Britannia Industries Ltd
NSE:BRITANNIA
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Britannia Industries Ltd
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Ladies and gentlemen, good day, and welcome to the Britannia Industries Limited Q1 FY '20 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.I now hand the conference over to Mr. Yash Vardhan Bagri. Thank you, and over to you, sir.
Thanks, Karuna. Hello, everyone. This is Yash from the Investor Relations team. I welcome you all to the Britannia analyst call to discuss the quarter 1 '19-'20 financial results. Joining us today in the earnings call is our Managing Director, Mr. Varun Berry; CFO, Mr. N. Venkataraman; VP Sales and Dairy, Mr. Gunjan Shah; VP Supply Chain, Mr. Vinay Singh Kushwaha; VP Adjacency Bakery, Mr. Jayant Kapre; VP R&D and Quality, Mr. Sudhir Nema; and VP Human Resource, Mr. Ritesh Rana. We will start the call with remarks on performance by Mr. Varun Berry, subsequently, we'll open up the call for questions.Before we get started with the presentation, I would like to draw your attention to the safe harbor statement included in the presentation. I would now like it to pass on to Mr. Varun Berry for his comments.
Hello, everybody. How are you? Welcome to the Britannia conference call. So let me start by going to Page 3, which shows our -- the reflection of our performance in the last few quarters. So if you look at it, our growth in quarter 1 has been 6%. Our 24-month growth is still at about 20% which is at about the same average as we've seen in the last 5 quarters.Moving on to the next page. This is the chart which shows our movement on market share, but between '18-'19 and year-to-date, '19-'20, we've seen our largest growth on market share, so which is the good news. What -- the corollary to this is that the market is growing very slowly, and obviously, there is some impact of the slowing down of the economy, which is coming to FMCGs as well. Moving on to the next chart, which says that our journey to become a Total Foods Company has started, and started pretty aggressively.So getting on to the next page which shows 2 of the categories that we've entered. The first one is wafers, which we've just completed a pan-India launch, and we've become the #3 brand in less than a year of launch, and we are probably the widest distributed today. So with all our -- with the advertising money that we're going to put behind this, we are confident that we'll be able to take this to a leadership position as well. The second category is milk shakes which we launched about -- again, about 8 months ago. And again, in this category, we've become the #2 brand in less than a year of launch. And the good news is that our distribution is going strong and we are getting great response from consumers as well. And this is probably one of our best launches that we've done in a long, long time. The next page shows some of the adjacent categories that we've gotten into. So we've launched salty snacks, which is only been launched in the South. As you would remember, our strategy on salty is to make sure that we do not send our product to very long distances. So we're looking at small lines, and we are going to have small lines which will coexist with our existing lines of other bakery products in various parts of the country. This line, happy to report, has given us great results in the South, and also, we are currently at about 75% capacity utilization. It will take us slightly over a year to make sure that we become a pan-India brand because the second line is going to come up in Ranjangaon and so on and so forth, and we are baking in all the learnings from the launches as we get to the next line and so on and so forth. The fourth one is the Croissant, which is the joint venture that we have with a Greek company. We have a lot of hope on this product, but I must say that we did struggle in the beginning with our manufacturing. Our partner is completely working with us. We had some issues on flour, et cetera, which was imported initially, but now we've found a solution. We are looking at local flour, and we are in a position of producing the best product and ramping up our capacities and getting to a national launch very, very quickly.Now turning to biscuits, which we are looking at, this is on Page 8. We are redefining biscuits from a technology as well as from a R&D standpoint. So we've launched the democratized centrefills, which is under Treat Burst, and this is doing extremely well in the market. We launched Treat Stars, which is like a open sandwich kind of a biscuit with chocolate as well as vanilla cream on the front face. This is again ramping up and doing quite well. Deuce, which we'd launched some time ago has also given us great results. So we are now the cutting-edge as far as biscuits is concerned. We are creating new initiatives within the biscuit category and taking biscuits into the premium range.Moving on to our adjacent businesses. Dairy, as you're seeing, double-digit growth which is coming basically from the milk shake launch that we've done. Bread has been doing very well, not just from a top line but from a bottom line perspective as well. And similarly, international, despite the slowdown in the Middle East, we have -- we've just commercialized our Nepal plant, and we're seeing very good results in Nepal. And as luck would have it, as we've launched our plant, the import duties into Nepal has gone up