Britannia, the Rs 6,500-crore biscuit major, plans to move more of its production in-house. It is targeting in-house manufacturing for 60% of its products, up from the currrent 50%. The company has 12 new lines coming up across the country, which will help it reduce the role of contract manufacturing and improve margins.

“We could not get the contract manufacturers to change. We want to build larger and efficient plants and they were not willing to put in so much money. We have 35 contract manufacturers across the country and it is difficult to control that. So we took a tough call,” Britannia managing director Varun Berry, who completed two years at the company earlier this month, told FE.

Two years ago, when Berry had just joined Britannia, contract packers used to be responsible for 65% of the production.
The company wants to reduce the number of contract packers, though it does not want to stop outsourcing. “We want to accelerate the process of consolidation of in-house manufacturing as this has brought us good results. We are trying to build newer and larger plants. 100% in-house manufacturing is not possible and we will not want to go there. Distributed manufacturing is the best way for this industry as freight cost will increase otherwise,” Berry added. Bread manufacturing is fully with contract manufacturers and the company plans to keep it that way.

Apart from the Tamil Nadu and Gujarat plants, Britannia will open three lines at its upcoming Bengaluru plant near Bidadi, which will also house its new R & D centre. The Bengaluru and Tamil nadu plants are greenfield projects and a new line will come up in the three-year-old Odisha plant. The company plans to invest Rs 400 crore over the next 18 months in 12 new lines across the country.

Under Berry, Britannia has reduced its fixed costs while increasing the net margin. Its net profit margin increased to 6.6% during the September quarter from the 4.2% it reported during FY13. “The biggest component for us in manufacturing is energy as we are in the baking business. We brought in new energy-efficient ovens, biogassifiers, which are all expensive, to our plants…” Berry told FE.

Berry says the company looked at various tax benefit options while deciding on plant locations.

It posted 50% year-on-year growth in consolidated net profit during the September quarter, at Rs 146 crore, excluding the Rs 124-crore profit it made from the sale of land and building.