Ladies and gentlemen, good day, and welcome to Britannia Industries Limited Q3 FY '23 earnings conference call. I now hand the conference over to Mr. Yash Vardhan Bagri. Thank you, and over to you, sir.
Thanks, Nirav. Hello, everyone. This is Yash, filling in for my colleague, Mayank, today. I welcome you all to the Britannia earnings call to discuss the financial results of Q3 FY 2023. Joining us today on the earnings call are our Vice Chairman and Managing Director, Mr. Varun Berry; Executive Director and CEO, Mr. Rajneet Kohli; Executive Director and CFO, Mr. N. Venkataraman; Chief Sales Officer, Mr. Vipin Kataria; Chief Marketing Officer, Mr. Amit Doshi; Chief Procurement Officer, Mr. Manoj Balgi; and Chief Development and Quality Officer, Mr. Sudhir Nema. The analyst deck is uploaded on our website. Before I pass it on to Mr. Varun Berry, I would like to draw your attention to the safe harbor statement in the presentation. Over to you, Mr. Varun Berry, with remarks on the performance.
Good afternoon, everyone. Very happy to be here with you. Without furthur ado, let me get to the presentation. If you get to page number 3, that will give you the 3 parameters of our business. Our year-over-year growth is 16% on the revenues. On operating profits, we've grown 55%, and we continue to gain market share through this quarter as well. Moving to the next slide, which gives a look at what's happening to the environment as far as inflation is concerned. The food inflation in India, it continues, albeit at a slightly lower level. Wheat is one commodity which remains on a boil.
If you were to look at the first quadrant on the left, that shows, you know, what's happening to the Indian overall consumer food price inflation, which is showing at approximately 6% year-on-year in Q3 of 2023. US dollar obviously strengthening versus the Indian rupee. You go to the third quadrant on the left, that shows wheat. If you were to look at the red line, the red line shows the Chicago Board of Trade and how the wheat prices have fared in the CBOT. Very clearly, you know, international prices have been dropping. After Q1, we've seen a drop in the wheat prices. However, in India, which is a fairly insulated market, the prices have been only going up.
While we are very close to the season, we will know soon enough in the next two months, you know, how the crop is and how the commodity prices rule at that time. Right now, it's at a high as far as wheat is concerned. The RP-RPO prices have softened both for the Bursa Malaysia Derivatives exchange, as well as the Indian market prices are almost parallel to each other, and that's helped us control inflation on our commodities to an extent. Going to the next slide. That shows the inflation versus Q3 of 2021.
Basically, what's happened is that in the last 2 years, we've seen a very high inflation, and even on a year-to-date basis, we've seen an inflation of approximately 12%. In this quarter, because of RPO softening as well as us consuming cheaper wheat covers, which we had bought in the beginning of the year, during the season, it's softened a bit internally for our consumption from a consumption standpoint, but it still remains reasonably high, the inflation for our commodity basket.
Going to the next slide, which is, you know, on our cost and profitability front, if you look at it, we have taken necessary pricing actions. These are actions to cover for all of the inflation in the first half of the year. We've stepped up our cost efficiency programs. We are looking extremely good. I will cover that in a few more slides. We've made... You know, there have been some corrections in RPO. We've been consuming wheat which was at the right price. Hence Q3 results have shown improved operating margin. However, as a result of that, we've seen operating margin improvement of 330 basis points quarter on quarter.
There are as market leaders, we always need to lead the price increases, and we have done that. Despite leading that, we've been able to gain share. There are pockets where we've seen a competitive reaction. There will be some modifications that we'll have to make from where we are at today, and we will do so in the coming quarter. We obviously wanna make sure that in every possible segment, we surge forward and we gain share through all of the strategies that we deploy, which I'll come to in a bit.
Next slide, which is the strategic pillars, which we, you know, have been talking about for quite a few quarters now, which drive our profitable growth. Distribution, which is very, very key to our strategy, and marketing of our key brands. Heightened innovation. We've been, you know, after COVID, we've been going pretty heavy on innovation launches. Adjacent businesses, and I'll come to that in a bit, have been doing reasonably well, I would say. Cost efficiency programs, I already spoke about, and I'll speak about them in a little more detail as we go through the presentation. Finally, sustainability. Let me go through these one by one. The first one is on driving efficiency in distribution.
As you'll see from this slide, we have now 28,000 rural distributors versus 26,000 in March of 2022. We have gained one and a half times the share that we gained on an all-India basis in rural. That strategy of going heavy on rural has been working for us. As a result of that, while some companies have been announcing some kind of slowdown, we have not seen any slowdown in our rural revenues, you know, and our growth, volume growth in the rural areas. The second part of that slide is on direct reach. We have also been, you know, focusing on getting this, you know...
