Company Overview

Britannia Industries (NSE:BRITANNIA) is one of India’s leading food companies with a 100 year legacy and annual revenues in excess of Rs. 9000 Cr. Britannia is among the most trusted food brands, and manufactures India’s favorite brands like Good Day, Tiger, NutriChoice, Milk Bikis and Marie Gold which are household names in India. Britannia’s product portfolio includes Biscuits, Bread, Cakes, Rusk, and Dairy products including Cheese, Beverages, Milk and Yoghurt. Britannia is a brand which many generations of Indians have grown up with and its brands are cherished and loved in India and the world over. Britannia products are available across the country in close to 5 million retail outlets and reach over 50% of Indian homes.1

The company’s Dairy business contributes close to 5 per cent of revenue and Britannia dairy products directly reach 100,000 outlets.

Britannia Bread is the largest brand in the organized bread market with an annual turnover of over 1 lac tons in volume and Rs.450 crores in value. The business operates with 13 factories and 4 franchisees selling close to 1 mn loaves daily across more than 100 cities and towns of India.

Britannia Industries has a presence in more than 60 countries across the globe. The company's international footprint includes presence in Middle East through local manufacturing in UAE and Oman, are the No 2 biscuit player in UAE with a strong contention to leadership and have a similarly strong market position in the other GCC countries. Britannia Industries is also the market leaders in Nepal and are in the process of investing a manufacturing facility in the country.

The company's foot print spreads across North America, Europe, Africa and South East Asia through exports and Britannia Industries is investing in a state- of- the- art facility in Mundra SEZ, Gujarat, to service the exports markets.

The company's strategic expansion plan is based on the principle of ‘One new market a year’. The company plan to expand through local operations in Africa and South East Asia in the coming years.

Britannia takes pride in having stayed true to its credo, ‘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.

The company set up the Britannia Nutrition Foundation in 2009, and began working on public private partnership to address malnutrition amongst under-privileged children and women.

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Industry Structure

Britannia is one of India’s leading food companies in the packaged food segment and is among the most trusted food brands. Britannia’s product portfolio spans Biscuits, Bread, Cakes, Rusk, Dairy and Adjacencies.2

Biscuit

Biscuit is one the fastest growing categories within FMCG. The per capita consumption of biscuits in India relative to certain developed economies is quite low and offers significant opportunities for category growth. In view of the widespread penetration of biscuits among households (above 90%), the opportunity for innovation and scale is large in this category.

Cake

Cake, while still not as developed as biscuits as a category, has witnessed some breakthrough developments in the last few years. The category is developing very quickly with new formats, new price points, proliferation of flavors & variants and development of eggless packaged cake. The year 2018-19 has seen the company launch 3 new formats and it intends to further work on its innovations in the cake category. The company’s aim is to lead the market through launch of many new-to-market products and thereby, retain its strong market share and competitive position.

Rusk

Double baked bread, otherwise known as Rusk or Toast, is a traditional category, but has seen a revival in recent years, driven by efforts of the company. The company which is already the leader in this space, has launched a new brand “Toastea”, offering an innovative milk rusk of superior quality to its consumers. The company is also making attempts to galvanize this category further by launch of healthier offerings like Multigrain Rusk in order to keep abreast of consumer demand for products that are ‘tasty and healthy’.

Bread

The bread category has been undergoing significant transformation through the introduction of healthier variants and the company has been leading this revolution. However, competition is on the rise in this segment with the emergence of both organized and unorganized players.

Adjacent Business

The Company has entered 3 new categories in Adjacencies during the year under review:

  • Center Filled Croissants: It is a nascent category in the country. However, the company’s research has demonstrated that this category has a lot of potential given the busy lifestyles of the youth of the country
  • Cream Wafers: It is a ` 500 Crores category growing rapidly at over 25% every year. The company is the first branded player with a large national presence to enter this fragmented category.
  • Salted Snacks: Snacking is inherent to Indian food culture. It has traditionally implied a variety of sensorial experience in terms of flavour, taste, shape, texture, ingredients, appearance & accompaniments. The size of the packaged Salted Snacks market is ` 25,000 Crore, with the category growing at more than 20% annually. This category can be further classified into 3 segments i.e., Traditional snacks consisting of Indian namkeen and Bhujia, Potato wafers and Extruded snacks.

