAT Position

Mr. Nusli N Wadia 36.8 0.63% Non-Exec. Chairman

Mr.Varun Berry 47.1 0.81% Managing Director

Mr. A K Hirjee 2.6 0.04% Non-Exec. Director

Mr. Jeh N Wadia 0.7 0.01% Non-Exec. Director

Mr. Ness N Wadia 3.9 0.07% Non-Exec. Director

Mr. Nimesh K 2.0 0.03% Independent Director

Mr. S S Kelkar 2.0 0.03% Independent Director

Mr. Avijit Deb 1.2 0.02% Independent Director

Dr. Ajai Puri 2.1 0.04% Independent Director

Mr. Nasser Munjee 2.4 0.04% Independent Director

Mr. Keki Dadiseth 2.3 0.04% Independent Director

Dr. Vijay L Kelkar 0.7 0.01% Independent Director

Mrs. Ranjana Kumar 0.7 0.01% Independent Director

Total 104.5 1.8%

Diversified board presence and committee’s in line with SEBI guidelines


Mr. A K

Hirjee

Mr. Nusli

N Wadia

Mr. Varun

Berry

Mr. Avijit

Deb

Mr. S S

Kelkar

Mr. Nimesh

N Kampani

Mr. Jeh N

Wadia

Mr. Keki

Dadiseth Dr. Ajai Puri

Mr. Nasser

Munjee

Mr. Ness N

Wadia

Dr. Vijay L

Kelkar

Mrs.

Ranjana

Kumar

Audit

Committee Member - - Member - Member - Member - Chairman Member - -

Remuneration

Committee Member Member - - - Member - Chairman Member Member - - -

Stakeholders

Relation.

Committee Chairman - Member - Member Member Member - - - - - -

CSR

Committee - - - - Member - - Chairman Member - Member - -

Management tenets – Pay scale and holdings

67% 59%

46% 43% 34% 34% 35% 36%

0%

10%

20%

30%

40%

50%

60%

70%

80%


Dividend Payout Ratio


Rs.2,583

Target

Rs.3,005

Rating

BUY

Britannia has been the best wealth creator thus far while other group companies have not witnessed major capital appreciation over the last five years

Source: Bloomberg, Spark Capital Research

Group wealth creation history & Promoter holding

Promoter holding has broadly remained unchanged over the past four years


0

500

1000

1500

2000

2500

3000

3500

4000

Mar-

11

Apr-

11

May-

11

Jun-1

1

Jul-11

Jul-11

Aug-1

1

Sep-1

1

Oct-

11

Nov-

11

Dec-1

1

Dec-1

1

Jan-1

2

Feb-1

2

Mar-

12

Apr-

12

Apr-

12

May-

12

Jun-1

2

Jul-12

Aug-1

2

Sep-1

2

Sep-1

2

Oct-

12

Nov-

12

Dec-1

2

Jan-1

3

Jan-1

3

Feb-1

3

Mar-

13

Apr-

13

May-

13

Jun-1

3

Jun-1

3

Jul-13

Aug-1

3

Sep-1

3

Oct-

13

Oct-

13

Nov-

13

Dec-1

3

Jan-1

4

Feb-1

4

Mar-

14

Mar-

14

Apr-

14

May-

14

Jun-1

4

Jul-14

Aug-1

4

Aug-1

4

Sep-1

4

Oct-

14

Nov-

14

Dec-1

4

Dec-1

4

Jan-1

5

Feb-1

5

Mar-

15

Apr-

15

May-

15

May-

15

Jun-1

5

Jul-15

Aug-1

5

Sep-1

5

Oct-

15

Oct-

15

Nov-

15

Dec-1

5

Jan-1

6

Feb-1

6

Feb-1

6

Mar-

16

Bombay Dyeing Bombay Burmah Trading National Peroxide Britannia

50.9% 50.9% 50.9% 50.8% 50.8% 50.8% 50.8% 50.8% 50.8% 50.8% 50.7% 50.7% 50.7%

15.9% 15.7% 17.9% 19.5% 19.1% 20.1% 20.1% 20.5% 20.1% 19.5% 19.1% 20.0% 19.8%

12.9% 13.5% 11.5% 9.2% 9.8% 8.4% 8.9% 8.8% 8.6% 8.8% 9.9% 8.6% 8.1%

20.3% 19.9% 19.8% 20.5% 20.4% 20.7% 20.3% 19.9% 20.5% 20.9% 20.3% 20.6% 21.4%

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

90.00%

100.00%

Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15

Promoter group FII DII Others


Rs.2,583

Target

Rs.3,005

Rating

BUY

Contingent

Liabilities

Cases against

management/

Company

Kraft has sought an injunction to prevent Britannia from making, selling, marketing or advertising any product (“Treat O”)

that has an element of its Oreo cookies and also damages for infringement of Trademark and Copyright of its Oreo brand of

cookies.

