BRITANNIANSEQ1 FY23August 04, 2022

Britannia Industries Limited

6,908words

90turns

11analyst exchanges

7executives

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Management on call

Varun Berry

MANAGING DIRECTOR, BRITANNIA INDUSTRIES LIMITED

N. Venkataraman

EXECUTIVE DIRECTOR & CFO, BRITANNIA INDUSTRIES LIMITED

Vipin Kataria

CHIEF SALES OFFICER, BRITANNIA INDUSTRIES LIMITED

Amit Doshi

CHIEF MARKETING OFFICER, BRITANNIA INDUSTRIES LIMITED

Manoj Balgi

CHIEF PROCUREMENT OFFICER, BRITANNIA INDUSTRIES LIMITED

Sudhir Nema

CHIEF DEVELOPMENT & QUALITY OFFICER, BRITANNIA INDUSTRIES LIMITED

Mayank Mundra

INVESTOR RELATIONS, BRITANNIA INDUSTRIES LIMITED

Key numbers — 40 extracted

oint. So, if you see Q1 has been from a consumer food price inflation which is published at about 8%. The US dollar has strengthened versus the Indian rupee but getting to the bakery industry, I thi

80%

r us. If you notice we've had inflation if you compare it or index it to Q3 of 2021, we've had an 80% inflation on wheat. Similarly on palm oil there's been a 90% inflation. The only difference is th

90%

index it to Q3 of 2021, we've had an 80% inflation on wheat. Similarly on palm oil there's been a 90% inflation. The only difference is that on wheat the difference between Q4 of ‘21-22 and Q1 of ‘

50%

difference is that on wheat the difference between Q4 of ‘21-22 and Q1 of ‘22-23 it's gone from a 50% inflation to a 80% inflation while palm oil has gone from 80% to a 90% inflation. So, wheat is re

rs,

gs could ease up a bit. Similar numbers on the next page, if you were to look at same six quarters, if you look at how the inflation has moved from Q4 ‘21-22 to Q1 of ‘22-23, you'll again see that t

20%

through the balance of the year. The numbers are on top of the slide, basically wheat flour is a 20% quarter-on-quarter, industrial fuel is 15% quarter-on-quarter and palm oil is a 5% quarter-on-qua

15%

rs are on top of the slide, basically wheat flour is a 20% quarter-on-quarter, industrial fuel is 15% quarter-on-quarter and palm oil is a 5% quarter-on-quarter which in effective terms is about 180

at flour is a 20% quarter-on-quarter, industrial fuel is 15% quarter-on-quarter and palm oil is a 5% quarter-on-quarter which in effective terms is about 180 crores of inflation in this qu

180 crore

15% quarter-on-quarter and palm oil is a 5% quarter-on-quarter which in effective terms is about 180 crores of inflation in this quarter alone. How would we manage this, clearly our weapons continue to be

l be covered by Q2 of this year. Cost efficiency programs as you are aware, we used to do about 2% of revenues. This year we are looking at doing approximately 3% of revenues which will accrue to

ou are aware, we used to do about 2% of revenues. This year we are looking at doing approximately 3% of revenues which will accrue to our P&L this year. Moving on to the next slide which is slide

ity of charging a premium on all of our competitors. Our revenue on a 12-month basis has grown by 9%, operating profits are down 11% because of what I just explained to you and market share continue

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Guidance — 14 items

Varun Berry

opening

“We've taken necessary price increases which are really not covering inflation at this point in time but a good part of this will be covered by Q2 of this year.”

Varun Berry

opening

“That's again doing very well for us, at least the initial reactions are very good and we've had the marble cake launch which is also a limited launch as of now but will be scaled up across the country.”

Avnish Rao

“Wafer #1 market share will be how much and croissant category size will be what 300 crores?”

Avnish Rao

“In your annual report you had given 750 crores size, my question was market share of #1 player will be what 40%-50% in wafers?”

Avi Mehta

“With these price hikes in to cover the inflation and with cost saving benefits starting to focus clearly in place, would it be fair to expect EBITDA margin to normalize to pre-COVID levels in the second quarter or do you think it'll take some time more?”

Varun Berry

“There will be some impact but I think we are on our paths to recovery.”

Varun Berry

“We produced the first bag of SMP there a few days ago but the total commercialization will be happening in stages.”

Varun Berry

“is going to happen sometime in the first quarter of next year.”

Varun Singh

“I mean if you can give some guidance with regards what is the revenue size that we would have achieved under this brand and what are we aspiring for?”

N Venkataraman

“Milk Bikis we crossed 1,000 crores mark the last year and it looks like it will be well passed 1,000 this year.”

Risks & concerns — 2 flagged

If you see across businesses despite difficult weather, we've managed to invest in our brands, we've managed to keep them salient and we've tapped into a topical opportunity and build strong capabilities in using data and technology in doing more targeted marketing.

— Amit Doshi

So, we are constantly increasing presence over there but this time let’s say monsoon looks to be weak in the parts of UP-Bihar etc.