After the COVID relapse, we've been focusing on getting wider direct reach. We've added 1.5 lakh outlets during this year. From 24.9 lakh outlets, we've gone to 26.4 lakh outlets with our direct reach program. Moving to the next slide, which is about the marketing activities during the quarter. There are multiple marketing activities, and some of you must have seen them, you know, on air. We have some new creatives that we got this quarter. Fifty50 was one of them. You know, some of the others listed on this slide also are some of the campaigns that we've done during this quarter.
We've also won some industry awards, which are also there on this slide. Amit, would you like to comment on this?
Yeah. I think as Varun said, we've continued to make investments in our core brands to drive to ensure that we continue to drive penetration for these brands. Each of them is top of mind in their respective categories. I know as Varun said, it's also heartening to get the industry recognition because we believe that we wanna do work that wins in the market, and it's always good to get peer recognition. For both, you know, so there's Campaign India there and there's Storyboard18 there. Three of our pieces, the first one being for Good Day, then Fifty50, and then Nutrichoice, were among the top 50 ads in the country and top 25 ads in the country respectively.
For Milk Bikis Classic, we won awards for Best Regional Marketing in Tamil Nadu at the Effie Awards. These awards recognize effectiveness in marketing. One of our NutriChoice digital pieces was actually voted as a viewer's choice ad of 2022 by the Outlook Magazine.
Sorry, I just wanna go back to the previous slide, not shift to it. You know, while advertising wins awards, there are no awards for sales. I'll be remiss in not mentioning Vipin Kataria and the sales team, making some superlative efforts in getting the results that I was talking about on the previous slide. Okay, moving on to the next slide, which is about innovation. We've had, you know, some very good launches. Biscafe, which is a very unique product, has moved almost 5 times in terms of revenue since we launched it. Similarly, NutriChoice Seed Herb and Protein, which was launched in Q1 again, has moved 4 times since launch.
We also had focused scale-up drive on 50-50 Golmaal, which is a very interesting product. It wasn't national till some time ago. It was only East. Even today it remains predominantly East as we are trying to spread it across the country. A great product. It's moved 2 times its revenues, you know, during this year. Milk Bikis Classic, a very nostalgic and a great product doing very well in its core territory of Tamil Nadu and Kerala. In the adjacent category, we've launched the Festive Plum Cake in East and South, which is doing quite well, just before the festive season. We've also launched a new product in our snacking, which is called Tic Tac Toe. Snacking again has been, it's in test market.
In these test markets, we've launched this product, and it's doing quite well. It's actually yet to go into the rest market, but it's currently only in the South market, and it's doing quite well. We've also got a fresh portfolio. Again, we are experimenting with fresh paneer through our fresh distribution channel. I won't say it's a blockbuster, but this is giving us great readings on what we should be doing with our, you know, fresh channel as we go forward. On adjacent categories we've also, we've had some focused scale-up drives. Croissant, which was launched across the country in Q2, is growing very handsomely and doing quite well.
The marble cake, which we also launched in Q2, has been scaled up and is doing very well. Both of these products are at about 150%, which is lined up 2.5 times what they were during launch and, you know, 130%, which is 2.3 times what they were at launch. Good, good progress on innovation as well, as well as adjacent key products. Moving on to the next slide, which is about our joint venture with Bel of France on cheese. Just to give you an update, you know, you know that we've signed the strategic partnership to disrupt this very nascent but fast-growing cheese category in India. You know, this will...
We bring, you know, brand with trust and the distribution strength, and Bel brings the product know-how as well as the technical expertise. We are looking at a differentiated portfolio of very, very innovative cheese products. You know, these will be produced in our new state-of-the-art facility at Ranjangaon. You guys are welcome to visit us and have a look at the facility whenever you happen to be in that part of the country. You know that we hold majority stake at 51%, and Bel holds a 49% stake. Now, to give you an update on where we stand on this. Cheese lines, you know, cheddar cheese line will be commercialized in Q1 of 2023-2024.
Cheddar cheese has to be produced for that to be used to produce the various formats of processed cheese. The processed cheese line will take a little more time. They will be ready in the second half of 2023, 2024. On these processed cheese lines, we will produce slices, cubes, blocks, and spreads. That will be ready in the second half of the next financial year. In the meantime, what are we doing? In the meantime, we are working on the joint branding, how the products and the packaging designs are going to look. We are working on the organization structure. We are training the personnel. We are finalizing our portfolio, not just for immediate launch, but the portfolio as it will look in the next two years, three years, five years.