Britannia Industries Ltd. filed a petition in the Madras High Court on the allegation that GlaxoSmithkline Consumer

Healthcare Ltd. (GSK)’s Horlicks Nutribic had infringed their brand of NutriChoice Oat biscuits. the Madras High Court passed

an interim order, restraining GSK, its directors, employees, agents, distributors and retailers from manufacturing, selling and

advertising Horlicks Nutribic. Further, they have been restrained from using the trade name ‘Nutribic’.

Britannia entering into a legal tussle with a global food company was when Britannia had taken French food company

Danone to a Singapore court, alleging Trade Mark infringement of its Tiger biscuit. It settled the case with Kraft since Danone

sold its business to the latter. According to the settlement, Britannia will have the right to use ‘Tiger’ brand in India in addition

to also having the right to use ‘Tiger’ brand anywhere in the world

US cereal maker Kellogg’s where Kellogg’s tried to block Britannia from using the Tiger logo for products other than biscuits.

Britannia moved to register the Tiger Trade Mark as its property globally, Kellogg’s objected stating that Tony the Tiger is its

proprietary logo for breakfast cereals since 1952. Clearly, Kellogg’s sees Britannia jeopardizing their own brand, as it is using

their brand outside biscuits.

Corporate Governance

Derivative

Instruments

Outstanding

(In Rs.Mn) 2013 2014 2015

Contingent Liabilities outstanding as on March 31st 708 634 670

Contingent Liabilities as a % of Networth 13% 8% 5%

(In Rs.Mn) 2013 2014 2015

Derivative outstanding as on March 31st

USD 1,741,026

EUR 39,150

USD 2,686,908

EUR 58,287

USD 2,908,783

EUR 2,060,830

Source: Media reports & Company filings, Spark Capital Research


Rs.2,583

Target

Rs.3,005

Rating

BUY Management and Board of Directors Profile

Mr. Varun Berry, holds a graduate degree in BE Mechanical from the Punjab University. He has also attended a course in Strategic

Management from Wharton University and the Global Leadership Program at IMD, Switzerland. Mr. Varun Berry joined the Company as

Vice President & Chief Operating Officer with effect from 1st February, 2013. He has an experience of over 27 years with premier

companies like Hindustan Unilever and Pepsico, both in India and overseas and a successful track record in leading start ups, turnarounds,

joint ventures and growth businesses.

Mr. A. K. Hirjee, is a Promoter Non-Executive Director of the Company. He joined the Board of Directors of the Company in September,

1993. Mr. Hirjee is B.A. (Hons.), LL.B. (Hons.), Barrister-at-Law, SLOAN Fellow of London Business School. He has 51 years of experience

in different areas of Business Management and his expertise extends to finance, banking, legal, commercial, industrial and general

administration. He has been actively associated with leading Charitable Institutions. He is also on the Board and Committees of the Board

of several other leading companies.

Mr. Jeh N Wadia, is a Promoter Non Executive Director of the Company. He joined the Board of Directors of the Company on 14th

September 2005. He is a MSC – Engineering Management from Warwick University, England. The World Economic Forum elected him as

a Young Global leader in the year 2008. He has been the managing director of GoAir, since founding it in 2004, He is also the managing

director of Bombay Dyeing, a diversified company with interests in Real Estate, Retail, Textiles and PSF.

Mr. Varun Berry,

Managing Director

Mr. A K Hirjee, Non-

executive Director

Mr.Jen H Wadia, Non-

executive Director

Mr. Wadia is a well-known Indian Industrialist. He is the Chairman of Wadia Group companies and also Director on the Board of several

Indian companies. Mr. Wadia has contributed actively in the deliberations of various organisations such as the Cotton Textiles Export

Promotion Council (TEXPROCIL), Mill Owners’ Association (MOA), Associated Chambers of Commerce & Industry, etc. He was the

Convenor of the Special Group Task Force on Food and Agro Industries Management Policy in September, 1998. Mr. Wadia has a distinct

presence in public affairs and has been actively associated with leading charitable and educational institutions.