There are more than 2000 manufacturers operating in this category and the migration from unorganized or local to branded products will drive growth for national players.

Dairy

India has been the largest producer and consumer of dairy products since 1998, currently contributing ~20% of the global production. However, Indian milk industry continues to be largely unorganized, with organized sector contributing to only 20% by value.

In the past few years, the processed milk products market has witnessed sustained growth due to increasing urbanization, rising disposable income and proliferation of retail outlets beyond Tier 1 cities. While packaged liquid milk will remain a key driver of the industry growth, value added dairy products are expected to witness healthy growth and the overall organized sector’s contribution is expected to increase to 30% of the industry by 2023.

There are two broad trends that are driving this growth:

  • Changing lifestyles, leading to a shift from home- made traditional Dairy products (like Ghee and Curd) to packaged forms.
  • Increasing awareness of nutrition and health benefits of various Dairy categories like Cheese and Yoghurt.
  • Overcoming challenges such as supply chain gaps, insufficient cold storage and distribution facilities with better Dairy Farming practices will provide further impetus to the industry in the coming years.

International Business

The company’s International Business, spread across Middle East, Africa, Americas, Asia Pacific and South Asia, operates in a highly competitive environment with lot of local and international players. The business faces multiple challenges such as import duty barriers, exchange rate dynamics, competition from local manufacturing etc.

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Opportunities and Threats

Biscuits

Biscuits is one the fastest growing categories within FMCG. The per capita consumption of biscuits in India relative to certain developed economies is quite low and offers significant opportunities for category growth. In view of the wide spread penetration of biscuits among households (above 90%), the opportunity for innovation and scale is large in this category

The Primary threat in this segment is expected to arise from competitors who discern the same opportunities and are investing significantly to tap these opportunities. A combination of consumer relevant innovations, superior quality delivery, further expansion of distribution and the inherent strength of Brand Britannia made more potent through judicious investments will help the company address these threats.

Cake

Cake Category is expanding with disruptive innovations in the market and the company is well placed to grow in this category due to its capabilities and leadership in the cake category. The emergence of new consumption occasions are also providing opportunities for the company to offer new cake formats and variants in convenient packages at affordable prices.

However, proliferation of competition, especially at the lowest price point segments pose threat to growth prospects in this category

Rusk

The fragmented and unorganized nature of the segment offers tremendous opportunities for growth. The scope to offer consumers new rusk experiences will enable growth in this category.

Bread

Consumer preference for healthy and premium products is creating significant opportunities in this category. The company has taken the lead in offering consumers the choice of healthy breads through innovations like multigrain breads.

Adjacencies

The company’s entry into adjacencies business is led by launch of Crème Wafers, Croissants and Salted Snacks during the year. Crème Wafers offer the company a significant opportunity to attain market leadership.

In Croissants, the company has the opportunity to create a category which is new to the country. The segment is nascent and the challenge for the company would be to persuade change in existing consumer habits in order to make Croissant an everyday choice for today’s consumers

Over the past few years, the snacks category has witnessed a slew of activities such as the emergence of new players, product innovations, aggressive marketing campaigns to establish consumer connect etc., all of which have resulted in the opening up of newer opportunities. The prospects for the branded snacks market remain bright for the foreseeable future and this should auger well for the company’s efforts in this segment.

However, the presence of a large number of manufacturers and low capital requirements makes this category hyper competitive. The company will need to focus continuously on product innovation to combat competition, both from within this category as well as from other categories.

Dairy

Increasing consumer buying power, busier lifestyles and changing consumption patterns are likely to largely benefit this segment. The company foresees the following untapped opportunities in the market:

  • New and healthier dairy formats
  • Availability of convenient on-the-go packages at affordable prices
  • Gaining share from the unorganized segment
  • Strengthening footprint in areas of low penetration

Amidst the growing opportunities, the Dairy industry has been witnessing certain challenges that are being addressed by various players across the chain. The company sees quality milk procurement and continuous infrastructure improvement including cold chain as the primary growth challenges. To address these challenges, the company has been continuously investing in building milk procurement capabilities, ensuring consistency in quality of raw material and strengthening cold chain distribution.

