“Britannia Fundamental and Technical Analysis”

IBM 2015 – 2020

Group-2

Submitted By: Submitted To:

Debadutta Dash Prof. Sanjeev Kumar
Harsh Jain
Isha Sudan
Nidhi Mallya
Parakh Poddar
Vedantam Gupta
 Table of Contents

Particulars Page Number

About the Company 3

Fundamental Analysis 3-11

Technical Analysis 12-16

Peer Analysis of Britannia with other 16

FMCG companies in Indian Market

Key Findings 17

Conclusion 17

Appendix 18-20

Bibliography 21

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About Britannia Industries:

Britannia is one of the leading FMCG companies in India. It has been around 100 years for
Britannia since its commencement. It is one of the most trusted brands in India and it
manufactures products like Biscuits and cookies. Most common brands under Britannia are
Tiger, Good Day, Nutri Choice, Milk Bikis and many more. Its product portfolio includes
biscuits, breads, cakes, Dairy Products, Beverages, Milk and Yoghurt. Britannia’s products are
available in every cities and reach over 50% of Indian homes. Their core emphasis is on
building a portfolio which will primarily consist of healthy, fresh and Delicious foods. The
company dairy business contributes to around 5% of the revenue.

Britannia takes pride in having stayed true to its philosophy, ‘Eat Healthy, Think Better’.
Having removed over 8500 tonnes of Trans Fats from products, Britannia became India’s first
Zero Trans Fat Company. Over 50% of the Company’s portfolio is enriched with essential
micro- nutrients which nourish the body. Their relentless focus on quality and freshness have
made them won prestigious awards including the Golden Peacock National Quality Award and
the Ramakrishna Bajaj National Quality Award. Britannia believes that ‘Taste & Trust’ are its
nickname and will constantly endeavour to make a Billion Indians reach out for a delightful
and healthy Britannia product several times a day!

Fundamental Analysis:

Country Analysis: In general term country analysis involves the examination and
interpretations of a country’s monetary, social and political environment. It is useful for
investors in the financial market, companies intending to set up a subsidiary, companies
wishing to enter a new market and also people wishing to reside in the country. Some of the
economic indicators considered in a country analysis are gross domestic product (GDP),
consumer price index (CPI), inflation rate and producer price index (PPI) help in determining
a country’s economic health.

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Indian Inflation Rate: 2012-2018

As per the Exhibit 1: Consumer prices in India increased 4.44 percent year-on-year in February
of 2018, below 5.07 percent in January and market expectations of 4.8 percent. It is the lowest
inflation rate in four months but above the 4 percent medium-term target of the central bank.

 Indian Inflation Rate at 4-monthlow:

Cost went up at a slower pace for food and beverages (3.38 percent from 4.58 percent
in January). The food index alone rose 3.26 percent, below 4.7 percent in the
previous month. Inflation eased for vegetables (17.57 percent from 26.97 percent)
and fruits (4.8 percent from 6.24 percent) while prices of pulses fell slightly less (-
17.35 percent from -20.19 percent). Inflation was also lower for fuel and light (6.8
percent from 7.73 percent) and housing (8.28 percent from 8.33 percent).
 Fast moving consumer goods (FMCG) is the 4th largest sector in the Indian
economy. The FMCG sector has grown from US$ 31.6 billion in 2011 to US$ 49
billion in 2016. The sector is further expected to grow at a Compound Annual Growth
Rate (CAGR) of 20.6 per cent to reach US$ 103.7 billion by 2020. FMCG revenue
grew 14.8 per cent during October-December 2017.
 India’s GDP: The numbers indicated that the economy had shaken off the effects of
demonetization and come to hold with the goods and services tax (GST). India’s FY18
growth projection was revised marginally upward to 6.6% from 6.5% estimated earlier,

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 compared with 7.1% in FY17, according to data released by the ministry of statistics
and programme implementation on Wednesday.