Mr. Nusli N Wadia,

Chairman

Mr. Ness Wadia, is a Master in Science from the Warwick University in Coventry, UK. He has had extensive training with The Bombay

Dyeing and Manufacturing Company Limited (Bombay Dyeing) in various areas of management. He was closely involved in marketing and

retail distribution of the Textile Division of Bombay Dyeing. He has been actively associated with the Wadia Group for over 20 years

including about 5 years as Deputy Managing Director and 5 years as Joint Managing Director of Bombay Dyeing and 2 years as Managing

Director of Bombay Burmah Trading Corporation Ltd. Mr. Ness Wadia is deeply involved in philanthropic activities and is associated with

leading educational institutions and charitable hospitals.

Mr. Ness Wadia,

Director

Source: Company, Spark Capital Research;

Mr. S S Kelkar is a Non Executive Independent Director of the Company. He joined the Board of Directors of the Company on 12th August,

1998. Mr. S S Kelkar, , is a Post Graduate in Commerce and retired as an Executive Director of The Bombay Dyeing & Manufacturing

Company Limited (Bombay Dyeing). He worked in a leading commercial Bank for 10 years and has for the last 42 years been associated

with Bombay Dyeing and has held various positions in the functional areas of finance besides having previous banking experience. He

continues his association with Bombay Dyeing as a Non Executive Director. He is also on the Board and Committees of the Board of

several other leading companies.

Mr.S.S Kelkar, Non-

executive Director


Rs.2,583

Target

Rs.3,005

Rating

BUY Management and Board of Directors Profile

Manjunath was designated Vice-President, Strategy and Business Development in May 2014. Manjunath Desai joined Britannia in January

of 2008 as Head of Marketing services. In addition to heading the Strategy and Business Development function, he works closely with

Varun Berry to drive initiatives and programs across the organization. Manjunath has over 19 years of experience in the areas of consumer

insights, media and marketing in India and overseas.

Anindya joined Britannia Industries Limited in 2000 as Area Sales Manager and has done many roles in the company- Sales, Marketing

and Business Leadership roles such as Bread & Daily Bread. Anindya had taken over Breads Business role in 2013 when the business

was going through a tough time and over the last two years he has been able to turnaround the Bread business, exceeding both on

Revenue and Profitability targets while bringing in more controls. He also handles additional charge of Daily Bread business.

Amlan Majumdar joined the company in early 2015, and is the Chief Finance Officer. He has previously worked at ABB India as President

and Country Chief Financial Officer, where he was, Head of Finance responsible for all related areas like Accounting, Reporting, Taxation,

Treasury, Internal controls and Business controlling. He comes with invaluable experience in dealing with Board matters, market analysts

and the media. Amlan Majumdar is a Chartered Accountant.

Mr. Manjunath Desai,

Vice-President, Office of

strategy & Business

Development

Mr.Anindya Dutta,

Business Head, Dairy

Mr. Amlan Datta

Majamdur, CFO

Manoj Balgi is the General Manager - Procurement at Britannia and has been with the company since 2009. He is responsible for

managing procurement of raw materials, packing materials, capex and projects. Manoj holds a B.E. (Mechanical) from Pune University and

a PG in Industrial Management from National Institute of Industrial Engineering.

Mr. Manoj Balgi,

General Manager

Ali Harris Shere is the Director Marketing at Britannia Industries and is responsible for developing the marketing strategies for existing and

new products and the delivery of an integrated marketing plan for the biscuits business. The previous positions he has held in the

organization include Marketing Manager, Regional Sales Manager and Group Product Manager. With a progressive career graph, Ali has

been instrumental in bringing fresh perspectives coupled with a holistic approach towards many marketing initiatives at Britannia. Ali joined

Britannia in 1998 as a Management Trainee and has been with the company for more than 16 years.