— Hasmukh

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Q&A — 11 exchanges

My first question is on e-commerce and quick commerce. If I see your data, last year e-commerce had grown 100% and in Q1 it has grown 33% because 8X has moved on from 6X. Last year wave 2 was very severe in Q1, so it's a very good growth. My question here is, could you tell us how is the mix in e-commerce versus your overall company level? How are the adjacencies doing? Because you had called out that cake is extremely competitive in terms of overall but is it doing better in e-commerce and is the market share also higher in e-commerce quick commerce versus the overall pan-India number?

Vipin Kataria

So, you're right, last year there was a multiple growth and we are clocking a pretty large wave and even in this quarter we have witnessed a pretty solid robust growth. As far as the split between e-comm and Q-comm is concerned, I think it's evolving every quarter. While the large platforms like Big Basket, Flipkart, Amazon, Swiggy remain a large part of it. But as we see there's a lot of consolidation happening in this space and therefore it is very hard today to say what's the salience or the growth separately because it's a very fast evolving space. I think the overall e-comm space is doing

With these price hikes in to cover the inflation and with cost saving benefits starting to focus clearly in place, would it be fair to expect EBITDA margin to normalize to pre-COVID levels in the second quarter or do you think it'll take some time more?

Varun Berry

No, I would think that normalization is around the corner. I just wanted to pick your brains on the comments that you had made in the earlier quarters about price hikes, about the worry that you had about sharp price hikes hurting category growth as customers switch out. Do you see that or is there a change in that thought process? How would you want to kind of look at it now given that the increase is almost I think 10+10, so about 20% or so, please correct if I am wrong? You're right. The total price increase would be over 20%. Yes, the point is that there has been a drop as far as volumes a

Just wanted to understand the volume, it's negative 2% this quarter. When do we see it reviving back, even in value terms the growth is around 9% which is little below what I would have expected. So, what driving this softness in growth?

Varun Berry

If you look at our last year base, it was a fairly high base, Vipin what is our 2-year growth? It's a pretty robust growth. We will just come back with that number. But it's a fairly robust growth that we have seen. If you look at a 3-year growth in about 11%. So that's a CAGR of 11%. We are in a good place there. I don't think there's any issue on the top line growth perspective and I think volumes will start to come back. I don't think the consumers have seen a 23%-24% price increase in 2 years or six quarters like they have seen it this time. So, it's bound to have some impact. There will b

In this slide what you have referred there was no mention about the international. Could you tell what is happening in the Africa and Uganda and Nepal?

Varun Berry

No, I did mention it's a part of the slides. It's doing really well. We've had a good quarter as far as international is concerned and I did mention that for us if you look at slide #11, if you look at that section of international, we have extended our leadership in Nepal and also Middle East is back, Africa we have a few irons in the fire. It's not with the kind of inflation that countries have seen there and also what kind of the protectionism that countries are bringing to the table has been an issue but despite that we have grown almost 24% in Africa and AGCC. It's a good performance all

My question is on Milk Bikis. So, we did a very high decibel marketing campaign and we were very much bullish for premiumizing the largest category. Any comment over here with regards to how the rollout in the Northern market is tracking and if you can also give some objective commentary with regards to milestones that we wish to achieve and where we are as of now?

Varun Berry

Milk Bikis has been one big success for us in the Hindi belt and in other parts, it was predominantly a Tamil Nadu product where we have a (+90%) share. So, we have been working at both ends. What we have done in, all the other markets we have rolled out our Milk Bikis Atta with a proposition of “Doodh Roti ki Shakti” which is doing really well for us. It's giving us, it's not just one state or two states is giving us very good results across the other states other than Tamil Nadu and that continues to be a big resurgence for us. We have also done in Tamil Nadu we launched a Milk Bikis Classic

My question was if you could share some color on what is the salience of biscuits and the bakery adjacencies in your domestic turnover today in terms of both volume and value and also how do you think this is going to trend over the medium term?

Varun Berry

It should be about I would say just under 80% in domestic only but the smaller part of the business which is adjacency has been growing a little faster and we are hoping that in the next 5 to 7 years we can get this to be let's say 55% to 60% with 40%-45% of our turnover coming from all of our adjacency businesses. And Varun would the profitability metrics at least on the gross margin level for these adjacencies, how do they compare against biscuits? We have got a very clear grid that we work on. We do not launch any products unless they are accretive to our gross margins. The overall profitab

Just wanted to understand your thought process in this thing in more detail with respect to your earlier stance of the overall consumption was supposed to get impacted but now we are putting out that maybe we have more confidence in terms of the consumption and you see fairly decent growth rate despite of the inflation and we have taken a decent like 20% kind of a price hikes, right. So just wanted to understand the chase in, thought process or change in how we are looking at things?

