By pressing star then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Ramamurthy Jayaraman General Manager, Corporate Finance. Thank you, and over to you, sir.
Thanks, Leo. Hello, everyone. This is Ram from the Investor Relations team. I welcome you all to the Britannia Earnings Call to discuss the financial results of quarter 3, 2023/2024. Joining us today on this earnings call is our Vice Chairman and Managing Director, Mr. Varun Berry; Executive Director and CEO, Mr. Rajneet Singh Kohli; Executive Director and CFO, Mr. N. Venkataraman; Chief Commercial Officer, Sales and Replenishment, Mr. Vipin Kataria; Chief Technical and Strategy Officer, Mr. Vinay Singh Kushwaha; Chief Marketing Officer, Mr. Amit Doshi; and Chief Procurement Officer, Mr. Manoj Balgi. Before I pass it on to Mr. Varun Berry, I would like to draw your attention to the safe harbor statement in the presentation, which is available on our website. Over to Mr. Varun Berry, with remarks on the performance.
Good morning, everyone. I'm happy to have you on the call today. So let me jump into the presentation. The first slide, I think you've seen it many times over. Basically, it just talks about the economy in the country doing very well. It's the private consumption which is slower than what it was last year. The investment in capital, et cetera, has gone up considerably. I think it's a matter of time before private consumption comes back to an even keel as well. Moving on to the next slide, which is our performance scorecard. So if you look at our revenue from operations for Q3 2024, it's at INR 4,192 crore with the operating profit of 17.7%.
And, you know, our revenue from operations on a 12-month basis has grown by 2%, and operating profit is negative 2%. While if you look at a 24-month base, our CAGR growth is 19% on a 24-month basis. And on the operating profit front, the growth is at 52%. The next slide is about the market shares. This is a slide that we've shared with you always, and happy to report that our market share trends have come back. We had been flattish, and we are now on the same track that we've been for 11 years, which is a growth in market share.
The next slide is about our strategic pillars, you know, which is distribution and marketing, lead innovation, adjacent business, cost efficiencies, and sustainability, which drive profitable growth for us. So I'll take you through these. So as far as distribution is concerned, we've expanded the direct reach to 27.6 lakh outlets. We've also increased our rural distribution by appointing 29,000 rural distributors, which has gone up from 28,000 in December 2022. Our focus states continue. As you'll all notice, that our overall growth is small, but the growth for the focus states is much more than what it is for the country. The next slide is about pricing actions that we've taken. You know, we were...
It's not just us, it's every FMCG in India. Every FMCG operator was not clear on where inflation was going because we saw, you know, a very long period of inflation. As a result of that, we had, you know, got some estimates on where this could lead. Based on that, we've taken some price increases. You know, the inflation cooled a little faster than we thought. To make sure that we don't, you know, continue with the same prices, but bring them down in line with what the inflation of raw materials is, we've taken certain strategic pricing actions in some of our key brands, and we've also done some tactical consumer promotions to drive consumption on those products.
Because we've seen that, as far as consumption trends, especially in rural, are concerned, we seem to be not doing as well as we were in the previous years. We've also had... On the next slide, please. We've also had a sustained marketing support to drive consumer engagement and some very exciting promotions which have been done. All of you must have seen the Ravi Shastri advertising on 50-50. So similarly, we had a cricket-based, you know, promotion on 50-50, which was on-pack portfolio activation, as we call it. We've also had Milk Bikis, where it's Ashwin and his family who are, you know, promoting the brand for us.
We've had NutriChoice, where it's Ranveer Singh, and, you know, we've been very successful with our advertising on all three of these brands. We've launched Treat Creams. We've relaunched Treat Creams with a very different avatar. We've got, you know, a biscuit with a hole for all of our products. And it's, you know, it's too early to call a victory, but it's had very good response in the market. We've done visibility drives for all of these. We've also done for our adjacency products. For Rusk, we've had a communication and milkshakes. You know, we had a second summer run, which helped us gain volumes and revenues. And this has been very well received and recognized because our marketing teams...
Next slide, please. So our marketing teams have received a lot of recognition for this. We got the Marketing Team of the Year award from the India Marketing Awards for 2023. We got the Digital Brand of the Year for ET DigiPlus again for 2023. We also got Marketeer of the Year, which are Clutter Cutter awards, for again 2023, and Brand and Marketing Team of the Year for ET Brand Equity. So take a bow, Amit. Well done. Next slide is about innovation to fuel next phase of growth. In this, we've had very good success with two of our products, Jim Jam Pops and Golmaal, which have been in the market for some time.