to 40%. So that will have a major positive impact on our Nepal business. And in line with our promise to enter one new geography, we are looking at another Southeastern -- Southeast Asian country, which we will be launching our product in, in the next 2 to 3 months.All this is happening while there is clearly a slowdown in the economy. We are seeing a slowdown in GDP. We're also seeing liquidity prices with the NBFCs struggling. We've seen stress in the rural economy, and obviously, a reduced real income from agriculture. So there is a stress, but we are absolutely sure that the government is going to address it, and hopefully, within the next 6 months or so, things will start to look much better for the economy and also for FMCG [ companies ] in terms of growth.Moving on, our sustained execution continues. We continue to drive distribution. We have now gotten to a direct reach of 21.3 lakh outlets. We've got about 19,000 rural distributors. There is a steady increase in our numeric distribution as measured by Nielsen, and our growth in the Hindi belt, it's not happening as per our plan from a revenue growth perspective, but our market share growth continues. And I do think that even the growth will start to come back because there, it's not so much about what is the growth in the market, but it's all about market share growth. Moving on to the next page. We have now a new employee-value proposition, which is about the 4 TINGS. It's about InviTING, which is making sure that whoever comes to Britannia is welcomed and is provided all that's required to make his stay at Britannia comfortable. Second is about IgniTING, which is about fueling the hunger, making sure that the culture of innovation & young managers' council, et cetera, becomes a very essential part of what we do at Britannia. The third one is CreaTING which is about building enriching careers for people at Britannia, which is that whole credo of Britannia for Britannians that we have been embracing for a long time. And the last one is RespecTING, which is about doing the right thing, integrity and doing good for the community, et cetera. And the good news is that we were ranked amongst the top 15 best employers by Forbes-Aon Hewitt survey in 2019, and I think this is something that we at Britannia are very, very proud of.Moving on to the next page. While we saw a slowdown in this quarter, in fact, even in the previous quarter, we've started to see signs of a slowdown, but we took a concerted call that in a situation like this, it does not merit cutting back on our advertising and sales promotion expenses because what is required by a market leader in a situation like this is to make sure that we excite the consumers about the category.So we have continued to spend money. As far as advertising is concerned, we had a very strong Britannia Khao World Cup Jao promotion which happened during this quarter. Besides that, we had a lot of other activities which we are hoping that this will start to stir the market and get the category growth to go beyond what they are today.Next page is about our cost-efficiency programs. While we have continued to spend money on advertising and sales promotion, we also understand that these are not normal circumstances, and hence, it's very important for us to tighten our belt. So we've gone -- we are looking at even more cost efficiency from what we were looking in the past. So while our budget is INR 265 crores this year, we are looking at other savings as well, as we go forward. So we are making sure that from a cost perspective, we really, really tighten our belt.On to the next page, which is about commodity inflation. The commodity inflation for us is at a moderate 4%, and this is basically because we've taken some long positions on certain commodities like flour, which has helped us. So the flour prices have gone up considerably, but for us, it looks like inflation of 11%. Sugar is almost flat. There is a deflation as far as RPO is concerned, and there is an inflation of 10% on milk. This, again, if you look at the actual inflation will be much more than this, but for us that's the number because we did take some long positions as far as SMP and butter was concerned.Moving on to the next page, which gives our financial numbers. So if you were to look at it now, just a caveat here, these numbers are without the exceptional item, which is about INR 16 crores, which we have given to a subsidiary for VRS program that we are doing in one of our not-so-efficient plants in West Bengal. We want to close that plant and want to make sure that we save some costs in the long run by getting the production to more efficient plants. So these numbers are without that INR 16 crores, which is the exceptional item for this quarter. But if you were to look at it, our growth, as far as profits is concerned, is a very modest 3%. But if you were to look at the 24-month growth, it is still at 23%. But I would say it's certainly lower than what we've seen even from a 24-month perspective, in the last 4 quarters. But it's all about the top line, and we are hoping that we will get back to our top line growth as the economic conditions in the country improve.So that is all from me. We will now like to -- well, there is one last slide which I'm sure you must have gone through, which is the key financial lines for the consolidated business, still looking good. So that's all from me. We'll open the house for questions now.
