Britannia (Buy Commodities, Sell Brands)

Few of my takeaways from Q1 FY25 of Britannia Industries

𝐂𝐨𝐫𝐩𝐨𝐫𝐚𝐭𝐞 𝐓𝐫𝐚𝐣𝐞𝐜𝐭𝐨𝐫𝐲:

• Revenue grew 4% year-over-year to INR 4,130 crores, with volume growth of 8%
• Operating profit increased 10% to INR 680 crores, with margins at 16.5%
• Rural markets showing signs of recovery, with rural growth outpacing urban
• Focus on driving topline growth even if it means slightly lower margins in the near-term

𝐒𝐭𝐫𝐚𝐭𝐞𝐠𝐢𝐜 𝐁𝐥𝐮𝐞𝐩𝐫𝐢𝐧𝐭:

• Continuing distribution expansion, especially in rural areas and Hindi belt states
• Implementing sales transformation project with Bain & Co to improve efficiency
• Investing in brand building and innovation, launching new products like Pure Magic Stars
• Scaling up adjacency businesses like dairy, with focus on cheese and beverages
• Expanding manufacturing footprint with new facilities coming up in UP and Bihar

𝐌𝐚𝐫𝐤𝐞𝐭 𝐃𝐲𝐧𝐚𝐦𝐢𝐜𝐬:

• Recovery in rural demand after prolonged slowdown
• Premiumization continuing across portfolio
• Focus on innovation and new product launches
• Expansion into adjacent categories like dairy and snacks

Industry Tailwinds:

• Improving rural sentiment and consumption
• Moderation in inflation compared to previous years
• Growing preference for packaged and branded food products

Industry Headwinds:

• Inflationary pressure on key commodities like flour, sugar, and cocoa
• Intense competition, especially from regional players
• Downtrading in certain markets to cheaper alternatives

𝐈𝐧𝐯𝐞𝐬𝐭𝐨𝐫/𝐀𝐧𝐚𝐥𝐲𝐬𝐭 𝐐𝐮𝐞𝐬𝐭𝐢𝐨𝐧𝐬:

• On slower pace of distribution expansion: Management emphasized weighted distribution growth and focus on extraction from high potential outlets
• On margin pressure: Company prioritizing topline growth over margin expansion in near-term
• On dairy business profitability: Gross margins in line with overall business, but depreciation impacting net profitability

Competitive Landscape:

• Continuing to gain market share, albeit slowly
• Large gap with market leader (50% share vs Britannia’s 18%) provides headroom for growth
• Facing competition from both large national players and regional brands

𝐅𝐮𝐭𝐮𝐫𝐞 𝐏𝐫𝐨𝐣𝐞𝐜𝐭𝐢𝐨𝐧𝐬:

• Targeting high single-digit to double-digit volume growth
• Expect 4-5% inflation in coming months, may take some pricing actions
• Focus on driving topline growth even at slightly lower margins

𝐂𝐚𝐩𝐢𝐭𝐚𝐥 𝐃𝐞𝐩𝐥𝐨𝐲𝐦𝐞𝐧𝐭:

• Investing in manufacturing capacity expansion
• Continued investment in brand building and innovation
• Scaling up adjacency businesses like dairy

Opportunities & Risks:

Opportunities:

• Rural recovery and distribution expansion
• Growth in adjacency businesses like dairy and snacks
• Premiumization across portfolio

Risks:

• Commodity price inflation
• Intensifying competition
• Potential economic slowdown impacting discretionary spending

𝐂𝐨𝐧𝐬𝐮𝐦𝐞𝐫 𝐏𝐮𝐥𝐬𝐞:

• Rural demand showing signs of improvement
• Some downtrading observed in certain markets