There will be some products which will be imported to start with, namely the INR 10 sachet of cheese, which Bel currently sells, which is imported from Bel Vietnam. That will continue to be imported, but will be put through our distribution system and hence will be accessible to a lot more consumers as we put it into a lot more outlets across the country. The second product which will be imported will be the portions. These are the triangular portions, great products, which will continue to be imported from Vietnam. As you all know, there is a treaty that, you know, Vietnam and India have. There are no import duties on products which are imported from Vietnam, so we will take advantage of that.
What we've done for ourselves, we have set clear benchmarks on where these products have to reach in terms of revenues before we trigger a line in Raniganj. We are planning a line of the sachets as well as the portions in Raniganj, but the timing of that will be in the next year to the next two years, depending on how we scale up the products in the market. That is an update for you on our joint venture. Hope that is, you know, detailed enough for you. Going to the next slide, which is the Raniganj factory commercialization as far as the other dairy products are concerned. Now, just to review the products that we are looking at.
One is, of course, aseptic PET, which are the drinks we are going to produce in PET bottles. Currently, we are selling our drinks in Tetra, and we will be moving a part of the portfolio to PET. Second is fresh dairy, which is dahi and other fresh innovative products which can be produced. So this fresh dairy line can produce Greek yogurts. It can produce drinking yogurts in a fresh format with a limited shelf life of 21 days. So we will be looking at that as we start to commercialize the line. We have a line for powder, which can do dairy whitener for retail and also for captive consumption within our bakery, which is SMP, skimmed milk powder, SCM, sweetened condensed milk, and whey powder.
As we speak, I'll come to where we are at on all of these lines. The last is fat, which is ghee. These are the other lines that we'll have in our dairy facility. Just to give you an update on where we stand. As far as milk collection is concerned, for, you know, producing all of these products, we are currently collecting 70,000 liters per day of milk from 2,850 farmers. Our objective is to take it up to 150,000 liters per day from 4,000+ farmers, right? Currently, we have 65 bulk milk collection centers, which are run by our partners in the rural areas around Ranjangaon.
We are looking at scaling these BMCs, as we call them, to 125 by the year-end. We are providing extension services to all of our farmer partners, which are being strengthened to make sure that we genuinely add value to all of our farmer partners. As far as the commercialization of the line is concerned, the SMP, which is the skimmed milk powder, and dairy whitener line, have been commercialized. We are already producing product, and this product is being used internally by our bakery division to produce biscuits and other products, right? We also started to produce sweetened condensed milk, which is also being used by our bakery division, right? We've also commercialized our PET line, and we've launched milkshakes in PET only in the South currently.
They've gone into the market only in the month of January, you wouldn't have seen them. They are great products, looking really good, tasting awesome, right? Fresh dairy is also to be commissioned in the next couple of months before the end of this financial quarter. That's where we are at. We are doing extensive training of our operators in the dairy facility. The quality parameters are being very clearly set to very high standards, and we are setting up all the systems to make sure that we run this facility to the highest standard possible. Moving on to the next slide. We made reasonable shifts in our adjacency business, and these will definitely fuel the next stage of profitable growth for Britannia as we go through time.
On bakery adjacencies, cake, we had quite a few, you know, innovations as well as our baked cakes are doing well. We've registered healthy growths in this category. We've also improved pro-profitability across cake, rusk, as well as bread, you know, as far as this year is concerned. New businesses, croissant continues to gain traction. I've already spoken about the kind of growth that we are seeing post the national launch, right. There are pockets where we are doing, you know, better than the others. There is focus required in certain markets, and we are making sure that we provide that as we go through, you know, the months with this new launch.
Wafers, we've launched low-density wafers, cheese flavor. Wafers overall continue to gain market share. I wouldn't say a blockbuster, but the makings of a blockbuster for sure. As far as international is concerned, we've seen healthy profitable growth across key geographies. Nepal continues to do extremely well. If you remember, we've invested INR 55 crores in Nepal, and that's given us very, very good return. Commercialization of our own operations in Kenya is happening as we speak, and we will be scaling that business up as we go through the next financial year. Moving on to the next slide, which is our cost efficiency programs. We've been driving a ecosystem of efficiency, right?
Now, if you were to look at it, the themes are the same. From a supply chain standpoint, it's all about process automations, distance to market, optimal power resources, renewable energy. From a material standpoint, it's again, the themes are exactly the same. Sourcing strategy, vendor development, you know, making sure that you get the right people into the right category. Packaging initiatives, vendors, cost optimization. On the other, we've got market return, which we made very, very good progress on. Commitment charges that we pay to our, you know, manufacturing partners. Fiscal incentives, and there I would like to, you know, just talk about that in a bit. I'll come back to that. Media effectiveness.