[Operator Instructions] The first question is from the line of Rajesh Kothari from AlfAccurate Advisors.
I have 2 questions. First is, with reference to the new businesses in which we are entering with wafers, milk shakes, dairy business and other 2 segments. How do you see return on capital employed on these segments over a period of next 2, 3, 4, 5 years? Do you think it will lead the ROCE of biscuit business in which presently you are in? That's the first question. And once I get you through, I'll ask second question.
So all of the categories that we are entering into have gross margins which are accretive to our overall biscuit gross margin, so that makes the payback reasonably good. So we are looking at a payback of about 4 years for the capital that we're employing, and as I said, the gross margins now are fairly good for most of the products. And in fact, some of them are without capital at this point in time. So for example, milk shakes, there is no capital employed. Also, for wafers, there is no capital employed. So we are looking at building this market and then making sure that once we get to a certain scale, then we start to put capital. But yes, even where we are putting capital, the paybacks are reasonably good.
No, sir. My question is from 5 years perspective, when you look at your current business -- biscuit business and you look at the gross profit you've invested in biscuit business, whereas the new businesses what you are doing particularly on the dairy side and others, don't you think that the required capital employed would be higher and -- while it will mean higher gross margin, but might be lesser return on capital employed?
No. But that's what I'm trying to tell you that on the dairy business for the milk shakes, we've employed no capital at all. It's all third party. Our manufacturing is done by a third party. Similarly for wafers, we started the business with a third party. We are, in fact, 2 third parties, who are making our products. But yes, even if we were to employ the capital today, which we are not doing, we will get a payback in 4 years. So we've done the numbers, but we've still said that the times are tough, so in certain categories we should make sure that the capital is employed at the right time.
Okay. My second question is with reference to -- in the fourth quarter, there was a [ treasury ] which was given to the associate companies, would you like to give some color on that? That -- how is that number in [ first quarter ]? Was there any repayment from that entity? And where that number currently stands?
Yes. So there has been repayment. We've got INR 185 crores back from one of the companies. So it's down from INR 685 crores to under INR 500 crores now.
And any further plan to reduce that further?
Yes. So I -- we have a payback plan, so we are working on that. And hopefully, another INR 250 crores will come back in a year.
The next question is from the line of Sameer Gupta from IIFL.
Sir, just a follow-up on the inter-corporate deposits because as in the -- that earlier participant, sir, do we, as a company, have a policy as to ICDs to group companies or related parties has to have a cap on these at any point of time?
Yes. There is a cap. There is -- Venkat, would you like to comment?
Yes. So all these proposals go through the finance committee of the company and is in line with the treasury policy of the company, right? We mentioned the last time also that it is not likely to go beyond the numbers that currently are there. So that is the policy, and we are progressively looking at bringing this down.
Current numbers as in the INR 500 crore number?
Yes.
Okay. So -- okay. And this is, as on date or during the year, any time it cannot go beyond INR 500 crores?
It'll -- at any point in time during the year.
Okay. Great, sir. And sir, my next question is that, when I look at the subsidiary performance implied through when I do a consolidated minus stand-alone, I see a 70% decline in EBITDA this quarter. I understand there is some inflation in milk and that might have driven some of this. But any other factors that is -- are impacting the performance of the subsidiaries?
PAT for subsidiaries last year was about INR 12 crores, which is in this quarter INR 1 crore. So that is the number that you're referring to.
Correct.