As I said, some of the new products that we've launched, again, too early to call victory, but showing good trends. Mainly Treat Creams, Tiger Coconut, some large cake formats that we've launched, and our energy and protein bars, which are under the Be You brand name, which stands for Believe in Yourself. And all of these are contributing, on an annualized basis, about INR 200 crore to our top line. Next slide is about the adjacent business, which remains on strong footing. Cake we've had, you know, growth coming back to our base format. Rusk, again, there's a volume recovery that we've started to see, after the restage. We, as you know, that we've, you know, we used to do only contract packing with cake.
We just had one line in the south of India. In the last year and a half, we've installed three manufacturing lines, and this is gonna give us very good not just on quality front, but very good you know paybacks on efficiency front as well. And bread health and variety segment has been outperforming the regular segments. So there things seem to be you know coming back. I wouldn't say that we've had a great year, but I would say that things seem to be on the right track after this quarter. Cheese, again, we've launched differentiated formats which are gaining traction.
We have this, you know, the spreadable cheese portions in a triangular form, which we've launched, and we've launched a INR 10 sachet of cheese. It's pure cheese, which has been launched in the Traditional Trade. And we also commercialized our processed cheese line in the month of January. So we are in a good place as far as cheese is concerned. Our joint venture with Bel is going quite well, and we are hoping that we will start to see good traction as we move forward, because everything takes a little bit of time to, you know, get to where we want it to. But I think this year is gonna be a great year for us as far as cheese is concerned.
We're also gearing up for the season. The summer's, you know, just ahead of us, so we are gearing up for the season for drinks as well. International has been a very good story for us this year. And even this quarter, we've seen a double-digit profitability growth across all markets, Middle East, Africa, rest of international. And Nepal has been a very good story for us, where we'd made investment, put up a plant. It continues to do very well and continues to grow, not just top line, but even in profitability terms. One small spark, which is, you know, Egypt. In Egypt, we'd set up a contract packing unit, and we had started to see our products in the market.
We've grown 5 or 6-fold in that market. It's still a very small number, so I'm not gonna make a big deal about it, but it just shows that, if we bring our products to markets which are similar to India, we tend to see traction. Next, slide is on cost efficiencies. The right side shows that, cost efficiencies that we derive out of our projects have gone to 7 times what they were in 2013, 2014. The projects are pretty much in the same space, truck utilization, distance traveled by our products, market damages, renewable energy, you know, fuel consumption, as well as, line throughput.
So we've been working on the same projects, and we've been able to derive a lot, lot out of these. It's teamwork which has got us to get to where we are as far as cost efficiencies are concerned. Because the teams have worked really well together to make sure that year after year we do the boring stuff of getting these projects together and getting these efficiencies and costs down. The next slide is about scale and technology advantages, competitive advantages that we have today. We've spoken about the 21C oven, which you know is patented by us. You know, it's an oven which we can use whatever fuel we want, and that gives us the flexibility depending on the fuel prices.
So we use biomass, we use any kind of fuel that we want. It also gives us cost efficiencies, and it's a proprietary technology, as I've said. Then we've also done some product technology upgrades. We've had a lot of first to India technology in all of our products, especially for our disrupt products, you know, the capabilities that we have today. A lot of biscuit companies, even worldwide, don't have that kind of technology. This also gives us superior product quality and gives us the ability to launch products which other people cannot do at the moment. Of course, anyone can import those lines. It's not a proprietary technology, but we've been fast to bring those in, experiment with them. We've also...
You know, if you, if you look at, you know, what, what Vinay and his team have done, we've moved from, you know, 15 years ago, we used to have small factories, where there were 2 lines, with very small ovens, average factory output of 1,800 tons per month. From that, we moved to integrated factories, which had 4-5, you know, lines. We had higher throughput. Average factory output was 7,000 tons. From there, now we moved to a Mega Food Park, which is Ranjangaon, which is first of a kind. We have 17 lines here, biscuits, plus adjacency, you know, every category that you can think of, plus dairy. And, the, the average factory output has gone up dramatically to almost...
If you were to add, Vinay, if you were to add dairy to this, it would be what? 2,000, 20,000 tons?
Yes.
So it'd be 20,000 tons per month. And this has given us, you know, and obviously, we do it with the right demand centers in mind. So footprints are aligned to demand centers. We've also got, you know, the distance reduced and efficiencies, obviously, with larger factories are much greater. Product quality has gone up dramatically. Fiscal incentives, we've made sure that we've got fiscal incentives and also availed them in each one of these factories. And our operating control now is, Vinay, what is it, 65%? So it's about 65%.
We are also working on smart factories, where we are looking at product performance management, predictive maintenance, energy management systems, and also looking at leveraging AI and robotics to make sure that from a quality standpoint and from an efficiency standpoint, we are the best in class. Renewable energy, we've had, and I'll come to that in a bit. The ESG initiatives are moving in the right direction. We've got reliable cost and efficiency. Our target is to get to 57% renewable energy by 2025-2026. We are looking at putting up solar rooftops and also accessing open access renewable energy sources in the various states that we operate. The next slide, I think, you have seen this slide before.
