Britannia Industries Limited — Q2 FY25 earnings call

Call held 12 Nov 2024

Management summary

Britannia faced the most challenging quarter with a rare double whammy of weak demand AND high inflation. Revenue grew just 4.5% despite 8% volume growth, as the company had not yet taken price increases - having reversed earlier pricing expecting deflation. PAT declined 9.6% due to commodity inflation (palm oil +45%, cocoa surging) and Rs 50 crore SAR charge. Management presented a compelling analysis of urban slowdown driven by housing costs and weak non-salaried wage growth. The company is now taking decisive pricing action (4-5% over 2 quarters) while doubling down on cost efficiencies. RTM 2.0 pilot using decile-based outlet stratification is showing encouraging results.

Highlights

  • Revenue grew 4.5% YoY to Rs 4,566 crores; volume growth at 8%

  • Operating profit Rs 707 crores, down 12% YoY; PAT down 9.6%

  • Severe inflation: palm oil +45% (with 40% import duty), cocoa spiking, wheat elevated

  • SAR provision of Rs 50 crores hit employee costs (stock price rose to Rs 6,300)

  • Planning 4-5% cumulative price increase over next 2 quarters

  • Volume growth outpacing revenue growth as no pricing taken yet in H1

  • RTM 2.0 pilot in 25 cities, 50,000+ outlets showing encouraging results

  • Average selling price Rs 115/kg - comparable to tomatoes/onions

  • Innovation contributing ~2% of revenue (products launched in last 24 months)

Concerns

  • Double whammy of weak demand and high inflation

  • Palm oil import duty structural cost increase

Key financials

  1. Revenue ₹4,566 Cr +4.5%YoY
  2. Volume Growth 8%
  3. Operating Profit ₹707 Cr -12%YoY
  4. Profit from Operations Margin 15.5%
  5. PBT Margin 15.7%
  6. PAT Margin 11.6%
  7. PAT Growth -9.6%
  8. SAR Provision ₹50 Cr
  9. Average Selling Price ₹115/kg
  10. Innovation % of Revenue 2%
  11. Direct Reach 28.5 lakh outlets
  12. Rural Distributors 30,000 distributors

What they filed

Q1 FY27: revenue up 8.2%, net profit up 14.0% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue4,668 4,593 4,432 4,622 4,841 +4%4,970 +8%4,719 +6%5,000 +8%
EBITDA780 843 801 752 951 +22%977 +16%834 +4%838 +11%
Net profit532 582 559 520 655 +23%682 +17%680 +22%593 +14%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Guidance & targets

Pricing

  • Cumulative price increase Pricing · Next 2 quarters (Q3-Q4 FY25) · High confidence 4-5%
    There will be about 4% to 5% price increase in the next 2 quarters.

    — Varun Berry

Distribution

  • RTM 2.0 full embedding Distribution · 12-15 months · Medium confidence 450,000 outlets across 100 cities
    From a training perspective, it will probably take 12 to 15 months to fully be embedded into our system.

    — Varun Berry / Vipin Kataria

Margins

  • Margin profile Margins · Near term · Medium confidence Maintain current band
    We expect to maintain margins rather than increase margins, balance inflation and make sure that we are able to keep a stable margin profile.

    — Varun Berry

Risks & concerns

  • Double whammy of weak demand and high inflation

    high

    FMCG value growth at lows; metro slowdown acute. Food inflation at 9.2%. Palm oil +45% (import duty driven), cocoa surging. Operating profit down 12% YoY.

    Management balancing volume preservation with necessary pricing; careful approach

  • Palm oil import duty structural cost increase

    high

    40% import duty on palm oil causing 45% inflation. Management hopes duty has limited shelf life but uncertain.

    Management expects government to eventually withdraw duty; forward buying providing partial buffer

  • SAR-driven employee cost volatility

    medium

    Rs 50 crore SAR charge in Q2 as stock rose from Rs 5,475 to Rs 6,300. Adds to earnings unpredictability.