Mr. Ali Harris Shree,

Director, Marketing


Mr.Vinay is responsible for manufacturing, projects and technology, planning & replenishment. Vinay also led the Quality Assurance

function and the BNext transformation project during the previous years in Britannia. He is also responsible for creating capability and

technology for new products and their commercialization through the supply chain. He completed a B. Tech degree in mechanical

engineering from IIT Delhi and joined Hindustan Lever in 1986 as a management trainee. In his career of 22 years with Hindustan Lever,

he did a variety of technical and supply chain roles in different businesses and rose rapidly to the position of Vice President. Vinay was

earlier with Dabur India where he was Executive Director-Operations, responsible for India and global operations of the Company.

Mr. Vinay Singh

Kushwaha, Vice

President, Supply Chain

Hemant Rupani joined us in 2014 as Vice President - Sales. He was earlier with Vodafone India Ltd., where he was the Vice President -

Distribution. He had a 4 year stint with Vodafone where he did a mix of field and corporate office roles. Hemant's career spans across

sectors including FMCG, Consulting & Telecom. Prior to Vodafone, he worked with PepsiCo in a spectrum of roles across Sales, Franchise

Management, Field Marketing, Unit Operations, Planning, Distribution & Trade Marketing. Hemant is an MBA in Marketing from FMS Delhi

and a B.E. Mechanical from REC, Jaipur.

Mr. Hemant Rupani,

Vice-President, Sales


Rs.2,583

Target

Rs.3,005

Rating

BUY Risks and concerns


With gross margins at ~40%, we believe a lot of the ‘margin expansion story’ hinges on

key raw materials prices. Any adverse price movement can impact operating

profitability significantly.

Adverse raw material scenario

Maintaining and capturing market share in key states like Uttar Pradesh is crucial for growth and sustenance of the company’s business. Any slip up of market share on the back of inching competitive intensity can adversely affect the company’s growth prospects.

Failure to capture/retain market share in key states

Slowing down trend of premiuimsation and lack of inflationary environment can hinder growth of price mix thereby leading to questions over growth.

Lack of premiumisation trend

Low hanging fruits in terms of leakages and untapped operational efficiency has already been addressed with the same accruing into profitability over the last five years. However, it remains to be seen if the company can still improve its operating profitability from current levels of ~14% to ~15%.

Bulk of operational efficiency captured

Given the inherent weaknesses of the dairy sector, performance of players in the segment remains a mixed bag. Hence, a bumpy ride to achieve its Rs.20bn revenue milestone by 2021 in the dairy business cannot be ruled out.

Dairy Dilemma

BRIT plans to transform itself into a foods company; it remains to be seen how the company fares in adjacent categories where it is not currently present (like chocolates etc) and how lucrative these categories would be for the company.