We have four strategic pillars for our ESG construct: growth, governance, resources, and people. So if you look at it from a growth standpoint, and I'm not taking you through everything, because, there's no point taking you through everything every quarter. So I'm just talking about some of the new things that we have done, with, that we are doing on the, around these pillars. So we've got this campaign, which is, you know, a marketing campaign, which is Her Pocket Dustbin, which shall be preventing littering in public spaces. Our sustainability S&P Global Corporate Sustainability scores are out for the first time, and we are 49%. CDP, which is not great, by the way.
49% is probably great from an India standpoint, India FMCG standpoint, but, a lot of ground to cover there. CDP, climate change, scores, have improved from a C last year to a B. Again, we would want to be an A, and hence, some way to go. Data management tool covering, high-level KPI dashboard and other reporting, are, is under development and, will be published soon. From a resources standpoint, I've already spoken about renewable energy. And, you know, we've initiated supplier ESG assessment for the full year 2023-2024, which is gonna cover 100% of our suppliers and will be completed, in this quarter. And from a people standpoint, we are in the top quartile as far as FMCG India, is concerned in the engagement score.
So, that's a, you know, a great achievement for us because we've been working on making sure that we have, you know, a team which is motivated and feels good about the company. And, we have a 2.3 lakh beneficiaries through our Britannia Nutrition Foundation. So, versus, two crore... Sorry, two, two lakhs, last year and 2.3 lakhs this year. Okay. Now, moving to cost and profitability. Overall commodity costs have remained soft this quarter. Flour has been, you know, it's been going up over the quarter, but from Q2 to Q3 was flattish. Sugar went up, but the downsides came from palm, laminates and corrugated boxes, which is clear from this slide.
So what are we gonna do as we move forward? Obviously, cost and profitability front, we will continue to invest behind brands and innovation. We've actioned measured pricing corrections to remain competitive, which I've taken you through. We've delivered cost efficiencies across our functions. Outlook will be to closely monitor stock price situation of commodities because there's been high volatility in the last two or three years. We remain vigilant on the competitive pricing actions thereof as a result of the commodity inflation. Our strategy will remain focused on driving market share. I think that remains a very critical front for us in all of our categories. Now getting to our financial results.
So, if you look at this slide, you will see that our top line consolidated revenues have been close to INR 4,200 crore. There's always a, you know, a down from Q2 to Q3, so, but if you look at it versus, you know, overall trends, we seem to be on the right trend, albeit with a smaller growth at 2%. However, the 24-month growth is still robust at 19%. Moving to the next slide. Operating profit levels, as you will see, a very healthy operating profit levels of 17.7%, and which continues to be, you know, at, at probably the highest level that we've been at, barring a few quarters, which have been slightly better than this.
But, I think we are certainly in the top quartile of FMCG food companies across the world, as far as operating profit levels are concerned. Now, getting to the next slide, which gives you know a summary of our results. So net sales 2% in 12 months, 19% in 24 months. Operating profit, -2% and +52%. Profit before tax, -34%, and the reason for that is that we had exceptional income of INR 376 crores and INR 359 crores on account of profit on sale of 49% equity in Britannia Dairy Private Limited to Bel, when they came in as our partner last year.
So that sits in our base, and that's why our profit before tax is -34% and profit after tax is -40%. But if you look at it as a 24-month growth, both of these are at 50%. And the ratios at the bottom, profit from operations, a very healthy 17.7%. Profit before tax at a very healthy 18.1%, and profit after tax at a very healthy 13.3%. So that's all that I have for you. We can open the house for questions. Thank you.
Thank you very much. We'll now begin the question and answer period. Anyone who wishes to ask a question, may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we'll wait a moment while the questions assemble. First question is from the line of Mihir Shah from Nomura. Please go ahead.
Hi, sir. Good morning, and thank you for taking my question. So kindly correct me if I'm wrong on the volume growth for third quarter, will it be about 5.5%? And given that you have highlighted that the demand environment is progressively recovering, do you see the market being conducive to drive volume growth to high single-digit levels, you know, from the current 5.5% levels, or over the course of the year? Or do you think mid-single-digit volume growth is a more realistic assumption, basically?
Mihir, I think the time is now coming where we will hopefully get to higher volume growths because it's been inflation which has been overtaking all of our efforts in the last two or three years. So I would actually say that aspiration is to get to, get back to double-digit volume growths soon. And I think it will take a little bit of time. I don't think it's gonna happen in the next quarter or so, but we are moving towards that. And clearly there seems to be, you know, consumption coming back. Obviously, the economy and, you know, the stock markets and, you know, all of that seems to be moving in the right direction. There's no way that consumption is gonna lag so much.