We've done very good work with the happening on media effectiveness as well. On fiscal incentives, we made a lot of investments in production lines, in the R&D center, in innovation lines, dairy. These lines have all been secured with incentives which have been provided by the state and the central governments. This has been giving us the payback for all of the money that we've been putting in manufacturing. We at one end, we are getting all the efficiencies, on the other end, we are getting the incentives. It's working out quite well on our overall investments. Moving to the last slide from the business standpoint. We are clearly on track as far as ESG is concerned.
We are on track for all the targets that we committed to, be it energy efficiency, plastic reduction, sustainable packaging. You know, working with communities around our plants, including the lives of farmers around Raniganj . We are making great progress there. I will hand over to Manoj. Manoj is the architect of this and between Manoj and Deepti, they've been driving this. Over to Manoj to take you through some of the details here. Manoj?
We are working on four pillars as far as the ESG agenda goes, people, resources, growth and governance. We have taken targets which are good for the community and good for the business. If we were to go through the people quadrant, where our focus is on targeting farmers, Varun talked about 2,800 odd farmers that we collect milk directly from. We do a lot of CSR work in and around our factories, partnering with the Wadia Foundation, we have reached about 14,500 odd beneficiaries. The work is more on sanitation and water management and hygiene around these communities. Again, on the nutrition side, we have reached more than 2 lakh beneficiaries till December 2022.
In terms of resources, we have increased our share of renewable electricity source for our operations from 33% to 38%. The share of renewable energy is about 18% from 14% last year. 3% reduction in emission and additional 61,000 kilos of plastic has been discarded in this period till December. We are on track for our EPR program. We have been plastic neutral last year, we will be plastic neutral this year. 72% of our laminates multilayer packaging that we source are now recyclable. Water consumption has been reduced by 33% through recycling and reuse. In terms of the commitment towards reducing the fat, sorry, sodium and the sugar content, we are on track.
About 2 and a half% of reduction in sugar versus 2018, 2019 when we started the program, and about 13% reduction in sodium. In terms of governance, we are extending our sustainability program to 100 of our key suppliers. Assessment is on and we'll co-opt them into our ESG program. Thank you.
Okay, thanks, Manoj. now moving to the financials. actually there's nothing much to say here. the results speaks for themselves. full year 2022, 2023, we've grown 16%. Q3 is also incidentally 16%, for the year. If you look at the 24-month growth, it's at 33%. both, very healthy, good growths, that we registered, from a top-line revenue perspective. Next slide is about operating profits. operating profits, at, have grown this year 15.5%. this quarter is at 55%. 24-month growth is at 35%, because last year Q3 there was a decline of 13%, but a very healthy 35% even on a 24-month basis, with, margins being at 18.5% of revenue.
Now getting to the next slide, which, you know, gives the key financial ratios. Net sales up 16%, operating profit up 55%. Profit before tax is up 127%, but this includes INR 376 crores of exceptional gain, which is on account of the 49% stake sale pursuant to the joint venture with Bel, on our cheese business. This is an exceptional number. A result of that, profit after tax is at 151%, you know, standing at INR 932 crores. Now, even the numbers below, the only one to really look at is profit from operations, which has gone up to ever high at 18.5%.
Profit before tax, obviously, at 28% and profit after tax at 23%, include the exceptional items. I'm not gonna belabor those numbers. Those are the results. Over to you for questions, please.
Thanks, congrats on good numbers. My first question is on the dairy business. In cheese, when I see currently there is obviously one or two mass and pricing from Amul and Mother Dairy kind of players, and also there are some regional brands. Indian consumption also if you see mostly of mass and cheese at low prices. When you say that you want to disrupt the market, and you have already discussed a sharp scale-up in the next three, five years, that's coming because of the LUP strategy of INR 10 and say the innovations like Triangular, or is it coming because you want to make India consume the other variants which say the developed countries consume? The issue there is most Indians will not be knowing this.
They'll have to have huge education for those. Which is the one you are betting from a three-year, five-year strategy in terms of LUP and aggressive pricing because you're sourcing a milk or because of new variants coming to India?
These are both niche. We want to scale up the formats that we already exist in. Coming together of Britannia and Wafic Saade, I think the magic of brand will really play up. Both very strong brand, that magic will definitely play up. Obviously, the technical know-how of Bel on how to create differentiated offerings which are much better than the market, which are obviously catered to the Indian taste, albeit at a premium to what the cooperatives are providing. I think that's gonna be one strategy. The second is, you know, the LUP at INR 10 is a big one, if you think about it. It's a habit creating, initiating.
You know, whenever a category has to go to a lot more consumers, you've got to have a carrier, SKU, which gets to consumers across the country. You know, if you think about it, the fast food, the QSRs have helped us create cheese in the tip of the iceberg, as far as the Indian population is concerned. How do you create that same kind of habit across the board and get to the bottom of the pyramid? That is really the strategy which is the second strategy that we are betting in. You know, obviously all these products and a lot more products which can be, which we can sort of create as habit forming, will be produced in the long run in India, in the country.
