FMCG stock trades at record high level. Brokerages see further rally

“Britannia’s hunger for its cheese business is growing. The company has formed a JV with French cheese major BEL SA (Bel), a large global player with a presence in 120-plus countries. Bel already has a presence in India via its marquee brand ‘The Laughing Cow’ (small in size; we reckon INR150–200mn). Importantly, the JV gives Britannia access to technical knowhow, innovation and expertise, among others,” said Edelweiss in a note.

The brokerage house believes the JV fits in nicely with Britannia’s growth plans. While the company dominates biscuits, its presence in cheese has been sub-scale (via outsourcing). This deal with a 20-year lock-in allows Britannia to replicate its biscuits’ template to dominate mid and premium cheese in India—and some more markets, it added while retaining its ‘BUY’ rating on the FMCG stock with a target price of ₹5,090 apiece.

“We expect BRIT to dominate the mid and premium cheese market in India, replicating its biscuit template. We remain positive since BRIT’s new CEO Rajneet Kohli is driving product innovation, distribution expansion and digital focus,” said Edelweiss.

Britannia delivered decent volume growth of 4% y-y and widened the market share gap with its top two competitors (reaching a 15-year high), aided by the increase in its distribution reach. “Aggressive campaigns for earlier launches done on Milk Bikis Atta, Croissant campaign, Biscafe, Bourbon, 5050 Potazos, 5050 Golmaal are doing extremely well in the east,” said brokerage BNP Paribas which is also bullish on Britannia shares and has a target price of ₹4,550.

The FMCG major expects commodity prices to be largely stable in 2HFY23 with slightly better net raw-material inflation and expects gradual margin expansion while supporting growth in adjacent categories.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.