So, I'm very hopeful that it'll get to high single digits or even double-digit volume growth in the future.
Wonderful. Sir, my second question is on margins. When one looks at the gross margins and EBITDA level margins, Britannia is at its best currently. Apart from lower raw material prices and better mix, which is a more gradual and a structural improvement story, so what levers can drive margin improvement from here on, and tide over the EBITDA margins over the 19% range?
Well, I do think that, you know, first of all, our cost efficiency programs are best in class. You know, and I don't think anyone does it the way we do it. We do it extremely meticulously. Venkat leads it. All of the functional heads do their part as far as their function is concerned. Vinay has done some real wonderful work as far as the supply chain area is concerned. But it's not just supply chain. Yes, it does tend to contribute a lot, but even procurement and R&D and sales and marketing, everyone's been contributing to that. So I think that's definitely one pillar which will continue.
I do think that as we go forward, Mihir, it's gonna be important for us to you know to look at how do we keep our margins stable and grow the top line aggressively. I think that's gonna be certainly something that we are gonna look out for. Because time has come to you know really make these businesses, and I'm not just talking about our business, I'm talking about FMCG in general. You know with the kind of population, with the kind of upward mobility that we have in our country, I think it will be important to grow the pie you know to be a lot larger than what it is.
So my focus as we go forward, is gonna be to make sure that we grow the top line aggressively, even if we don't keep growing the margins at the rate that we've been growing them in the last 10 years. So that's, that's what my lookout would be.
Got it, sir. So one more, if I can just squeeze in, one on pricing. You mentioned something on pricing. Do you see more price cuts going forward? While I know that there is no business case for to start taking price hikes anytime soon, but anything that you can share on visibility on where when pricing growth can come back, so on pricing, sir. That's all from my side.
No, I don't think there's gonna be a need for price hikes, because as you saw in the commodity situation, they have been a little soft, but you know, it's an election year. Things will be okay for this year for sure, but we'll have to see how this goes forward because the world situation is not, you know, what we would want it to be. The Russia-Ukraine conflict continues, the Gaza situation continues, so we'll have to watch. The point that I was making was that we'll... it'll be a tightrope walk. We'll have to watch the situation carefully and then take actions whichever way it's required. If inflation is coming back, then obviously we'll have to take price hikes.
If not, then we will have to make sure that we grow top line very, very aggressively.
Got it. Thank you very much, sir. Wishing you all the best, and that's all from my side.
Thanks.
Thank you. A request to all the participants, please stick to two questions per participant. The next question is from the line of Aditya Soman from CLSA India. Please go ahead.
Hi, good morning. A couple of questions. Firstly, on the cheese business, you indicated that this is now, sort of 10%. How large can the business be, in, let's say, a 3- or 5-year period? And, what are the main drivers of this, growth of... in this business?
... You know, it's not 10% of our business, Aditya. It's grown 10%. Now, the thing is that the cheese business, I think, see, it's a category which is slightly alien to the larger population of India, right? What's happened is that the Domino's and the Pizza Huts of the world have come and created the market for cheese in India, and you know, it still is a very small category, but we are now participating with a product which is international standard, and we will continue to innovate in this space. You know, we will bring all the products which we feel have a right to succeed with the Indian population. So we are gonna create the habit as well.
You know, we are not gonna leave it to the QSRs to create habit of cheese consumption. So I think, I don't think it's gonna ever become 10% of our total revenue, but, I certainly think that, the potential for growth is, reasonably high here. And, it's important that we unleash, you know, innovation, we unleash the power of Bel and Britannia into the market. We, get our, you know, go-to-market, systems, you know, to be the best as far as, for a, for a cold product, like, you know, product which has to be in a cold chain like this. And, we expand distribution to, as many, cities and towns as we can.
The objective will be to take this business from a really small business at this point in time to be, let's say, at least INR 1,000 crore business in the next five years. I'm talking about the consumer business. If there is any potential to get institutional business, then that could become a much bigger number.
No, I understand very clearly. I think on the presentation you indicate that it's 10% contribution to business, so this is 10% contribution to growth, is it this quarter, or?
Yes.
Okay, understand.
No, no, what I said, no, there, what it says is that 10% of the cheese that we sell is now being contributed by the innovation products that we've launched.
Ah.
So we've launched the triangle, which is the spreadable cheese that we are getting from Vietnam, and we've launched the sachets. Those two are contributing to 10% of the total cheese. The differentiated formats.
Yeah.
Okay?
Yeah. Hello, yeah. And, and just, in terms of, e-commerce and quick commerce, can you just, tell, indicate how large that business is, each of those businesses, and how they fared, let's say, compared with a year ago?