Other Adjacencies


Rs.2,583

Target

Rs.3,005

Rating

BUY Peer comparison - Valuations

P/E

EV/EBITDA

EV/Sales

Britannia Nestle GSKCH Agro Tech DFM Foods Hatsun Agro

ROE

ROCE

Dividend Yield

FY15: 0.74%

FY16: 0.90%

FY17: 1.14%

FY15:-

FY16:1.56%

FY17: 1.98%

FY15:0.87%

FY16: 1.14%

FY17: 1.32%

FY15: 0.31%

FY16: 0.43%

FY17: 0.44%

FY15: 0.75%

FY16: NA

FY17: NA

FY15:0.57%

FY16: 0.73%

FY17: 0.98%

FY13: 34.6%

FY14: 41.8%

FY15: 48.9%

FY13: 35.6%

FY14: 37.2%

FY15: 19.9%

FY13:33.0 %

FY14:39.4 %

FY15: 27.1%

FY13: 18.5%

FY14: 16.3%

FY15: 11.9%

FY13: 12.6%

FY14: 15.8%

FY15: 18.2%

FY13: NA

FY14: 17.7%

FY15: 11.8%

FY13: 54.1%

FY14: 58.8%

FY15: 57.3%

FY13:53.6%

FY14:45.5%

FY15:19.9%

FY13: 34.9%

FY14: 42.5%

FY15: 29.7%

FY13: 18.5%

FY14: 16.2%

FY15: 12.4%

FY13: 19.8%

FY14: 24.9%

FY15: 32.6%

FY13: NA

FY14: 52.9%

FY15: 19.5%

FY15:29.78

FY16: 25.03

FY17: 21.07

FY15:32.28

FY16: 24.03

FY17: 20.42

FY15:25.00

FY16: 26.55

FY17: 23.43

FY15: 25.34

FY16: 18.19

FY17: 15.47

FY15:11.43

FY16: 31.93

FY17: 26.59

FY15:20.23

FY16: NA

FY17: NA

FY15:3.27

FY16: 3.56

FY17: 3.11

FY15:6.74

FY16: 4.98

FY17: 4.38

FY15:5.62

FY16: 5.12

FY17: 4.57

FY15: 2.08

FY16: 1.45

FY17: 1.34

FY15:1.22

FY16: 3.59

FY17: 3.01

FY15:1.37

FY16: NA

FY17: NA

FY15:37.59

FY16: 37.62

FY17: 31.33

FY15:99.76

FY16: 42.16

FY17: 34.77

FY15:45.4 0

FY16: 35.83

FY17: 31.56

FY15:42.14

FY16: 37.30

FY17: 28.59

FY15:30.45

FY16: 65.23

FY17: 54.43

FY15:87.31

FY16: NA

FY17: NA

Source: Company filings & Bloomberg, Spark Capital Research


Rs.2,583

Target

Rs.3,005

Rating

BUY Valuation

Re-rating witnessed from 2013 with margin levers evolving and playing out


More than ~50% of the time BRIT has traded between ~21x -24x over last 5 yr


Over the last two years BRIT has been trading above its mean


Over the last one year BRIT has been trading at a premium to even HUL


Average, -14%

+1SD, 3%

-1SD, -31%

+2SD, 20%

-2SD, -48% -60%

-40%

-20%

0%

20%

40%

60%

Mar-

11

Jun-1

1

Sep-1

1

Dec-1

1

Mar-

12

Jun-1

2

Sep-1

2

Dec-1

2

Mar-

13

Jun-1

3

Sep-1

3

Dec-1

3

Mar-

14

Jun-1

4

Sep-1

4

Dec-1

4

Mar-

15

Jun-1

5

Sep-1

5

Dec-1

5

Mar-

16

Brit Premium/Discount to HUVR Average +1SD -1SD +2SD -2SD

15x

21x

27x

33x

39x

45x

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

Apr-

11

Jul-11

Oct-

11

Jan-1

2

Apr-

12

Jul-12

Oct-

12

Jan-1

3

Apr-

13

Jul-13

Oct-

13

Jan-1

4

Apr-

14

Jul-14

Oct-

14

Jan-1

5

Apr-

15

Jul-15

Oct-

15

Jan-1

6

CM

P (

Rs.)

P/E Multiple

range

P/E Multiple

range

No. of days

traded

% of no. of

days

Cumulative

traded no. of

days

%of

Cumulative

no. of days 18x under 18x 0 0% 0 0%

21x 18 - 21x 102 6% 102 6%

24x 21 - 24x 574 32% 676 38%

27x 24 - 27x 390 22% 1066 59%

30x 27 - 30x 163 9% 1229 68%

33x 30 - 33x 70 4% 1299 72%

36x 33 - 36x 71 4% 1370 76%

39x 36 - 39x 106 6% 1476 82%

42x 39 - 42x 117 7% 1593 89%

45x 42 - 45x 106 6% 1699 94%

48x 45 - 48x 8 0% 1707 95%

51x 48 - 51x 19 1% 1726 96%

54x 51 - 54x 46 3% 1772 99%

57x 54 - 57x 26 1% 1798 100%

-

10.0

20.0

30.0

40.0

50.0

60.0

Mar-

11

Jun-1

1

Sep-1

1

Dec-1

1

Mar-

12

Jun-1

2

Sep-1

2

Dec-1

2

Mar-

13

Jun-1

3

Sep-1

3

Dec-1

3

Mar-

14

Jun-1

4

Sep-1

4

Dec-1

4

Mar-

15

Jun-1

5

Sep-1

5

Dec-1

5

Mar-

16


Rs.2,583

Target

Rs.3,005

Rating

BUY Financial Summary

Abridged Financial Statements Key Metrics

Rs.mn FY15 FY16E FY17E FY18E FY15 FY16E FY17E FY18E

Profit & Loss Growth Ratios (%)

Revenue 78,584 87,736 99,458 1,14,547 Revenues 14% 12% 13% 15%

EBIDTA 8,639 12,448 14,219 16,804 EBIDTA 38% 44% 14% 18%

Other Income 880 1,045 1,051 1,211 PAT 47% 45% 13% 22%

Depreciation 1,445 1,361 1,627 1,852 Margins (%)