Industry Analysis:

 FMCG Industry life cycle: The products that are being sold in the market has a shelf
life but it depends on the type of industry in which it operates. However, the FMCG
products have a long product life cycle because people continue to buy the product for
a number of years as long as it is in stock. Basically there are four stages in this fast
movable consumer goods product life cycle. The following are the categories of the life
cycle in this type of industry:
1. Introduction into the market
2. Growth Stage
3. Maturation Stage
4. Decline Stage
 Britannia is currently in the Maturation Stage where the production costs are lower and
the products would have been sold several times. Hence, the product prices drops and
the sales are the highest at this point of time.

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  Nature of Industry: Apparently the FMCG industry is the 4th largest segment in the
Indian economy. The estimated market size in the year 2011 was US$30 billion and in
the year 2018 it is estimated to be around US$74 billion. This segment is the leading
segment and it contributes to 43% of the total market in the Indian economy. The
Growing awareness and changing lifestyle is the key driver of this FMCG sector.
 Sales and earnings: Most of the sales of this FMCG products are in the rural areas. It is
approximately 60% in the rural areas of India. The rest 40% of the sales are in the semi-
urban and urban areas. The sales in this industry are expected to increase further and
there are a lot support from the government itself.
 Attitude of Government: The government is providing support to this FMCG industry
and because of this benefits the FMCG industry has managed to deliver efficiently.
Infrastructural support have been provided and along with that subsidies grant have
sanctioned. This industry is growing rapidly and it will increase further.

Company Analysis:

The company analysis is further sub-divided into two categories. The categories are the
following:

1. Qualitative Analysis
2. Quantitative Analysis

Qualitative Analysis: In this type of analysis the details such as business model of the
company, labour relationship management, R&D etc. are included.

 Business Model: The Business model of Britannia Industries is similar to other FMCG
companies operating in the market. It is a distributor based business model. First of all
from the production department the products are transported to the regional
warehouses. After getting the products at the warehouses the products are distributed
to the distributors in the market. From the distributors it goes to the retailers and these
retailers sells the products to the customers.
 Labour Management Relations: Britannia enjoys a good reputation in terms of labour
management relations. They abide to the guidelines laid down by the government and
so far there is no such incident where there is evidence of distress among the workforce.

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 The Human Resource officials work hard in maintaining good employee and employer
relationship.
 Research & Development: The research and development is an integral part of any
business. It empowers the organization to study the trends in the market and decide how
to go ahead with respect to these changes. Recently they have invested 200 crores, this
will help them to enhance the value creation out of their core products.
 Geographical Location: Britannia operates in almost every parts of the country. They
operate in urban and rural areas. They were successful because of their business model
and they focussed more on their core competencies. In every region there is a
manufacturing plant and from there the distribution phase starts.so, they have managed
to take the advantage of economy of scale since they operate in every region.

Quantitative Analysis: In this analysis all the ratio computation are done where the efficiency
of the organization is calculated in terms of profitability, efficiency and many more. The
calculations are done for the last five years starting from 2012-2013.

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Efficiency Ratios: Efficiency ratios are typically used to analyze how well a company uses its
assets and liabilities internally. An efficiency ratio can calculate the turnover of receivables,
the repayment of liabilities, the quantity and usage of equity, and the general use of inventory
and machinery etc.
 Inventory Turnover Ratio: The Inventory turnover is a measure of the number
of times inventory is sold or used in a time period such as a year. A high
inventory turnover ratio indicates good sales. It also implies better liquidity. In
this case, the sales increased as the Inventory Turnover ratio increased from
10.61 in the year 2012-13 to 12.67 in the year 2015-16.Then, there was a slight
downfall in the year 2016-17. The sales have remains predictable, i.e., increased
year by year.
 Debtors Turnover Ratio: The debtors/receivables turnover ratio is an activity
ratio measuring how efficiently a firm uses its assets. The receivables turnover
ratio has decreased from the year 2014-15 to year 2016-17 which means that
the firm’s average collections are taking longer.

