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    Britannia Industries Limited

    BRITANNIANeutral
    Fast Moving Consumer Goods·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

    9

    • 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

    2

    • Double whammy of weak demand and high inflation

    • Palm oil import duty structural cost increase

    What Changed2

    vs Q3 FY25

    Tone shiftResilient and measured; navigating tough inflation with confidence but acknowledging delayed pricing → Proud but defensive; emphasizing long-term value of business model while navigating difficult quarterGuidance items5 → 3 (-2)

    Key financials

    Single quarter

    12 metrics
    1. 01Revenue₹4,566 Cr+4.5%YoY
    2. 02Volume Growth8%
    3. 03Operating Profit₹707 Cr-12%YoY
    4. 04Profit from Operations Margin15.5%
    5. 05PBT Margin15.7%

    Guidance & targets

    3
    CategoryTargetPriority
    Pricing
    Cumulative price increase
    4-5%
    		High
    Distribution
    RTM 2.0 full embedding
    450,000 outlets across 100 cities
    		Medium
    Margins
    Margin profile
    Maintain current band
    		Medium

    Risks & concerns

    5
    RiskSeverity

    Double whammy of weak demand and high inflation

    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 acknowledged

    high

    Palm oil import duty structural cost increase

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

    high

    SAR-driven employee cost volatility

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

    medium

    Metro consumption weakness

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

    medium

    Market share flat despite volume growth

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

    low

    Q&A highlights

    5

    “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

    2 min read4 chapters

    Detailed Narrative

    01

    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.

    02

    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.

    03

    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.

    04

    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.

    This is an AI-generated summary of a publicly available earnings call transcript. It is for informational purposes only and does not constitute investment advice, a recommendation, or an endorsement. inve.money is not a SEBI-registered investment advisor. Please consult a qualified financial advisor before making any investment decisions.