So, we've seen very good growth as far as e-com is concerned. The B2C part of the business is the one which is growing and which is what we would want it to be, because we do not want to actively participate in the B2B business, because that gets us onto the wrong foot with our overall distribution agenda with our distributors, and can disrupt through pricing actions, et cetera, our entire distribution chain in the country. So we would want it to stay with B2C, and the B2C part of the business has been doing quite well.
It today is about 2.9%-3% of our total business, which is not big, but if you think about it, we started from 1% a few years ago, and from there we've come to 2.93%. It's a business which is, you know, also profitable. And you know, it provides the convenience to the consumers and also gives us the opportunity to do innovation only in this part of the business. So, we will continue to push this forward.
Thank you. Yeah.
Yeah.
Thank you. Next question is from the line of Abneesh Roy from Nuvama. Please go ahead.
Yeah, thanks. My first question is on pack versus volume growth. So earlier, you used to give the pack growth, so essentially number of transactions. So in biscuits, obviously customer buys a pack rather than a 100-gram or a 50-gram biscuit. So I wanted to understand how has been the pack growth this time, and given your gross margin and EBITDA margin have done so well and for the industry, which is the right metric to track, because you must have added back grammage, given the higher gross margin. So your volume growth is a good number, it's a 5% is a good number, but from a health of the business perspective, which is the more important number you are tracking in terms of pack growth or in terms of volume growth?
So Abneesh , with you, tails you win, heads you win also, huh? So no, you're right. See, with when we are adding grammage to the packs, the, the pack growth will not be as much as, you know, the volume growth. So yes, you're right, the volume growth is 5.5. This will probably be in the... I don't know the exact number, but it'll be in the range of 3, 3, 3.5-ish. So, so that's where it stands. But yes, you know, that's, that's, a natural phenomena as we add weight. As we remove weight, the number of packs go up....
But you know, I would want this volume and pack growth to go up even further, and our agenda for growth is now gonna be, and Vipin is sitting here and staring at me, our growth agenda is gonna be to get a lot more growth out of our business. So we've got profitability, now we would really want to get after volume, pack growth as we go forward.
Yeah, just want to add, Abneesh , hear that, you know, the volume growth, I think, is the first step to the transaction growth, because we are enrolling a lot of consumers, new consumers into volume growth, and once that happens, then the transaction growth will start moving up from there.
So thanks. One related question is, in the last 5 quarters, 4 quarters have been 19%+ EBITDA margin. So will it be fair to say that, now because of the premiumization or whatever, cost initiatives you have taken, this is a more realistic margin? Because earlier this was looking like a high margin, but you have delivered quite well there. And second question is because entire industry is also seeing good margin, if you could comment on local players, is that now coming off as a competitive intensity?
No, it's not. So there is competitive intensity from local players. There's also competitive intensity in modern trade. So all that will have to be managed, Abneesh . We've been managing it really, really well. You know, in modern trade, our profitability a few years ago had dropped considerably. Then all of us sat together and we said that we've got to get this back. We've got it back to an extent, but there will be challenges. You know, in businesses, these challenges will keep coming up, and we will have to press the right levers.
So as I said, if our objective is to grow top line, grow volumes, grow pack growth, for not just biscuits but all of our businesses, I think we will have to look at what is the best way of doing this, and how do we grow the profit, but without really focusing as much on the percentage. So I think we'll have to do some thinking. We are in the process of doing our annual plan, and I think this time our objective is going to be to make sure that we continue to dominate our spaces in all of the channels, and we grow our business at a very high clip.
Sure. And, last quick question on cheese. So you have around 13% market share in cheese, which used to be, much higher, say, around five years back. So quick question is, from a three years, next three years perspective, which is the more important KRA for the, dairy team, for the cheese team? The 13% market share moving up or the differentiated part of portfolio moving up from the current 10%. So would you want to be like Nestlé in tetra pack milk, or you want to, really become more relevant from a market share perspective?
No, we would like to become more relevant from a market share perspective, but with products which are best in class and differentiated, as differentiated as, as we can make them.
Sure. Thanks, sir. That's all for me.
Thanks, Abneesh .
Thank you. The next question is from the line of Latika Chopra from JP Morgan. Please go ahead.
As to revenue and margin-
Latika, we are not able to hear you. Can you repeat your question, please?
Yeah. Hi, can you hear me?
Yeah.
Okay, hi, Varun. Again, I'll just, you know, want some clarifications on, you know, both your comments on revenue and, margin outlook. On revenue, when you, you know, aim for a high single digit, double dig- low double digit kind of volume growth, you know, what part of this is coming from your base business of biscuits? And are you... And incrementally, how much are you building in, you know, in these projections or this ambition from your new businesses? How would the salience of these new, or, or non-biscuit categories, let me put it this way, not new businesses, but non-biscuits category salience going to be, you know, few years down the line? If you could, if you could talk, talk about that. And the second bit on margins, if you could clarify, should...