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  Net Working Capital Turnover Ratio: It indicates a company's effectiveness
in using its working capital. The ratio has increased from 3.37 in year 2012-13
to 3.44 in the year 2013-14 and then it has decreased till the year 2016-17 which
indicates that the business invested in too many accounts receivables and
inventory assets to support its sales.
 Fixed Assets Turnover Ratio: It indicates how well the business is using
its fixed assets to generate sales. The Fixed assets turnover ratio has declined in
the year 2016-17 from 12.65 to 9.85 which indicates that the business might
have over-invested in plant, equipment, or other fixed assets.
 Assets Turnover Ratio: It is a financial ratio that measures the efficiency of a
company's use of its assets in generating sales revenue or sales income to the
company. Here, the assets turnover ratio is increasing from 3.37 in year 2012-
13 to 3.44 in 2013-14 which implies that the year 2012-13 had low profit
margins tending to have high asset turnover, while the ratio has declined till
the year 2016-17 implying high profit margins tending to low asset turnover.
Solvency Ratio / Capital structure Ratios: The capital structure is how a firm finances its
overall operations and growth by using different sources of funds.
 Debt to total assets ratio: It is an indicator of financial leverage. It tells the percentage
of total assets that were financed by creditors, liabilities, debt, etc. Here, the ratio has
been 0.62 to 0.30 from the year 2013 to 2017 which implies that only less than half of
the total assets of the company are financed by the liabilities. In other words, the debt
is 30% of the total assets in FY 2016-17.
 Debt to equity ratio: It indicates how much debt a company is using to finance its
assets relative to the amount of value represented in shareholders' equity. Here, the
Debt-to-equity ratio is low, 0.1 in the years 2013-14, 2014-15, 2015-16 which suggests
that the company is not fully utilizing the cheaper source of finance (i.e. debt).
 Interest Coverage ratio: It is used to determine how easily a company can
pay interest on outstanding debt. Here, the Interest coverage ratio is increasing from 9.8
in 2012-13 to 934.70 in 2016-17 indicating that the debt expenses are decreased.

Profitability Ratio: It measures how well the organization is able to perform and how well is
has managed to generate profits.
 The Return on Investment grew from 2012-13 to 2015-16, however for the last year,
it significantly reduced from 37% to 34%. This shows that there has been an addition

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 to the assets of the company however the company has not been able to fully utilize
these assets to generate proportionate revenues.
 The Total Expenditure to Total Revenue in the past five years has decreased from
94% to 85%. This shows that the organization is doing fairly well and has been able to
recover all its costs and at the same time generate profits for its shareholders.
 EBITDA to Revenue ratio was at 8% in 2012-13 and increased to 16% in 2016-17.
This is a good sign because it means that the proportion of revenue available to the
various financers of the company has been going up.
 EBT to revenue ratio has reduced from 6% in 2012-13 to 15% in 2016-17 which
shows the proportion of revenue to meet tax obligations and then make dividend
payment to shareholders has gone up.
 The Return on Sales, represented by Net Profit Ratio has been increasing from 4% to
10%.

Liquidity Ratio: It is the ratio that measures the ability of the current assets to meet the short
term obligations.
 Current Ratio: The current ratio of the company has increased starting from 0.82 in
2012 and in 2017 it was 1.84. It shows that company is able to pay back its liabilities
with its assets.
 Quick ratio: This ratio is also quite constant and not much fluctuation were observed.
In the year 2017 it was 1.29.
 Days to Inventory: It reflect the number of days the company needs to store its goods
before they are sold. It fell from 34 to 29 days in 2015-16, however in 2016-17, it was
35 days. This shows that the goods need to be stored for around 1 month before they
are actually sold. This ratio can be made better by improving the supply chain
management.
 Creditor payment period: Creditor payment period increased from 21 days in 2012-
13 to 28 days in 2016-17
 Debtor Collection Period: Period: It decreased from 5 days in 2012-13 to 3 days in
2014-15 and then increased to 5 days in 2016-17. This shows decreasing burden in
terms of liquidity on the company as the amount is being recovered from debtors earlier
than payments are made to creditors.
Market ratio analysis: The main reason for using this market ratio is to analyze the economic
status of a publicly traded company. In simpler terms whether the stock price of a company is