That really is the strategy as far as cheese is concerned.
Sure. Thanks. That's useful. I had a follow-up on dairy business. In Paneer, the new launch looks interesting. When I see the pricing, your pricing is at INR 110 versus INR 80-85 for Mother Dairy and Amul. Your pricing is much more closer to Punjab Sind and IG International, for example. Here, once your sourcing is in place, once your factory is fully in place, your pricing then will it converge more to the value players? Or here you would want to be in the Punjab Sind and IG International kind of a premium paneer kind of a place?
No, we are not looking at becoming, you know, the value players in any category. If we have a right to succeed, these are all experiments, niche. We are looking at, what we can do, how can we add value . If we can create a premium offering which gives us, revenues as well as profit-We are in it. We don't have a line for paneer, for instance. It's all third party. Even in our Ranjangaon facility, we haven't invested for a paneer line. These are experiments which are without real investment. If they work out, then we have the milk, we have the factory, we have everything else. We can always put up a line and move forward with it.
If it doesn't work and it's still in the bottom of the pyramid pricing which is working, then we will move forward and walk away from initiatives like this.
Sure. My second and last question is on your, biscuit market share. We have seen very.
Please go ahead.
Sure. Thanks. In biscuits, your market share improvement has been quite good. In inflationary times, market leader, number one player, the premium player always gains market share in most FMCGs. Now we are obviously coming into deflation gradually. Palm oil first, packaging second, and wheat, obviously India will see 112 million tons production this year. Government forecast last year did not go right. If that happens and say milk also deflates say next year, how are you going to tackle the competition from regional players and maybe the second player against whom you have gained market share? Would you be worried on that front in a gradual manner? I know currently it is not relevant. I'm asking from a next two to four quarter perspective.
Well, you've seen us in deflationary times as well. We've been through quite a few years of deflation and we managed that quite well. We will deploy the same strategy as we go forward, and I'm hoping that we get to deflationary times. It doesn't seem so right now, but I'm hoping that you're right.
Sure. That's all from my side. Thanks a lot.
Hi, this is Avi here from Macquarie. I just wanted to understand the competitive intensity a little better. Over the last 2 quarters, you know, not just 2 quarters actually, even before that, we've been able to drive very strong market share gains despite taking, and I remember the last few calls you've been saying we have taken the industry-leading price hikes. What should we read from competitive intensity as of now? Is there a moderation or is there a change in behavior? If you could help us understand that, please.
See, we have been working very clearly on our agenda, right? Our agenda has been driving distribution. We know where our strengths are, we know where our weaknesses are. We have been, you know, working towards fulfilling our weaknesses. We've been, you know, heightening our strengths. I think that's been working really well for us. We've been nourishing our brands. We know again, where our strengths are, where our weaknesses are within the brand. We've been heightening our strengths, and we've been making sure that we fulfill some of the weaknesses. We know we have weaknesses, right? The value portfolio is one weakness which we've not tried to fulfill. Within the premium portfolio, there are certain weaknesses we are trying to fulfill.
I think there is a lot to do within our system to make sure that we strengthen our geographical footprint, we strengthen our brand portfolio, we strengthen our innovation footprint to make sure that we continue to gain a march over, you know, competition. It's not about I'm, you know, I'm gonna cut prices or I'm gonna give discounts or I this guy is bigger than me in this segment and hence how I can, you know, look at being, you know, from a pricing standpoint or from a promotion standpoint, hurt them or anything like that. It 's very internal to us, this strategy, and it's working very well for us, and I think that's what we'll continue to do. Yes, we watch others.
It's not that we are not watching what others are doing. We are learning from them. There are certain players within the biscuit competition who've been doing quite well, and we learn from them. For example, Patanjali is doing very well in milk, and our Milk Bikis was predominantly a Tamil Nadu brand. We've now expanded Milk Bikis across the country. We've come up with very innovative positioning of good roti bi shakti, using only atta to produce our paratha chips. Similarly some others, we move forward, you know, in certain certain geographies . That's what we'll continue to do as we move forward.
Okay, sir. Would it be fair if I understood it correctly, it's not got to do. While the competition may not have probably put in the same investments we have done, it probably has not got to do with differential in growth rates between this value versus, you know, the piece, the base or sorry, the mid or the premium end. There's no other reason which is more specific from a category perspective that we should read. It is more about us doing the right thing than probably the competition has not necessarily or may not have invested in those specific categories. That's the right way to look at it, right, sir?