EBIT 8,074 12,132 13,644 16,163 Gross 40.3% 42.6% 42.2% 42.2%

Interest 39 35 20 9 EBIDTA 11.0% 14.2% 14.3% 14.7%

PBT 9,496 11,994 13,624 16,154 PAT 7.4% 9.6% 9.6% 10.2%

Tax 2,611 3,598 4,087 4,523 Return Ratios (%)

Normalised PAT 5,827 8,465 9,534 11,627 RoCE 48.9% 51.0% 38.0% 36.8%

EPS (Rs.) 48.6 70.6 79.5 96.9 RoE 57.3% 55.8% 39.2% 37.3%

Balance Sheet Total Asset Turnover (x) 5.6 4.6 4.0 3.6

Net Worth 12,415 17,919 23,842 31,135 Leverage Ratios (x)

Loan Funds 1,402 902 402 202 Debt to Equity 0.11 0.05 0.02 0.01

Deffered Tax Liabilities 0 0 0 0 Current Ratio 0.89 1.06 1.25 1.64

Long Term Provisions 256 256 256 256 Working Capital Ratios

Sources of Funds 14,134 19,140 24,566 31,664 Debtor Days 6 6 6 6

Net Block 7,690 10,329 12,702 12,851 Inventory days 19 20 20 20

Intangible Assets 1,234 1,234 1,234 1,234 Creditor Days 33 33 33 33

Investments 6,083 6,455 6,455 6,455 Per Share

Other Long Term Assets 372 0 0 0 Face Value 2.0 2.0 2.0 2.0

Total Current Assets 12,321 15,587 19,699 28,013 Dividend 16.0 20.0 25.0 30.0

Total Current Liabilities 13,800 14,698 15,758 17,122 Valuation Metrics

Net Current Assets -1,479 889 3,942 10,891 Shares Outstanding (mn) 120 120 120 120

Application of Funds 14,134 19,140 24,566 31,664 Market Cap. (Rs. mn) 3,09,768 3,09,768 3,09,768 3,09,768

Cash Flow Enterprise Value (Rs. mn) 3,02,824 2,99,538 2,95,760 2,88,321

Cash Flow from Operation 5,845 8,793 10,357 12,571 EV /Sales (x) 3.9 3.4 3.0 2.5

Capex 1,177 4,000 4,000 2,000 Price/Earnings (x) 53.2 36.6 32.5 26.6

Cash Flow from Investments -4,503 -2,955 -2,949 -789 Price/Book (x) 25.0 17.3 13.0 9.9

Free Cash Flow 3,540 4,793 6,357 10,571 EV/EBIDTA (x) 35.1 24.1 20.8 17.2

Cash Flow from Financing -1,814 -3,423 -4,131 -4,542 FCF Yield (%) 1.2% 1.6% 2.1% 3.7%

Closing Cash Balance 2,263 4,678 7,956 15,195 Dividend Yield 0.6% 0.8% 1.0% 1.2%


Rs.2,583

Target

Rs.3,005

Rating

BUY Disclaimer

Spark Disclaimer

Spark Capital Advisors (India) Private Limited (Spark Capital) and its affiliates are engaged in investment banking, investment advisory and institutional equities and

infrastructure advisory services. Spark Capital is registered with SEBI as a Stock Broker and Category 1 Merchant Banker.

We hereby declare that our activities were neither suspended nor we have defaulted with any stock exchange authority with whom we are registered in the last five years. We

have not been debarred from doing business by any Stock Exchange/SEBI or any other authorities, nor has our certificate of registration been cancelled by SEBI at any point of

time.

Spark Capital has a subsidiary Spark Investment Advisors (India) Private Limited which is engaged in the services of providing investment advisory services and is registered

with SEBI as Investment Advisor. Spark Capital has also an associate company Spark Infra Advisors (India) Private Limited which is engaged in providing infrastructure

advisory services.

This document does not constitute or form part of any offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction.

This document is provided for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. Nothing in this document should

be construed as investment or financial advice, and nothing in this document should be construed as an advice to buy or sell or solicitation to buy or sell the securities of

companies referred to in this document.