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undervalued, overvalued or accurately priced. It also helps the management in getting ideas
about what the investors think of the overall performance of the organization.
 Price to earnings ratio: The main purpose of the price to earnings ratio is to reflect
the confidence of the investor upon the company. In the year 2013 the PE ratio was
26.37 and slowly it began to increase. In 2017 it was 47.99. This up is because of the
increased profitability which is being already reflected in the profitability ratios.
 Price to Book Value Ratio: This ratio seen a very good growth and has increased over
the year from 9.58 to 15.68.
 Dividend Pay-out Ratio: It is the total amount of dividends allotted to the shareholders
with respect the net income of the company. In the year 2013 the dividend pay-out ratio
was 6.08 and gradually it declined and in the year 2017 it was 4.11. This clearly shows
the inefficiency of the company and they need to track the major driving force behind
this changes. However, there are certain criteria’s based on which the company decides
to pay-off the dividends. It also depends upon the future earning expectation of the
company and what sort of investment opportunities they are planning’s. So, all these
factors affects the pay-out options.
 Dividend Yield: This ratio basically measures the level of dividends distributed to the
shareholders with respect to the market value per share. For this company the dividend
has increased from time to time. In the year 2013 it was 0.02 and simultaneously it
increased. In 2017 it was 0.05. However it all depends on the type of industry the
company operates. For an IT company, they hardly pays any dividends. So there are
certain factors that must be kept in consideration before making any analysis. Normally
it is the general tendency that every investors wants to get more yield but in reality it is
totally situational.

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Technical Analysis:

1. Bollinger Band

Bollinger Brand is a popular technical analysis instrument which consists of three different lines:
Moving Average, Above Line, Below Line. These lines are graphed around the security line, and
they show whether the security price is going up or down. Based on the graph above, between April
2016 and October 2016, there was a squeeze. A squeeze occurs when the upper band and lower band
come close to the security line. This indicates that there is a low volatility, which means less risk for a
person who is inclined to buy the stock. After this point the volatility has increased as the bands are
gone further apart. Currently the Standard Deviation of Britannia is 0.955 (Brittannia charts, Analysis
and Tips). This shows that the Britannia stock is technically strong.

2. Moving Average Convergence and Divergence

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MACD is a trend following indicator that reveals the relationship between two moving averages of
prices. It shows the changes in strength, momentum, duration, and direction of a particular stock price.
Based on this particular graph we have two moving averages: the 12 day period and the 26 day period.
MACD line consists of these two averages meanwhile the Signal line is the average difference over the
past few periods. For instance, in September 2017, the MACD line is above the Signal line, so this is a
bullish indicator. This means that the prices will rise as investors are buying more stocks. However, in
March 2018, the exact opposite happened. The Signal line was above the MACD line, so this is a bearish
indicator. The share price declined which means there are few buyers and many sellers. MACD: 29.3
and Signal Line: 23.9. According to MACD analysis, Britannia is technically strong. (Brittannia charts,
Analysis and Tips).

3. Relative Strength Index

It is a technical analysis instrument which is used to compare the recent gains to recent losses. This is
an attempt to see if the shares have been over-brought or over-sold. It measures the speed and change
of the price movements. This particular graph has three lines: The RSI line, Upper Band, Lower Band.
In April 2015, November 2016, and October 2017, the RSI line has crossed the upper band. This means
that the stock has been over-brought and the price of the stock will fall. However, in December 2015
and February 2017, the RSI line crossed the lower band. So, the stocks have been over-sold which
means that the stock price will increase.

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 4. OBV

The On- Balance Volume indicates the effect of volumes of shares flowing on the stock prices.
Its main focus lies on the institutional investors and their flow of money. It is generally seen
that with a sharp increase in volume, stock prices also take a jump and vice versa. The OBV
indicator came down from 52.09 to 6.21 on Dec 6 and since then has been slightly increasing
to reach at the present level of 6.31 which suggests that investors are showing trivial interest in
the stock and thus there are chances of the share price to shoot up.

5. Moving Average

Moving Average technical analysis is one of the most commonly used tool by investors to
identify trend direction, but can be used to generate potential buy and sell signals. In this
method we take into consideration of past data points and divide the sum with the number of
data points. So, in our analysis we have plotted the 50 days and 200 days moving average lines
and have then seen the share price movement over a period of last one month on a weekly basis.

The moving average suggests a bearish position because the prices have been gradually
increasing and thus the average has been relatively lower when compared to the present prices.

