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  • Stock recommendation: Britannia Industries — Add — Target price Rs 6,700

    Publish date: August 8, 2018

    Stepping it up

    Britannia Industries has outlined an ambitious strategy for its future. It intends to increase its share in the non-biscuit business, put greater emphasis on innovation for its biscuit brands and focus on value-added dairy products like cheese and yoghurts.

    The company’s first quarter results were not very impressive but its long-term plans have surely piqued the interest on the Street. If the company is successful in pulling off its plans, it provides a tremendous growth potential for investors in the long run.

    Key Highlights

    • Currently, the company generates 70% of its revenue from its biscuit business and the remaining from its non-biscuit business. But the management now wants to take this ratio to 50:50 while keeping the biscuit business intact.
    • The company wants to enter the “macro snacking” space. Wafers, croissants are a few examples of this segment.
    • The company is planning to innovate in the cake and rusk segment, while it plans to expand its geographical presence in the bread category.
    • The distribution channels will be ramped up as well. While the company will look to focus on more depth in the urban markets, it plans to widen its rural base further. We note that the company’s rural market plans have worked out well, especially in Gujarat, Uttar Pradesh and Rajasthan.
    • The food company intends to spend heavily on TV ads, with the management adding that the ad spends would not impact the operating margins.
    • The management wants to increase exports volume and set up a manufacturing unit overseas every year.
    • Valuation & outlook

      Britannia’s overhaul plans — they recently launched a new logo — have enthused the market. Rich stock valuation and a weak quarterly result notwithstanding, a successful delivery in the long run can provide a major impetus to the investment portfolio.

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