Each recipient of this document should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies

referred to in this document (including the merits and risks involved), and should consult its own advisors to determine the merits and risks of such an investment. This

document is being supplied to you solely for your information and may not be reproduced, redistributed or passed on, directly or indirectly, to any other person or published,

copied, in whole or in part, for any purpose. This report is not directed or intended for distribution to or use by any person or entity who is a citizen or resident of or located in

any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject Spark Capital

and/or its affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to

a certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such applicable restrictions. This

material should not be construed as an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal.

Spark Capital makes no representation or warranty, express or implied, as to the accuracy, completeness or fairness of the information and opinions contained in this

document. Spark Capital , its affiliates, and the employees of Spark Capital and its affiliates may, from time to time, effect or have effected an own account transaction in, or

deal as principal or agent in or for the securities mentioned in this document. They may perform or seek to perform investment banking or other services for, or solicit

investment banking or other business from, any company referred to in this report.

This report has been prepared on the basis of information, which is already available in publicly accessible media or developed through an independent analysis by Spark

Capital. While we would endeavour to update the information herein on a reasonable basis, Spark Capital and its affiliates are under no obligation to update the information.

Also, there may be regulatory, compliance or other reasons that prevent Spark Capital and its affiliates from doing so. Neither Spark Capital nor its affiliates or their respective

directors, employees, agents or representatives shall be responsible or liable in any manner, directly or indirectly, for views or opinions expressed in this report or the contents

or any errors or discrepancies herein or for any decisions or actions taken in reliance on the report or the inability to use or access our service in this report or for any loss or

damages whether direct or indirect, incidental, special or consequential including without limitation loss of revenue or profits that may arise from or in connection with the use of

or reliance on this report.

Absolute

Rating

Interpretation

BUY Stock expected to provide positive returns of >15% over a 1-year horizon REDUCE Stock expected to provide returns of <5% – -10% over a 1-year

horizon

ADD Stock expected to provide positive returns of >5% – <15% over a 1-year

horizon SELL Stock expected to fall >10% over a 1-year horizon


Rs.2,583

Target

Rs.3,005

Rating

BUY Disclaimer (Cont’d)

Spark Capital and/or its affiliates and/or employees may have interests/positions, financial or otherwise in the securities mentioned in this report. To enhance transparency,

Spark Capital has incorporated a disclosure of interest statement in this document. This should however not be treated as endorsement of views expressed in this report:

Disclosure of interest statement BRIT

Analyst financial interest in the company No

Group/directors ownership of the subject company covered No

Investment banking relationship with the company covered No

Spark Capital’s ownership/any other financial interest in the company covered No

Associates of Spark Capital’s ownership more than 1% in the company covered No

Any other material conflict of interest at the time of publishing the research report No

Receipt of compensation by Spark Capital or its Associate Companies from the subject company covered for in the last twelve months:

Managing/co-managing public offering of securities

Investment banking/merchant banking/brokerage services

products or services other than those above

in connection with research report

No

Whether Research Analyst has served as an officer, director or employee of the subject company covered No

Whether the Research Analyst or Research Entity has been engaged in market making activity of the Subject Company; No

Analyst Certification of Independence

The views expressed in this research report accurately reflect the analyst’s personal views about any and all of the subject securities or issuers; and no part of the research

analyst’s compensations was, is or will be, directly or indirectly, related to the specific recommendation or views expressed in the report.

Additional Disclaimer for US Institutional Investors

This research report prepared by Spark Capital Advisors (India) Private Limited is distributed in the United States to US Institutional Investors (as defined in Rule 15a-6 under

the Securities Exchange Act of 1934, as amended) only by Auerbach Grayson, LLC, a broker-dealer registered in the US (registered under Section 15 of Securities Exchange

Act of 1934, as amended). Auerbach Grayson accepts responsibility on the research reports and US Institutional Investors wishing to effect transaction in the securities

discussed in the research material may do so through Auerbach Grayson. All responsibility for the distribution of this report by Auerbach Grayson, LLC in the US shall be borne

by Auerbach Grayson, LLC. All resulting transactions by a US person or entity should be effected through a registered broker-dealer in the US. This report is not directed at you

if Spark Capital Advisors (India) Private Limited or Auerbach Grayson, LLC is prohibited or restricted by any legislation or regulation in any jurisdiction from making it available

to you. You should satisfy yourself before reading it that Auerbach Grayson, LLC and Spark Capital Advisors (India) Private Limited are permitted to provide research material

concerning investment to you under relevant legislation and regulations;

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