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Particularly in the case of 50 day average since the company suffered a loss of 4.15% between
Feb 2 and Feb 5, the line is positioned relatively lower on the graph.

6. KST

The Know Sure Thing (KST) graph works on the two line concept similar to the MACD
system. The KST line is plotted using different time frames to show an overall momentum
which is compared with the signal line to provide the needed signals.
If the KST line is above the signal line, it gives a buy signal whereas if the KST line is below
the signal line, it gives a sell signal. From the above graph we can see that the KST line is
below the signal line suggesting a bearish market. Also, since the KST line is below the share
price trend line, it gives a selling position.
DOW Theory

In this analysis we have tracked the share price movements and shown regions with pink and
violet lines where the stock prices have beaten the previous highs and lows. This helps us to
look for some potential happenings in the market that have impacted the share prices or might
affect in the coming future.

As mentioned above that Britannia shows a slightly gradual increase over the years and thus
we can see periodic highlights of more of pink lines (highs) as compared to violet lines (lows).

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But if we look at the past few days data there is an almost equal proportion of pinks and violets
but more of pinks thus suggesting mildly bearish market.

Peer Comparison:

Britannia Industries is considered overvalued based on its historical comparison analysis (KPI:
dividend yield), but considered undervalued based on its peer comparison analysis (KPI:
EV/EBITDA multiple). However, the historical comparison shows a higher correlation with
the stock price of Britannia Industries. As a result, this stock is therefore currently considered
'overvalued'. However Britannia Industries would be considered 'undervalued' if its price
declined below ₹3,576.84.

On the other hand, the EV/EBITDA multiple of this stock tends to have a high correlation with
the average of companies in the same industry worldwide. As a result, many investors may
estimate the trend of its cash flow based return by comparing the company with cash flow
returns of companies in the same industry worldwide. As a result, Britannia Industries is
currently considered 'undervalued' based on its peer comparison analysis because its
EV/EBITDA multiple is lower than the average EV/EBITDA multiple of companies in the
same industry worldwide. This is the excel sheet that is being attached for detail analysis.

Britannia Peer
Analysis.xlsx

(Double click to access this file)

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Key Findings:
The Net Profit of Britannia has increased to 10% in 2017 as compared to 2013. The total
expense to revenue has declined to 85%, while it was 94% in the year 2013. So, the company
has done a good job in managing their cost. The debt to equity ratio is declining each year. This
means that the company is not utilising the cheaper source of funds properly. The ROI of
Britannia has increased and it was 37% in 2016 but in 2017 it came down to 34%. The inventory
turnover ratio was increasing till 2016 but slightly it came down to 10.54.
Conclusion:
The performance of the company is good in terms of profitability. It has managed to generate
good earnings in capital employed. This is a positive indicator for the company. This
organization is having enough resources to meet its tax and interest expenses. The main reason
is that they are suing less of debt and hence the interest coverage ratio is higher. The company
has improved in terms of their current ratio. This means that the company is trying to have
sufficient current assets to meet its current liabilities. Use of debt capital is low and it is
decreasing every year. So, the company should focus more on improving the efficiency of
utilizing the fixed assets properly. Also the use of debt capital should be increased in order to
create a balance. The focus should be given to use the investment more efficiently to increase
the shareholder’s value. They should also try to innovate strategies, programs and policies.
Also the major focus should be on improving the inventory management.

With the help of the technical analysis it can be clearly observed that the stock of Britannia
have become mildly bullish. However, it was bullish earlier and the prices were expected to
rise. The main reason is the lack in the operational efficiency of the company. There were
improper utilization of the resources and hence the Net profit declined recently. This creates a
negative remark upon the performance of the company. Because of this the dividend pay-out
declined in 2017. So, Britannia should focus more on managing its internal resources properly
and through that their overall efficiency may increase. This will increase the shareholder’s
value. Ultimately the technical indicators will change as soon as the performance of the
organization starts increasing.

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Annexure:
[I] RATIOS SHOWN BY COMPANY (VOLUNTARILY) –

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[II] FINANCIAL STATEMENTS –

 Profit and Loss Statement:

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  Balance Sheet:

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 Peer Comparison Charts:

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