Varun Berry

No, so your right whatever you said is absolutely spot on. We were nervous as we saw inflation year-on-year but as we have continued on our agenda, we were still a little nervous but as we are coming to an end as far as price increases are concerned and we are seeing the results on the ground, we feel definitely more confident than we were in the last 6 months so feel positive. I think the consumers today have the capability to absorb these kind of price shocks and that's what they are reflecting in their purchase behavior. My second question is with respect to your price increase. So, when we

Varun, my first question is on the margins. On one side there are signs of RM inflation abating and then potentially moderating and on the other side there are plans to increase the cost optimization to 3% now versus 2% earlier. So, in that context wanted to check when you get to see this margin expansion, what will be your priority in terms of spending? Would you like to sort of reallocate this towards the spends marketing etc. would the spends would be to?

Varun Berry

I have understood the question so let me try and answer because your voice was not coming through. There's something wrong with your line but I have understood your question. Yes. We would want to as pricing normalizes, as profitability normalizes; we would like to spend some more money in supporting our brands, our innovations, our new products. We would normalize our advertising and sales promotion spends as well which will give us some muscle on our brands, new products and new categories. Just a follow-up to that. While you are pushing your adjacencies and the new products, is the thought

My question is on growth from Hindi belt. So, we are constantly increasing presence over there but this time let’s say monsoon looks to be weak in the parts of UP-Bihar etc. So, do you think this will have some negative impact on us in the coming quarters?

Varun Berry

Not really, we have had during COVID, we did have little bit of a setback in a few states. Set back not in terms of growths. We still continue to see good growths there but some setback in the kind of targets that we had set for ourselves because supervised distribution was not possible during that time but we are coming back very strongly. We continue to do really well in UP, in Gujarat, even in MP we had of a little bit of a setback but we are coming back reasonably strong, Maharashtra is doing well. We are still struggling a bit in Rajasthan but it's a very small state for us. Bihar is in a

Thank you guys, thank you very much.

Management

Thanks everyone for spending time with us on this call today. We look forward to interacting with you again. Thanks.

Management

Speaking time

Varun Berry

Moderator

Shirish Pardeshi

Percy Panthaki

Latika Chopra

Avnish Rao

Avi Mehta

Varun Singh

Chinmay Gandre

Alok Shah

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Opening remarks

Mayank Mundra

Thanks Nirav. Hello everyone. This is Mayank from the Investor Relations Team. I welcome you all to the Britannia Earnings Call to discuss the Financial Results of Q1 ‘22-23. Joining us today on this Earnings Call is our Managing Director – Mr. Varun Berry, 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 Mr. Varun Berry with remarks on the performance.

Varun Berry

Good evening, everyone. Welcome to the Britannia Analysts Call. I would jump into the deep end, if you were to go to Page #3, this is the story of the last six quarters and it doesn't paint a great picture from inflation standpoint. So, if you see Q1 has been from a consumer food price inflation which is published at about 8%. The US dollar has strengthened versus the Indian rupee but getting to the bakery industry, I think this is one industry which has faced the brunt of inflation during this quarter because wheat has been the single largest inflation for us. If you notice we've had inflation if you compare it or index it to Q3 of 2021, we've had an 80% inflation on wheat. Similarly on palm oil there's been a 90% inflation. The only difference is that on wheat the difference between Q4 of ‘21-22 and Q1 of ‘22-23 it's gone from a 50% inflation to a 80% inflation while palm oil has gone from 80% to a 90% inflation. So, wheat is really the largest part of the inflation that we have seen

Amit Doshi

Hi everyone. Good evening. As Varun said we've had quite a few interesting initiatives and especially for our new products. If you look at the top of the chart, we launched Biscafe which is propositioned as a perfect accompaniment to coffee. We see coffee culture growing and that's a big part of beverage consumption today and this was our first digital only launch. We see Biscafe again reaching out to millions of coffee lovers. We had an interesting initiative in the east where we've launched Golmaal. This is the part of the market with differentiated crackers are growing very well and this is a regional product where we again leveraged regional celebrities in a really very creative way. On the health end, we launched the NutriChoice seeds, NutriChoice herbs. These are two extremely differentiated products in the health market. This is to bring the benefit of superfoods in a really delightful format to help active consumers. And then another regional launching Jeera Marie which is a pr

Varun Berry

Moving to Page #10 which really lays out the various initiatives this quarter. Biscafe I don't know if you have tried it, but if you haven't I would urge you to try it. It's a first in India kind of a launch, a great product and we are seeing great traction. Amit has spoken to you about the other biscuit launches that we've done. Happy to report that croissant has now been finally launched. It's a national scale-up that we are doing. The initial reaction from consumers has been extremely positive. Again, would urge you to try this product. These we have it in three flavors chocolate, vanilla and mixed fruit, very exciting products, doing extremely well as we scale it up throughout the country. We’ve also launched a very-very exciting product in the wafers category. This is only in the south currently because we have limited capacity from our Perundurai plant. It's a cheese wafer which is just a very-very nice product with a melt in mouth kind of a feeling. Those of you who are in the s

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