Are you saying that 19% EBITDA margins look stable to you? Are these going to sustain? You know, your gross margin expansion, despite price reductions, is quite a positive. So how should we think about that? We saw a sharp increase in employee costs. Other expenses are lower or modest. So how should we look at the algorithm for margins? Is 19% given or, you know, your prior comments of 16%-17% kind of margin trajectory with a higher emphasis on revenue growth, should we take that as the course of action going forward? If you could clarify on these two things, that will be helpful. Thank you.
No, so the first one on, what, what do we grow? Yes, our contribution from adjacent businesses has to grow, much faster than, base business. And, that's... I think we, we got stymied during the COVID because, adjacent businesses are more on the go, and, you know, it, it sort of, got us off, track. But, now on, we are committed to make sure that we grow our adjacent businesses at a much faster clip. I would say at least, 50% higher than what we grow our, you know, base business, which is biscuits. So that's the first question, and hence, the contribution of these businesses is only gonna go up. Second question you asked was on the margins. I would, say that, more of the latter.
We would want the pie of profit to grow at a fast clip because of aggressive growth in the top line. Hence, I would say 19 is our peak. You know, we've gotten to that. That probably is something that, you know, we will try to achieve, we'll aspire for. But I would say more in the space of growing the profit on an overall basis through a more aggressive top line growth.
Thank you. Just one bit. You know, for this nine-month period, what would be the revenue share for non-biscuits?
So if you were to look at biscuits, India, and the rest, it'll probably be 65/35.
All right. Thank you so much.
Thank you. Next question is from the line of Percy Panthaki from India Infoline. Please go ahead.
Sir, I just wanted to understand on the pricing. So on a YOY basis, your pricing is negative about 3-3.5%, whereas in Q2, it was positive by about 1.5%. So first of all, would I be right in assuming that on a sequential basis, Q2 versus Q3, you have taken a price cut of about 4%-5%? And in context of this price cut, how is it that your margins are more or less the same as what they were in Q2? In fact, your gross margin has actually expanded also, because if I see the commodity charts, sugar has had very sharp uptake, wheat has had a little bit of an uptake, and other commodities are benign.
But, looking, just eyeballing it overall, it doesn't seem that there is any significant, commodity, benefit on a sequential basis. And if the price cut is, material 4% plus on a sequential basis, the fact that your gross margin has expanded 90 basis is a little surprising. So if you can throw some light on this, please.
No, it's clearly, you know, the commodities which are basically oil. Palm oil, we've seen a substantial dip in prices. Dairy, there's been a dip in prices. The packaging material, which is laminate as well as corrugated boxes, we've seen a sharp decline as far as our prices are concerned. So I think that's where it's coming through, and that's what's offsetting the price changes that we are making.
Would I be right in my calculation of about 4%-5% price cut between Q2 and Q3?
Not 4-5, maybe 2-3. Hmm?
3 to 4 to 3.
Uh...
Sorry.
versus last year, it'll probably be 4, but from a quarter-on-quarter basis, maybe 2-2.5%.
Okay. Okay. My only calculation was last quarter, if you see, sales was up 1.8%, volume was up 0.2, so it means about 1.5% positive pricing. This quarter, there's a 3.5% negative pricing. So if I add that up, I mean, 1.5% positive, 3.5% negative.
There are lots of moving parts in the,
Understood. Understood. Understood. So basically, I would be right in assuming that even, the input cost on a sequential basis on the overall basket has, like, deflated by about 3%-4%?
That's true. That's right.
Okay. Secondly, just wanted to understand on-
I would request to come back for a follow-up question.
Okay.
Thank you. Next question is from the line of Shirish Pardeshi from Centrum Broking. Please go ahead.
Hi, Varun. Good morning. Thanks for the opportunity. Just two questions: You mentioned about market share. Would you comment which geographies? Because earlier you used to give the focus market share, focus state market share also, that is not given now. So that's the first part. And second, on UP, Bihar plant, what is operational, where do you think this plant... I mean, how many lines? And maybe you can give some qualitative comments, what is it that we are producing? And in the medium term, what is the opportunity which we are looking in these markets?
So, I'll let Vinay comment on it, but, you know, the plant is both the Bihar as well as the UP plant. Both, both these plants are state-of-the-art plants. We are producing biscuits and rusk. Go ahead, Vinay. Why don't you just talk to him?