    Analyst depends on stock price; no control

  • Metro consumption weakness

    medium

    Metros contributing 2.4x their share to FMCG slowdown. 51% non-salaried urban workforce with only 3.4% wage growth.

    Management structural issue with housing costs and non-salaried wages; expects eventual normalization

  • Market share flat despite volume growth

    low

    Market share flat in H1 FY25 as being first to take/reverse price increases creates temporary share pressure.

    Management in good place as market leader; onus of price increases on them

Q&A highlights

5 direct
Volume growth sustainability and pricing impact Direct
We are here for the long term... if we feel that the volume is under stress, and we need to be a little careful about our price increases, we will do that.

Management prioritizing volume preservation over aggressive pricing; willing to absorb some margin pressure to maintain consumer franchise

Asked by Abneesh Roy, Nuvama Wealth

RTM 2.0 decile-based approach Direct
The first decile contributes to about 53% of the business... top 3 deciles is almost like 80% of our urban business.

Reveals the power law in outlet productivity; RTM 2.0 is about depth and extraction, not width - a strategic shift

Asked by Avi Mehta, Macquarie

Competitive dynamics during inflation Direct
The only players who've grown higher than us are players who were operating in 1 territory and spread their wings... in their current markets, they are suffering very badly.

Small players expanding geographically but losing in home markets; Britannia maintaining discipline while competitors overspend

Asked by Harit Kapoor, Investec

Urban slowdown thesis Direct
Housing cost in urban and especially in metro areas is about 22% of the total CPI basket weight... 51% of the workforce is non-salaried with only 3.4% nominal earnings increase.

Compelling macro analysis: metros disproportionately impacted by housing inflation and weak non-salaried wage growth

Asked by Presentation / Aditya Soman, CLSA

Snacking portfolio and M&A Direct
The snacking business is all about air displays... we've got to make sure that our distribution system is ready.

Fundamental difference between biscuit (shelf) and snack (air display) distribution; still in extended test market phase

Asked by Shirish Pardeshi, Centrum

2 min read 4 chapters

Detailed narrative

The Double Whammy: Weak Demand Meets High Inflation

Q2 FY25 presented a rare combination: FMCG demand at its weakest (metros near 0% growth) combined with severe commodity inflation (food CPI at 9.2%). Management presented a detailed analysis attributing metro weakness to housing cost burden (22% of urban CPI) and poor non-salaried wage growth (51% of urban workforce getting only 3.4% nominal increases). Despite this, Britannia delivered 8% volume growth - the highest in recent quarters - but revenue only grew 4.5% as the company had not yet implemented pricing.

RTM 2.0: From Width to Depth

Major strategic shift in distribution approach. RTM 2.0 uses decile-based outlet stratification: top decile (1.4 lakh outlets) generates 53% of business, top 3 deciles generate 80% of urban sales. Pilot in 25 cities (44 distributors, 50,000+ outlets) showing encouraging results. Plan to scale to 100 cities and 450,000 outlets covering 85% of Pareto sales. Full embedding expected in 12-15 months. Partnered with top consulting firm. Focus on matching service frequency to outlet potential and right-sizing salesmen allocation.

Inflation Management: Playing Catch-up on Pricing

Britannia entered FY25 expecting deflation; reversed earlier price increases. When inflation returned sharply (palm oil +45% from import duty, cocoa surging), the company was late to reprice. Now taking 4-5% cumulative increase over Q3-Q4 FY25, to be completed by December/January. Forward buying saved 2-3% on commodity costs but couldn't fully offset 11% RM inflation. Cost efficiency program running at 2.5% of revenue will be doubled up.

Business Model Pride: Rs 115/kg and Top Quartile Profits

Management made an impassioned case for Britannia's business model: selling at Rs 115/kg average (comparable to tomatoes/onions) while delivering top-quartile global food company profitability. Reaching 7 million outlets across India with hundreds of R&D staff. Position as the world's most affordable branded food with world-class margins. Used this to frame the current challenges as temporary speed bumps.

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