Yeah. Yes, that's the right way to look at it. It's about making sure that you stick with your strategy, you develop the right strategy within segments, and you move forward.
Okay, sir. The second bit was, more of a bookkeeping, you know, in the build up to that. Would we be able to give some sense on what are the one-off gains from these forward contracts which may not continue going forward? Also a sense on where the ad spend intensity is versus the normalized or pre-COVID levels, just to get a sense on where margins can probably trade.
No. Clearly, let's start with the advertising part. We have normalized our advertising spend this quarter. We have gone back to the pre-COVID levels. Some one-off gains I have spoken about, you know, the one-off gains from the joint venture. Besides that, we've been consuming covers of wheat which have been at a much lower price. That is certainly going to go away, right, as we move to the next quarter, because we never bought a cover wheat till the next season. All these covers will now end, and hence we will start to consume wheat which will come from the market, from the season. That will be one change.
There will always, there always are some, you know, changes that come through during the season. I think, those are the two changes currently. There are no other exceptional items.
No. I was trying to just understand the quantification roughly, how much would it have benefited margins, because that would help us understand. This quarter we have almost done on, 18 and a half, 19 and a half kind of margin. As we go into the next year, what, how much should we kind of remove out of this? Is it 100 basis points, and that's the level that we look at as a steady state? That's broadly where I was trying to head to.
No. I had mentioned that as well. There is also, we as market leaders, we have to take pricing three years before everyone else does, we did so. Now, with, you know, the inflation not being at the level that it was a few quarters ago, there have been certain categories where competition has played a little bit of hardball. It's not been a widespread phenomenon. There will be a few segments, a few SKUs, a few brands where we'll have to adjust pricing back to, you know, lower levels. That will be a small number. Again, it might not be a very large number. That would be the only thing.
Besides that, I think we are pretty much in a good place.
t to 19. In COVID, you said that was not the level we should assume, and correctly so. But now we are again back to 19. I'm just trying to appreciate what would you be comfortable that the, secondly, you know, the last two quarters is a better range to look at because there are covers, but clearly those covers would continue if there is-
I don't think so. I would think so Q2, between Q2 and Q3 would be the right range to look at.
Okay.
So that will-
That's what I wanted. Okay. Thank you very much, sir. That's all from my side. Thank you very much, sir.
Yeah. Yeah.
Hi. Thanks for the opportunity. About a year ago, you had indicated that the potential for dairy business is about INR 2,000 crores. Do you still believe in that number, or you think it can be higher based on, you know, the developments over the past few quarters?
I didn't get that. Your voice is not very clear. Can you just repeat that question quickly?
Sure, I'll repeat. I believe about a year ago you had indicated that the potential for dairy business is about INR 2,000 crores in the medium term. You have not given any indicators sort of in terms of timelines. Do you still believe that number is doable? Or do you think it, you know, you can do better than INR 2,000 crores? Is it possible at this point of time to give us some color in terms of how that portfolio can shape up in terms of revenues over the next 3 years?
I would still stick with that number. We are in the process of launching our new products. cheese is still not even in the market. Let's watch this space for a bit, and we will come back to you with... That's, that's what we said for ourselves, so we'll stick with that.
Understood. Current scale is about INR 500 crores-INR 600 crores. Is that understanding correct?
just over that. Yeah.
Okay. One more follow-up around the same thing. I think prior to pandemic, you know, industry was growing at a very low single-digit levels in terms of volume. You were able to grow faster based on new product launches and market share gains. A couple of times you had called out, you know, industry growth versus your, you know, the gap between the growth driven by new products. Could you give us an indication in terms of, you know, what do you think that gap is and how, you know, whether that gap is widening given that you've seen good success in new product launches and now dairy will scale up?
We, as you can see from the market share, we've been continuously gaining share. The gap remains pretty much the same, but I must admit that around COVID times and beyond, we've seen the market growth to be much faster than what we've seen from 2013 to, let's say, 2018-19. The market growth have certainly picked up, and this is a great trend from our industry standpoint.
Understood. Thank you so much. That's it from my side.
Latika Chopra from JPMorgan Chase.
Yeah, hi. Thank you for the opportunity. You know, thank you, Varun, for your detailed comments on adjacencies. You know, what I'm looking for now is a little bit quantitative flavor. It would be helpful if you could share, you know, what is the salience of non-biscuits portfolio in your business today. If you could share a little flavor on what is the kind of annualized revenues today that you're seeing for, you know, key segments like cakes, rusks, you know, maybe croissants and wafers. If one looks at the growth algorithm over the next 5 years or 3 years, you know, for Britannia, what that salience or revenue size of these adjacencies could be in your view?