The drop of INR 11 crores has been on account of 2 entities. One, as you rightly said, the dairy business, with the milk price going up, the impact has been about INR 5 crore for the quarter. The second one is the BritChip entity. It started operations only in this quarter, and the initial ramp-up costs have been booked, whereas the revenues are yet to come in. So these are the 2 -- BritChip.
The Croissant business, the joint venture that we have with the Greek company.
Got it, sir. Sir, and the last question, sir, all these new categories that we have gotten, let's say, the last 3 years, can we get a number to it as to how much did they contribute currently to our sales?
So between the 4 categories that I spoke about, it will be approximately -- what will it be, Venkat? New categories will be 2.5%.
2.5%.
Yes.
The next question is from the line of Anusuya Lahiri from Stewart & Mackertich.
My question is, what is the volume growth reported by the company during this quarter? And I would also like to know impact of the Andhra Pradesh warehouse fire on the financials of the company? That's it from me.
Venkat?
So the price versus volume is about half and half. And the warehouse fire is -- it's insured, so we are hoping that insurance will come in handy at this point in time. So I don't think there's going to be any impact on the financials of the company.
Sir, can you kindly elaborate on the volume growth, as in their timing, as in half and half?
Of the 6% growth that has happened, between volume -- volume, mix and price, it's been half and half.
The next question is from the line of [ Devansh Kapoor ] from [ Ambit Trade ].
My question is on the margin, sir, that we have reported this quarter. Sir, if I see quarter-on-quarter, there has been a shrinkage in your gross margin by about 80 basis points. So would you attribute this entire decline to inflation? Or has there been some other factors that has driven this slippage?
So this has been on account of 2 things. One, commodity prices has accounted for 50% of that. Second is that employee cost increase in terms of increments has accounted for the balance 50% because between the increment that is done and the top line growth, there has been a gap. So you should see -- usually what...
Sir, I was talking about the gross margin. So gross margins, which would be basically your turnover minus material cost, so that has declined by about a percentage between quarter 4 and quarter 1 of this year. So this is entirely attributable to inflation, which means, sir, you had more than 1% -- more than 2% inflation sequentially, is it?
So this has moved from 59.5% cost to 60.1% cost during this quarter which is a 0.6% in terms of gross margin.
Are they -- okay. So there has been no mismatch on account of this purchase of trade goods which we earlier used to...
No.
Book in other overheads, et cetera, right?
No, no. That is not there at all.
And sir, also [your financial cost] for the quarter has shot up quite significantly from the levels of INR 30 lakhs odd. This is around INR 8.5 crores to INR 8.3 crores for the current quarter. Is this on account of [some Ind AS adjustment] that was done in the quarter? Or any structural change in the debt equity pattern of the company?
Yes. No, we borrowed about INR 500 crores in the month of April primarily to fund purchase of wheat. During this quarter, we have bought almost INR 700 crores worth of wheat, covering our requirements till almost the third quarter. So therefore, you will see the finance cost coming in now.
Okay. And the employee benefit is concerned, is on account of promotion, increments?
Increments. Yes, that is right.
The next question is from the line of Mohit Khanna from Future Generali India Life Insurance.
Sir, my question relates to the purchase of wheat that you just spoke about, which I believe is somewhere around 25% of the total costs, and you indicated that you have already purchased till -- for the requirement of third quarter. So what is the primary reason? Because the prices have been increasing, did you want to hedge this? And the second question is on competition, so after that, I'll ask again.
Yes. This is primarily for hedging against increase that we are anticipating will happen in wheat price, and it has happened actually. So we purchased it and actually the prices have gone up, so it's beneficial for us in the long run.
Okay. Also, on the competition side, we see many other players like especially Amul who is also getting aggressive and we are seeing a couple of ads floating around. So what's your take on this? And how do you see yourself better placed? Or what would be -- your strategy would be to take on the competition, especially on the organized players like -- from the organized players like Amul?
