Britannia Industries Ltd. will continue to see healthy revenue growth and margin uptick, according to Bank Bank of America Merrill, as it initiated coverage on the biscuit maker.
The brokerage firm initiated the coverage with a ‘Buy', with a target price of Rs 5,500, an upside of 18 percent from the current market price. The stock hit a lifetime high of Rs 4,799.8, rising as much as 3.14 percent yesterday.
The company's scale and extent of premiumisation has led to higher profit, whereas a combined benefit of pricing and volumes have upped the revenue targets, the brokerage said in a report.
Margin uptrend of 32 percent compounded annual growth rate between financial years 2013 and 2017 comes from continued optimisation of the company's cost structure, the Bank of America Merrill Lynch report said.
Also Read: Britannia Pushes For A Bigger Bite Of The Rural Pie
Here's what Bank of America Merill Lynch had to say on Britannia:
- The margin uptrend will be supported by vendor consolidation and innovation-led better portfolio mix,
- Factors like profitability, Goods and Services Tax-led consolidation and global growth to act as tailwinds, to make 15 percent CAGR in margin an “achievable target.”
- Logistics costs likely to go down further with implementation of GST due to efficient distribution.
- GST augured well for the biscuitmaker as the new tax regime came in as a pressure for the local players because of compliance issues.
- The company likely to do well in global business led by entry in newer markets every year, starting with Nepal in the next financial year.
- The company's earnings per share to grow at a CAGR of 18 percent over three financial years up to March 2020.
- Competition and reliance on select raw materials are the two risks for the company.
Also Read: Britannia Looks To Revive Growth In Premium Cream Biscuits
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