Currently, the biscuit and the non-biscuits portfolio are approximately 77%, 23%, which has gone up from what it used to be. You know, if you think about it used to be almost 85% were our biscuits till about seven, eight years ago. It's been continuously obviously the non-biscuits portfolio has been growing faster. You also got to remember that biscuits is so large that for the other categories to become a substantial part and to contribute substantially to it requires a little bit of time. It's taken time, but I think we are moving in the right direction.
Varun, in one of the interviews you said that, you know, probably this 23% probably become 35% over the next five years. Is that how we should read?
Yes. Yes.
Within this 23% today, you know, could you tell us, you know, how much would be cakes and breads and rusks, you know, which are the more meaty parts of this portfolio?
Cake and rusk would be almost 50% of this, and the rest would be, you know, approximately 50% of the 23%.
All right. That's helpful. The second bit I had was on biscuits itself. You know, you talked about market share gains. Could you help us with the volume growth and the value growth for the biscuits overall category? Some flavor on how the different subsegments are looking at. Within your, you know, growth rates that you've posted for the last two quarters now, what is the kind of mix, you know, contribution to this precise volume?
See, there's not always a complete match up between our numbers and the leasing numbers in the overall total market. You know, we've been seeing very good growths. You've seen our growths. Our transaction growth are almost at 16-17%, which means that the number of packets that we sell is growing almost 17% in this quarter. I f you were to look at a year-to-date number also it's at almost at about 14%. The transaction growths are very good, and that's what matters to us. Volumes obviously have been low. Volumes are very low single digits. The reason for that is the kind of price increases that we've taken during the last 2 years. That's where it is.
From a revenue growth standpoint, it clearly is indicating that, you know, even the entire industry is growing at a double-digit%.
Sure. I believe you are fair confident-.
I'm sorry to interrupt you. May I request you to come back in the question queue?
I will.
Percy Panthaki from India Infoline.
Hi, Varun. On dairy, can you give some idea on what is the CapEx that you will do over the next 2 to 3 years? Secondly, do you fear any risk of EBITDA margin dilution if dairy is becoming a large part of your business and the EBITDA margins there might be lower than the biscuits margins? Correct me if I'm wrong in that assumption, first of all.
First, your question on investment. Investments are about INR 600 crores for starters, in all of the lines that I spoke about during my presentation. Will there be more investment? Yes, probably for innovation, but that will be very clearly, you know, once we've read our results, of the imported products that I was talking about. Only after that we'll put in more investments as far as cheese is concerned. Even, even on the other areas, we will put in investments after we've proven that some of the products that we are launching are doing well. The other question, what was the other question that you had?
EBITDA margin, whether it will be dilutive.
No. EBITDA margin, we'll have to see as we go proceeding. See, for cheese, we've always had a very solid, you know, EBITDA margin. Now, with our own factory and with the joint venture, hopefully that should move in the right direction. Yes, for a period of time, there will be a depreciation hit that we'll have to take, which is fine. You know, I think over a period of time, we should be fine on that. The other thing is that, even at INR 2,000 crores, even if dairy was to move to INR 2,000 crores in the next 2 years, by that time our overall business would have moved much beyond where it is today.
It will not be more than, you know, 8%, 9%, 10% of our total business. The impact of this is not as high as, you know, you are imagining it to be.
Okay. Just checking one data point which you just said. Did you say that number of packs sold grew at about 16, 17% this quarter?
Yes.
Okay. Finally, can you give some guidance on the overall CapEx at a consolidated level for FY '23, 2024, 2025?
It's just to highlight what are the investments that we are making. We've got 2 lines, 2 new lines. We've got a new factory in UT. We've got a new factory in Tenali in Tamil Nadu. 1 new factory in Bihar, which is gonna come up. There are some lines which are coming up in Raniganj, plus the dairy facility. In Orissa, we are putting up an additional line. Right? Basically, all put together, the current year is gonna be approximately INR 750 crores. Thereafter, I think for the next 2 or 3 years, it's not gonna be very large. Let's say the next 2 or 3 years, our total investment would be INR 250 crores.
Okay, sir. Thank you very much.
Yeah.
Sheela Rathi from Morgan Stanley.
Thanks for taking the question. Two questions from my side. First is a clarification. This is to do with the sustainability slide, where you have mentioned 12.84% reduction in sodium versus 2018-2019. If I remember correctly from the annual report, we had mentioned that we aspire to have a 6% reduction in sodium by 2024. Just wanted to get that clarification.
Yeah. That's one area where we've had more reduction than what we've stated for ourselves. That's been working well. You know what, Sujit, do you wanna comment on that?
Yeah. You are right, Varun. We had a target of 6% for the sodium on per serving basis. We did basically roll out the sodium plan in various products to get to this number.
All right.