See, you can make biscuits with whatever raw materials you want, right? But in India, it's all about what price you sell the biscuit at, right? I can make a gold-plated biscuit, which can sell for INR 10,000 for a biscuit, but the fact is that there has to be a certain threshold price that the product is sold at. So I do think that our products are -- they bring the balance between quality as well as price, as far as consumers are concerned. And that's why we've -- we are and we continue to gain share even as a market leader. So while it's always good to have premium products, we have also seen in the past that if you go past a certain threshold then it becomes very difficult to sell your product. But we are -- that's not -- I'm not pointing a finger at anyone, I think they've got their strategy, they want to go with that strategy because they are a milk company, and we will watch them. If we see that there is some traction there then for us to make that kind of a product is not difficult.
The next question is from the line of Dhaval Dama from Equirus Securities.
Sir, just wanted to know that if you look at it -- I think that would be great if you can give some color on what's happening in the industry in terms of trends? So which category would be growing faster? Whether health is growing faster? And how do you see it evolving over the next 2 to 3 years?
So again, it's about segments and segments. So what's happening today is very clear. The -- if you look at where the turmoil is, the turmoil is at the grassroots. The turmoil is in rural, the turmoil is related to agriculture. So because of that, the issues are happening in the value segment, right? So -- and obviously, it's affecting every segment, but the biggest issue is happening in the value segment because that's what sells in those markets. But if you look at what are the trends, there is a certain very small sliver of the population which is, obviously, looking at healthier products. So we have to start to cater into those as well because today, they might be a sliver of the population, but over a period of time, they're going to grow. So we are starting work to make sure that we look at working on product which are protein, which are gluten free, which are whole wheat, which are seeds and nuts, and et cetera, et cetera. So that's something that we are looking at, and we will develop. The second thing is that modern trade and e-commerce is outpacing the market and on modern trade and e-commerce, the products like I just mentioned, do sell a lot. So if we have to keep pace with that as well, we have to have these niche products which are sold on certain channels. So our strategy is being developed to make sure that we do not leave any segment, any channel, to chance, and we cater to every possible consumer within the industry that we operate in.
And sir, my second question would be mainly on your dairy portion of the business. I think that where you were initially saying that the plant would be fully commissioned and operational by the end of FY '20, and I think that migration on WINKIN has also been stepped up quite a lot. So would like to know what's the sense on the business? How do you want to see it evolving over the next 2 to 3 years? And are we on track for the FY '20 thing in terms of plant?
No. I didn't -- no, we never said FY '20. It's probably going to -- I've always said that it's probably going to take 24 months, 18 to 24 months. So I think it's looking more like '21, right, at the last quarter of '21 because our people are making sure that every possible due diligence is done on equipment, on process and all of that. So we've got the team together. Now they're working on it. So I think it's more -- looking more like -- I think our own plant is looking more like '21 and not '20.
The next question is from the line of Naveen Trivedi from HDFC Securities. [Technical Difficulty]
Is it audible now?
Yes, sir.
Sir, considering new launches have done well for you, and we expect that the volume growth of biscuits were around flat this quarter, is that understanding right? And if you can also share the -- what is the [ industry growth rate ] for biscuits in the last 6 months?
So it's easy to calculate. If we've -- we are 1/3 of the market and we've gained almost 1.3 share points, and we've grown only 6%. So obviously, the market is growing slower than that. So that's a little bit of a worry because even INR 5 product, if the consumer is thinking twice before buying, then obviously, there is some serious issue in the economy. But it's always easy to put everything on economy. The fact is that we are market leaders, we have to make sure that we get this issue out, and we figure out what is the way of growing this market. So I think the issue with most companies, including ourselves, is that while we've become very good at gaining share, we still haven't figured out the formula of showing growth in the category itself. But in this case because the issue is becoming -- is looking tough at this point in time of market growth, we will have to make sure that we take on that leadership position to get this market to grow again. And I'm sure that other players like Parle and ITC are also looking at the same, and they will also do things to rejuvenate the market. And in the next 6 to 8 months, we will start to see this coming back.
With respect to improvement between, let's say, April, May and June months, and like right now, July also ends, so have you seen any improvement month-on-month basis?
We can give a forward-looking outlook, but there is a slight improvement, but it's not like a dramatic change from what it was.