Our factory in UP has got four lines of biscuits, and we set up one line for rusk. The factory has been designed in a way to leverage and maximize sales to UP, within UP, the sales from this factory, which is to maximize also our fiscal benefit. UP is also a focus state for us, and therefore, this factory would play a role in not just driving operational performance, but also help grow our business in UP. We have plans this year to further expand our UP factory. We have kept provisions for expansion, and we'll be doing so through a fresh investment we'll put in, in the next fiscal year. Coming to Bihar, we've got-
... We set up one new factory, which we started off this year. It's a factory where we have set up three lines. We have plans to again expand this factory in the next fiscal. This is our second factory in Bihar. The first one we had set up was in 2011, and both these factories are on opposite sides of Patna, which is the largest hub, consuming hub in Bihar. We are probably the only FMCG company which actually runs its own factories in Bihar. And we have that advantage that Bihar is a market where we dominate, and these factories will help further grow our business in Bihar.
Okay. And on market share, Varun?
On market share, our gains this year from a geographic standpoint has been from the Hindi belt predominantly. And certain areas, whereas, Vipin, whereas have we gained share?
So, see the Hindi belt, like Varun said, has delivered delta growth as well as delta share. There are few states where there is some stress that we see, but I think that's largely temporary because, you know, that's because of the value resurgence. And that, what we see now is that changing pretty fast, right? So I think on the focus state agenda, we are very consistent. We see robust growth, and we see delta market share coming. In fact, our numeric distribution story is fairly strong in these focus states because there's a lot of opportunity, you know, in rural as well as urban markets.
So I think in a nutshell, you know, focus states have been doing well, and even in this year, it is delta over our market share and numeric distribution story on all India level.
Thank you. Mainly, mainly from the Hindi belt, but there'll be other states where we've gained a little bit.
Yeah, I got that, Varun. I was just more curious that this growth is driven by Milk Bikis portfolio, the value-end portfolio or the premium portfolio?
No, it's driven by, you know, our premium portfolio mainly. We are hardly in the value portfolio. In fact, the value portfolio has not been doing well for us.
The value portfolio, you know, is not, you know, our, you know, our robust portfolio, but so let's say premium cookies, we are doing, really well. Crackers, we are doing really well. So like Varun is saying, all the premium and differentiated category is where our focus is, and, you know, that's where we are getting good traction.
Just to give you an example, Jim Jam, we put how many lines in it? 2 lines in the last 2 years.
2 lines in the last.
We put 2 manufacturing lines in the last 2 years, and we are still running out of capacity. So now, now we've decided to put 2 more lines on Jim Jam. So it's the premium portfolio which is giving this.
Thank you, Varun. Thank you, and all the best.
Thank you. Next question is from the line of Sheela Rathi from Morgan Stanley. Please go ahead.
Thanks for taking my question. Just in continuity to the previous participant's question, is it fair to say that the urban growth did far better for us versus the rural growth, on the basis of the comment you made that premium portfolio is doing well for us?
Yes. Yes, that's true. We've not seen rural growths the way we've seen them in the last 10 years. Let's put it that way. Urban growths are outpacing rural growths. To my mind, it's a matter of time because we have not stopped from building our rural distribution. We continue to do so, despite the fact that we are not getting the kind of traction that we were thus far.
Understood. Just taking up on the distribution reach, Varun, if I look at slide eight, and when I look at the direct distribution reach, it feels like the pace of, you know, increase in distribution has slowed down, you know, about 5% on a year-on-year basis. Is there anything else to read onto it? Or, you know, are we building more distribution you know, around our dairy business, and that's why this number looks much lower?
No, you're right. The pace of growth as far as distribution, as you go higher, you tend to have less opportunity for growth, but I would not say so. I do think that we have still a large opportunity for growth. But the focus has been on getting more depth of distribution in our outlets, getting more SKUs in our outlets, while we've continued to grow our direct reach as well. I think we still have the potential to grow this by at least 1 million more outlets. But yes, the pace that you saw from March 2020 to March 2021, where we grew from, let's say, 19.7 to 23.7, that kind of delta is not gonna come through now.
We'll probably be slightly slower than that, but we will continue to make our way upwards.
So I'll just add, two more points to this. See, so weighted distribution is a equally important KPI for us, which basically means that are you reaching to all the relevant outlets? And weighted distribution for us is at a very high number, right? So therefore, you're right, that you might see that there is a slowdown in the uptick of that number, which is on the direct reach. But like Varun is saying, that, you know, we have a huge opportunity sitting in Hindi states. We have got a massive opportunity sitting in, rural, and that's where we will keep adding these outlets.
...The second big initiative that we have taken in this year is that we have converted 60% of our rural business on an app or a platform, right? Which basically, you know, gives a direct access to all these markets. And the intent is that 100% of our rural business now gets converted to, you know, this app, so that we have a direct interface, we have a direct visibility, and therefore we will be able to drive, far better mix in rural.
What would be the comparable number for urban to that 60%?