Yeah.
Yeah, that's very clear. My second question, Varun, was on the distribution strategy. I think that's worked out very well for us. Just wanted to get an idea from you as to what is the aspiration on the distribution front, both on the rural side as well as direct distribution, where, you know, we have reached a certain level now. Where we could be in the next 2 years say?
Yes, that's a very important question. People continue to feel that how long will this last. I think this is everlasting. You know, while we've made great progress, there are still, you know, territories and states and, you know, areas which we still continue to be very poorly distributed. Rural still lags urban by almost 11 distribution points. We have a long way to go, and we will continue to work on it because it's such an important strategy for us. You know, a very important part of our strategy has been our distribution gain. That is the one which has kept us away from, you know, really getting into fisticuffs with competition.
We've been driving our own distribution and been gaining traction and share in all of these things. A long way to go. Short answer is a long way to go, and we'll continue to drive that.
Assumption of 15% increase every year could be a fair assessment, right?
Yes, absolutely.
All right, thanks.
Vivek Maheshwari from Jefferies India.
Hi, Varun and team. My first question is on the market shares again, Varun. The market shares that you have presented on the slide are value market share, I'm guessing. Would volume market share also give a similar story?
Yes. Yes, it would.
Interesting.
We've also benefited from the fact that, the premium products and premium offerings have been gaining over the value offerings. It will be very similar.
Interesting. Okay. The other question is, you know, you mentioned 16% growth in packs, low single-digit volume growth and 16% revenue growth. Does that mean that, you know, there has been a shift from larger packs to smaller packs?
It could be momentary. It could be momentary. It's not, it's not reflective of a long-term trend. Yes, this quarter we have seen 17% transaction growth with a 16% revenue growth. It's not like we've been seeing that forever. In times like this, you've got to remember that there is some amount of downgrading which goes off as things become better. It could be for a quarter or 2, and then it goes back to the old mix.
Got it. Lastly, Varun, how much will be the price cuts that you will need to take at the portfolio level, you know, in the coming quarter?
It's not substantial. We haven't really looked at what number it will work out to be. We are not really taking a price cut. What we are looking at is, you know, projecting them as promotion so that it doesn't look like we are permanently down to a certain price. It will be as a promotion so that we can take out the discount and move back to our old price whenever needed.
Okay. You know, at the time of taking up prices, you have had, you know, reasonable amount of that via volume. You know, conversely will also be true as the input prices are going down, right?
Yes. Yes. We are looking forward to that, because, you know, while in inflationary times like this, it's okay to have very small volume growths. You know, the good thing is that we've had great transaction growth, and that's what matters for us. How many packets, how many consumers are enjoying our product . But volume growths are also important, and we would like to get back onto a volume growth, if we get to as well.
Great. Thank you, Varun. Wish you all the best.
Thank you.
Kunal Vora from BNP Paribas Mutual Fund.
Yeah, thanks for the opportunity. Continuing on the previous question, how should we look at volume and pricing contribution in FY 2024? You had double-digit price hikes in FY 2022, another double-digit price hike in FY '23. Growth has been mostly pricing led. How do we look at that mix changing in FY 2024?
From, you know, what we discussed, I don't think we are gonna see the kind of inflation that we've seen in the last 2 years for some time to come. I don't want this to be the famous last word, but I'm hoping that I'm right. With that, I don't think there's gonna be a substantial price increase. It will only be opportunistic whenever necessary for a certain SKU. We are not looking at The inflation number for next year is looking like about 2.5%-3% for us. That's the kind of pricing increase that we're looking to do next.
With that, would the revenue growth moderate, or you think, the current growth rate or anywhere close to that is maintainable?
That's one area which I haven't understood either. When does growth rate pick up? When does it not? I've never been able to understand. What I've understood is how to take share from the market by driving strategy. What happens to the markets, I think God only knows. I'm hoping that the growth rate on the industry continues.
Okay. All right. Second last question is there a correlation between the milk collection and your revenue as the milk collection doubles, which you indicated? Should we expect revenue also to double? When do you get to the 150 KLPD, which you mentioned, in terms of milk collection?
Well, 150 would be towards the end. No, it's not only for the products that we sell in the market. We will run the lines that we, you know, use for our bakery division as well. This will help us. F irst there are some overheads to the extension services that we provide. We'll be able to max out and leverage the overheads on those extension services. We will be able to get better quality product which will be produced whether it's SMP or sweetened condensed milk or whey powder . All of that produced in our own factory for our bakery division. There's no real correlation between that and the dairy revenue, because this is a internal transfer from dairy to our bakery division.
Thanks, everyone, for spending time with us on this call.
Thanks, everyone, for spending time with us on this call. We look forward to interacting with you again.