Okay. And with respect to your Hindi belt performance, you mentioned that this has been sit on a lot because continuing the [ release upon this ] space, would you like to comment on like what is the deceleration that we have seen in the Hindi belt?
The deceleration in Hindi belt?
Yes.
Yes. So what's happening really is that, earlier, till about a year back, what we were seeing was that the rural market was outpacing the urban market almost by 1.5. So if urban was growing at 1, the rural market was growing at 1.5. What we've seen now is that the rural market has started to grow slower than the urban market, and the urban market itself has slowed down. So I think also, if you just go back a year, we had some competitive issues from our competitor's standpoint, and we've taken full advantage of that because the competitor was inadequately available. We've taken full advantage of that. So our base is also very high because of those reasons. The last quarter of last year, we -- our base was quite high. So we are hoping that as this comes off, and we start to cycle the right base, this will start to become better. So Hindi belt today, I think, is growing at a very small rate and exactly the same as what we are growing as a company, but we're already seeing signs of that coming back.
And can we assume that the urban, rural growth for you was similar this quarter?
Yes.
And with respect to...
This is the operator. Mr. Trivedi...
Just last question.
Can you please rejoin the queue? We have several participants waiting in the queue. The next question is from the line of Alok Shah from Edelweiss Securities.
I have 2 questions. One is with respect to this impairment cost in the stand-alone financial of INR 16 crores, that will be pertained to which subsidiary? And is there something follow-on that can happen in the next quarters? And secondly, would you like to call out specifically the ad spend? And if any, Ind AS 116 impact?
So for the impairment is concerned, it relates to the factory in Calcutta. It is for the VRS that we have done there. So the investment, it has happened in the form of capital infusion from Britannia against which we have taken an impairment in the stand-alone, yes? So this -- we have covered most of the employees. There are still about 40 people for whom the VRS is still to happen. So that was the first question. What was the second question that you had?
Second was, what were specific ad spends this quarter, especially because we ran a very high promo with respect to world cup. And following with that was the Ind AS 116 impact because other expenses also are up and rent should typically go out. We understand that for you guys, it would be a limited impact, but just wanted to get a sense.
Right. So A&SP spend for the quarter has been about INR 130 crores. This is excluding sales promotion and trade spends versus -- this is comparable versus last year's spend of about INR 107 crores, so far the A&SP is concerned.
This is the advertising.
Advertising.
Sir, the advertising amount this quarter has been INR 130 crores versus last year, same quarter at INR 107 crores.
And we have had no impact of Ind AS 116.
The next question is from the line of Richard Liu from JM Financial.
Varun, just want to know -- for a company like yours, which have -- traditionally have been able to drive growth through your own internal initiatives, right, I mean, portfolio gap bridging, geographical mix, looking at Hindi belt, et cetera, et cetera, why do you think -- and in the category as people -- as biscuits, why do you think the slowdown has hit you particularly hard this time?
Yes. So I'll tell you, we've never seen this kind of a slowdown, first of all, in the category. We have been always saying that we would like to see a double-digit category growth, et cetera, et cetera, that never happened. In fact, this slowdown which has taken the category growth to almost 1% or 2%, has never happened before. So while we are outpacing the market by a large number and probably the largest that we've seen till now. Previously, what used to happen was that market would grow 7%, and we would grow 10%, 11%. But this quarter, what's happened is that the market is growing at very, very low pace, and we are outpacing it by a mile, but still not able to get to a number which we aspire for.So that is, I would say, the issue. Now why the issue is the question, which I think, guys like you can answer much better than I can. But what I would think is that with -- I don't think the NBFCs and all of that affects sale of a INR 5 biscuit. What affects a sale of a INR 5 biscuit is what the consumer feels about where they are at. And if you look at investment vehicles, whether they are real estate, in India, a lot of people have invested in real estate in small ways and large ways and big ways, all of that, whether it's real estate or it's the stock market or any other investment vehicle that you look at it, everything has been trending downwards. So consumers have been feeling a little stressed about the fact that they used to be worth a certain amount and that has come down fairly dramatically.And as a result of that -- and that's my hypothesis by the way, as a result of that, they are going very easy with consumption. And I think till that feel-good factor comes back and investment vehicles start to power back, I do think that this slowdown is not going to go away. It might ease up a bit. It might not be as dark as we've seen it to be in the last 2 quarters. But I don't think it's going to completely go away in a hurry.