So urban, we are fully on tech, so we've got a handle-
Okay.
through which we do the entire order booking. We want technology supporting us, which is right from geotagging and geo-fencing. So therefore, you know, we have systems, where we can track what's happening on an online basis. So urban is fully covered. I think rural is a big initiative, and in the next 3-6 months, we should be fully covered in rural as well.
Understood. This is very clear, and thank you. And just one request, maybe in future, if you could even share the distribution reach for the dairy business or the non, you know, non-biscuit portfolio, because that could help us understand how the trajectory could be.
Oh, that's a good point. Good point. We will put some pressure on Vipin as well.
Thank you.
Thank you. The next question is from the line of Amnish Aggarwal from Prabhudas Lilladher. Please go ahead.
Yeah, hi, thanks for the opportunity. A couple of questions-
Amnish , sorry to interrupt you. Can you speak a little louder, please?
Yeah, yeah. So my question is regarding the margin outlook. For example, in 3Q, we had a very high base in terms of PLI inflows, but still our gross margins were intact, which means that we actually expanded our margins during this quarter. Now, going into fourth quarter, where we had one-time, you can say PLI arrears, and our gross margins are upward of 44%. So what is the medium-term outlook? Like you said, that 19% is your aspirational level. So should we expect the margins to moderate in Q4 and going forward in, say, your FY 2025?
See, we never give forward-looking forecast. So, you know, we, I will not be able to give you any number out there, but, you know, you know how we work. We always have a very tight backbone for ourselves. Objective will be to maintain margins and grow our business aggressively. And the commodity prices are looking reasonable at this point in time. It's an election year. There will be checks and balances in place to make sure that inflation doesn't happen to an extent that we've seen in the last two, three years. So I think it's gonna be a reasonably even keel, I would say.
Okay. And so my second and last question is on the competition, which I think practically every FMCG player has been citing about, that there is a rising competition from the regional players, local players. So can you throw some light on that? What is the scenario now in particularly the biscuits and rusk segment, and what has Britannia done in the, say, past few months to counter that?
So, that is absolutely right. The fact is that regional competitors have been raising their heads, and you know, the way they operate is you know, on three vectors. So obviously one is price. They sell at a cheaper price. Second, they make sure that they give you know, the distributor a lot of margins, and they give the retailer a lot of margins, right? So all three of those vectors, now in our case, we've got organized distributors. In their case, they don't have organized distributors, so they give the wholesaler a lot of margin. And so I would say that some of them have good products, reasonable, acceptable products, and hence they are making progress.
But a lot of them, when they, you know, grease the trade so much, their product goes in and sits there, and then, you know, they, they start to get to a place where the product's not moving, it starts to fly back to them, and that's the time they go out of business. I think they are in that honeymoon phase at this point in time, where they are throwing in product. I think it'll be, in a few months when, the verdict will be out, whether they're successful. But having said that, this is a phenomena which is gonna continue, right? It's an industry where, the margins, the total margins that we used to make was about 3%, till about 12 years ago. So it wasn't a profitable industry.
When industry becomes profitable, when the market leaders, like in our case, we've raised the total table of margins in this category. Indian entrepreneurs are very smart. They look at the margin pools, and they say that this is an opportunity to, you know, get a business going. Now, what is gonna work for us, obviously, is our brands. We will have to double down on our brands, because it's important that we remember that nobody has a Good Day, nobody has a Marie Gold, nobody has a NutriChoice, right? It's only us. Now, we've got to make sure that we strengthen our brands. What will work for us is the people that we have, you know, who understand this business so well.
What will work for us is the distribution that we have, the organized distribution, and obviously, the very tight spine that we run with low costs, right? All of that will work for us, but it will only work to an extent because while our margins are 18%, those guys are happy to make a 2-3% margin on their business, right? So we'll have to watch this space very carefully and make sure that we study each one of these competitors and then decide how we want to deal with them without diluting our business in any way. So it's a tightrope walk, frankly, and that's one part of it. The second part of it is the whole modern trade piece, where everyone's throwing in product with a one plus one and all of that.
So both of these spaces we'll have to watch. I don't feel scared of the situation. I think if we watch this carefully, if we formulate our strategies carefully, and we do what is right, you know, for our partner, for our distributor, for our retailer, and, you know, we do it in the right way, I don't think... And we also keep strengthening our distribution and our brands, I think we'll be in a good place.
Okay, Varun. Thanks a lot. It's very helpful.
Thank you very much. Ladies and gentlemen, we'll take that as our last question. I'll now hand the conference over to Mr. Ramamurthy Jayaraman for closing comments.
Thank you, everyone, for spending time with us on this call. We look forward to interacting with you again. Thank you.
Thank you very much. On behalf of Britannia Industries Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.