International Business

The company is exploring opportunities of local manufacturing in several strategic markets like Egypt, Nigeria, Uganda, Bangladesh and Ghana. These are large biscuit markets with category construct in line with Britannia’s strengths and offer good prospects for the company due to superior product offering compared to local manufacturers.

However, any slowdown in economic growth and consumption are potential risks to the company’s aspirations for developing its International Business.

Risks and Concerns

The growth of the company’s portfolio is linked to the overall economic growth. Primary risk to the business will be on account of adverse changes to the economy. Volatility in commodity prices is another significant risk.

Financial highlights

On Feb 7, 2020: Britannia Industries  reported consolidated revenue growth of 4% for the Quarter at Rs. 2,936 crores. Consolidated Net Profit increased by 24% for the Quarter at Rs. 373 crores.3

Britannia Industries has also got direct reach, which is today at 21.7 lakh outlets. The number of rural distributors has gone up from March of 18,000 distributors and in December Britannia Industries has 21,000 rural distributors, which has taken its market shares in all of the rural states.4

Britannia Industries has got all its products 100% transfat free. 46% of its portfolio is fortified with essential micronutrients. Britannia Industries has increased whole grains and dietary fiber by serving by almost 10%. And its promise, as the company go forward, is to reduce 5% sugar and sodium in its bakery products by 2021.

This year the company will have a CAPEX number of about Rs. 190 crores, versus in the previous year Rs. 250 crores for 3 quarters. And predominantly, if you look at it, this year its CAPEX is going into its Ranjangaon factory, which is turning out to be a really beautiful food park for it. So that's where most of its CAPEX is going, besides minor CAPEXs and then some CAPEX into its IT systems, etc.

Outlook

The growth of the Indian economy has been steady during the previous year. However, there were signs of growth slowing down towards the end of the year owing to the impact of rising global trade tensions and the credit squeeze in domestic markets. Consumer facing businesses have registered reasonable growth in revenue and profits during the year. With the expectation of stability in governance and growth oriented policies, it is expected that the growth rates would improve in the coming years.

The overall economic environment would have an impact on the company’s business. However, the company expects to tide over any adversities on the strength of a strong brand, product innovation, exploration of newer segments, relatively lower dependence on wholesale channel and continuous cost saving efforts.

The outlook of the international business remains challenging due to slowdown of consumption in the Middle East mainly due to shrinking diaspora, mass layoffs, political instability/war situation in key markets and steep local currency depreciation in Africa. However, the business expects to do better by gaining share from competition and be efficient in managing the cost of production. This will be delivered through products, packs and promotions.

Recent developments

Britannia Consolidated December 2020 Net Sales at Rs 3,165.61 crore, up 6.13% Y-o-Y 5

January 9, 2021; Reported Consolidated quarterly numbers for Britannia Industries are:

  • Net Sales at Rs 3,165.61 crore in December 2020 up 6.13% from Rs. 2,982.68 crore in December 2019.
  • Quarterly Net Profit at Rs. 455.75 crore in December 2020 up 22.31% from Rs. 372.63 crore in December 2019.
  • EBITDA stands at Rs. 694.08 crore in December 2020 up 22.37% from Rs. 567.22 crore in December 2019.
  • Britannia EPS has increased to Rs. 18.93 in December 2020 from Rs. 15.50 in December 2019.

References

  1. ^ http://britannia.co.in/about-us/overview
  2. ^ https://www.bseindia.com/bseplus/AnnualReport/500825/5008250319.pdf
  3. ^ http://britannia.co.in/pdfs/quarterly_report/Q3-Press-Release-2019-20.pdf
  4. ^ http://britannia.co.in/pdfs/Presentations/Britannia-Earnings-Call-Transcript-10th-Feb.pdf
  5. ^ https://www.moneycontrol.com/news/business/earnings/britannia-consolidated-december-2020-net-sales-at-rs-3165-61-crore-up-6-13-y-o-y-6475301.html
Tags: IN:BRITANNIA
Created by Asif Farooqui on 2020/05/04 09:15
     
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