Britannia Inds: clarity emerges

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: Britannia Industries-the market leader in the biscuits industry with a 34% share in value terms-is back on the stock market analyst’s radar. After having been through uncertain times, especially at the management level, analysts seem to be glad at the emerging clarity. This is despite the biscuit industry facing intense competition and players like ITC and Priyagold taking the battle to Britannia. Overall, in volume terms, the company was impacted as there were supply constraints in the second half of FY08. Hence, when the industry grew by around 7% (in volume terms) in FY08, Britannia recorded a 2.8% growth. This was largely due to reduction in pack sizes across brands.

As players fight it across segments, Britannia has been concentrating on the premium category where it recorded more than 20% growth in Goodday and Tiger brands in FY08. It will work on extending the Tiger brand with new variants like Tiger Banana, Tiger Cream, while also introducing newer Goodday variants. Analysts at Motilal Oswal Research expect more lifestyle products, focus on modern retail and cost efficiencies ahead for Britannia. Focus on the premium segment also allows the company to be flexible on pricing, thereby protecting it against rising commodity prices. Recently, it undertook a 2-12% price hike across brands by way of pack size reduction and absolute price increases in order to ward off the continued rise in prices of wheat, vegetable oil and sugar. It reported a 350bp increase in gross margins and 320bp increase in EBITDA margins for FY08.

Reduction in pack sizes helped here, as it cut material costs directly and also saw a 380bp decline in excise duty. The fact that the company is sitting on a treasure trove in the form of its real estate assets also attracts analysts. However, these investments do not directly translate into earnings for Britannia. Also, analysts are now looking at the ability to deliver price hikes on a consistent basis, and maintain margins as well, as its working capital requirements have grown by three times in FY08. This, if not stemmed, could have a serious dent on net earnings.