Motilal Oswal
Britannia (Buy)
Target: ₹4,575
CMP: ₹3,808.60
Britannia's opportunity for growth is significant, with the overall biscuits category estimated to grow in the mid-single digits. Furthermore, the opportunity in terms of market share gains is even greater -- the company's market share is only in the mid-30s despite it being the largest player in the biscuits space.
The broad packaged foods market (estimated at $40-50 billion) presents the strongest structural opportunity in India's consumption space. Britannia's FY21 revenue of $1.8billion is a fraction of this addressable market.
In addition to in-home consumption-led demand growth and likely about 40 per cent EPS growth in FY21, Britannia results in 9M-FY21 notably reported (a) continued market share gains (sustained for 37 quarters now); and (b) a continued rapid increase in distribution (especially direct distribution) to 2.3 m outlets. Despite about 40 per cent EPS growth likely in FY21; a strong track record of about 20 per cent/27 per cent EPS growth in the preceding 5/10 years ended FY20; an improving outlook for FY22; the best-of-breed structural growth opportunities; and ROE of over 40 per cent, the stock trades at 40.7x FY23E; this is at a substantial discount to its historical three- and five-year averages