scorecardresearchBritannia Industries up 30% in last one year; what should investors do

Britannia Industries up 30% in last one year; what should investors do now?

Updated: 03 Feb 2023, 01:13 PM IST

Britannia's consolidated revenue from operations rose 16 percent to 4,101.49 crore in Q3FY23 against 3,530.70 crore in the corresponding quarter last fiscal.

Britannia stock has been witnessing decent gains for the last one year.

Britannia stock has been witnessing decent gains for the last one year.

Shares of Britannia Industries rose about 2 percent to hit their fresh 52-week high of 4,656.45 after the company reported a 152 percent rise in its consolidated net profit to 932.40 crore.

The net profit includes an exceptional gain (net of tax) of 359 crore, due to a joint venture with Bel SA and the consequent sale of a 49 percent equity stake in its subsidiary Britannia Dairy Private Limited and a fair valuation of the residual stake of 51 percent.

The consolidated revenue from operations rose 16 percent to 4,101.49 crore against 3,530.70 crore in the corresponding quarter of the last fiscal.

The stock has witnessed decent gains in the last one year while the overall market has been volatile. The stock is up nearly 30 percent in the last one year against a 2 percent gain in benchmark Sensex.

Britannia stock in last one year.

We collaborated views of brokerage firms and analysts to understand what should retail investors do with the stock. Take a look:

Fundamental Views

Brokerage firm: Phillip Capital

Britannia is Phillip Capital's preferred stock on India's food story and a high conviction ‘buy’ with a target price of 5,400 (50 times FY25 earnings per share).

"We have upgraded our earnings per share (EPS) estimates by 2-3 percent each for FY24 and FY25 owing to strong Q3 results coupled with a healthy outlook and maintain Britannia as a high conviction buy," said Phillip Capital.

The brokerage firm, however, added that challenges of low volume growth may continue in the near term.

Still, the brokerage firm believes this stock can significantly reward investors with long-term bias and patience.

Phillip Capital gives the following rationale for this:

(1) Formalisation will be more visible in the food space, given a higher share of the unorganised sector which is grappling with supply chain challenges.

(2) Consumer preference towards large, trusted and organised brands in this time of hyperinflation.

(3) More large/integrated manufacturing facilities will get the benefits of economies of scale, and reduce wastage.

(4) Distribution infrastructure shall improve (availability of refrigerators/other ancillary infra) the salience of the dairy business.

(5) Focus on LUP (low unit priced) will drive penetration.

(6) significant improvement in ROIC (return on invested capital) which is expected to inch up to 62 percent in FY25 versus 47 percent in FY22.

"We continue to like management narrative of driving top-line and bottom-line growth by strengthening power brands via innovation/relaunches and premiumisation, enhancing direct reach (particularly in weak Hindi Heart-belt areas), increasing the share of in-housing manufacturing and focusing on new categories," said Phillip Capital.

Brokerage firm: Motilal Oswal Financial Services

Motilal Oswal has a 'neutral' call on the stock with a target price of 4,600 and raised its EPS forecasts between 4 and 6 percent due to better-than-expected profitability and likely gradual easing of material cost pressures.

“Our forecasts already factor in the highest-ever annual EBITDA margin going forward (barring the unusually high margin during the Covid-led restrictions, which, as per the management, is unlikely to be replicated),” said Motilal Oswal.

"Britannia's valuations at nearly 51 times FY24E P/E and nearly 45 times FY25E P/E appear rich. We like the long-term opportunity for Britannia in the packaged food space, its impressive expansion in direct distribution and its high RoE (return on equity). The current valuation fully captures any potential upside from a one-year perspective. We maintain a 'neutral' view with a target price of 4,600 (premised on 45 times FY25E EPS)," said the brokerage firm.

Technical Views

Analyst: Jigar S. Patel, Senior Manager - Equity Research, Anand Rathi Share and Stock Brokers

The analyst said although, at the current juncture, Britannia is looking lucrative, one needs to pay attention to the return generated in the last 11 months of around 55 percent.

The analyst highlighted that on a weekly scale, Britannia has formed a bearish deep crab pattern which is a matter of concern. The weekly MACD is overstretched along with the weekly RSI displaying a negative divergence near the overbought level of 76, hinting towards possible profit booking in the coming few sessions.

"One needs to book profit between 4,650-4,750 (if tested). No fresh buy is recommended at the current market price," said Patel.

Britannia Industries technical chart.

Analyst: Vaishali Parekh, Vice President - Technical Research, Prabhudas Lilladher

The stock, after the consolidation phase, has moved past the resistance zone of 4,400, staging a breakout.

"With improving bias and decent volume participation, the stock has picked up well and a further rise is anticipated in the coming days," said the analyst.

The RSI is well-placed and rising, indicating strength.

"We suggest holding the stock for a further upside target of 4,750-4,800 of the long-term trendline zone with a near-term stop loss at 4,500," said Parekh.

Disclaimer: The views and recommendations given in this article are those of individual analysts and broking firms. These do not represent the views of MintGenie.

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First Published: 03 Feb 2023, 01:13 PM IST