Notwithstanding slowdown risks in key categories and spike in input prices, brokerage firm Sharekhan sees a nearly Rs 700 per share gains for Britannia Industries. The optimism is based on its assessment of consistent double-digit earnings growth of 17.2 per cent in the coming years. The FMCG major has widened the gap with its nearest rival consistently for the past six years.

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Sharekhan has put a price target of Rs 5,060 on Britannia Industries shares with a view of 12 months.  The stock was recommended at a price of Rs 4,365.

On Friday, Britannia shares ended at Rs 4315.55 on the NSE and were down by Rs 32.75 or 0.75 per cent.

The stock hit its 52-week high of Rs 4537 on 9 December 2022. 

Triggers

1) Britannia’s joint venture agreement with Bel SA, France to expand its cheese business in India and other international markets, the brokerage firm said emphasising that cheese business will grow by 5X over the next five years. The Bel Group is a world leader in branded cheese segment, it noted and as part of the JV, Britannia will sell and transfer 49 per cent equity stake in the wholly owned subsidiary Britannia Dairy Private Limited (BDPL) to BEL while holding a controlling stake of 51 per cent.  

2) Wafer segment is expected to achieve over Rs 100 crore in revenue in FY2023 while the croissants segment is expected to achieve revenue of Rs 150 crore.

3) In the core biscuit category, the company is consistently gaining market share (Q2 was the 38th consecutive quarter of share gain), which is aiding the company to achieve growth ahead of the industry’s growth.

4) Company is focusing on deepening its penetration in the rural market to partially mitigate the impact of rural slowdown.

Headwinds

1) Operating Profit Margins (OPM) to remain subdued in the near term with recovery likely in FY2024 if raw material prices correct sharply.

2) Raw-material inflation stood at 12 per cent in H1FY2023. Though palm oil prices have corrected from their high, wheat prices and sugar prices continue to remain high on a y-o-y basis.

Valuations

Britannia is currently trading at 59X/50.7X/43.1X its FY2023/FY2024E/FY2025E EPS, Sharekhan said in the report.

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(Disclaimer: The views/suggestions/advises expressed here in this article is solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)