Okay. And Venkat, if I look at consol minus stand-alone, I see a revenue growth of about 12% -- decline -- sorry, a revenue decline of 12% for consol minus stand-alone. But Varun, I heard you say that both dairy and international have grown pretty well. So how does one reconcile this number?
So I'll explain that. Dairy business is split under 2 legal entities. One under the BDPL, which is a subsidiary. The fresh dairy, including the drinks that we have launched, is appearing as part of Britannia; therefore, the disconnect there.
So the drinks are -- the milk shakes under Britannia, the yogurts are under Britannia and so that's the bifurcation. So all the growths from that are coming under Britannia.
Britannia. Similarly on the international side, there is a India export that happens out of India, which is coming as part of Britannia numbers. And the one that happens from the Middle East comes under the subsidiary. So because there is a switch in terms of manufacturing from out of India on account of a disruption that was from Middle East factories. The numbers on export is also happening out of India.
So let me explain this a little better. Basically, what happened was that we have a factory in Oman, in a town called Sohar, and that was getting to be a little inefficient for us. So we decided that we will shut that down, and we'll move that factory to Dubai because the cost, et cetera, were much better there. So we planned to do that and we scaled down our production, and we'd started to send product from India, which obviously sits in our Britannia books, right? Then what happened was that the government started to talk to us and they gave us pretty good incentives which made it worthwhile -- the Oman government, which made it worthwhile for us to stay there. But this is the period when that disruption happened, right? So you will see a lot more coming into -- of the international business coming into our Britannia numbers and not in our subsidiary numbers.
Okay. And one last one, if I may. If -- I'm just referring to Chart 14 regarding cost efficiency targets. If I look at earlier period, you used to have a pretty steep jump in these numbers from one year to another. And from FY '18 onwards, I mean, FY '18 and '19 numbers are the same, I think '19-'20 again are -- there's a very small jump compared to what it used to be earlier. I recall you used to say earlier that [ incremental cost savings ] is almost like an endless game, right?
Yes.
What has changed here?
So first of all, we had scaled it up to pretty rapidly from '13-'14 to '17-'18. And what we've taken for ourselves is a target of 2% of revenue, and that's what we operate with every year. So as a result of that, once you get to a certain level -- so we've been ramping up from last year, it was, I think, INR 230 crores, we are now looking at INR 265 crores. So if you look at the 4.5 or 4.7 that's written there, you will not see a big improvement. But there is -- what are you saying?
Increment.
Yes. So it's all -- and you also got to remember that this is not -- the meter starts on 1st of April and stops on 31st of March, right? This is all incremental savings that we bring to the table. So whatever the savings are, whatever hedge the savings are for the previous year, they continue in our base business, and these are all additional savings that we bring to the table.
The next question is from the line of Harit Kapoor from Investec.
Just 2 questions. First one is on the slow growth in the category. Just wanted to understand, over the last, say, probably 6 years that you've been with Britannia, have you seen -- I mean, now with level of slowdown, how long does typically a slower period of growth take to recover? I know no 2 periods are the same. But just wanted to get your sense of it seems to be a partly discretionary category in terms of impulse. How long will this --typically does it take to recover? Is it 1, 2, 3 quarters based on your experience?
So my own feeling is that we will see a slowdown for 2 or 3 quarters and the market will start to come back slowly. We will -- our new products, our new ventures, our new categories that we've gotten into will also start to give -- contribute to our overall business. So I would say that maybe starting Diwali, it'll probably be 3 or 4 quarters before we start to see the business coming back to levels that we were at before that.
Right. So the second thing was on the cost side, so you said that you've now bought some more wheat and we are covered for Q3. I was wondering what your expectations for inflation which is about 4% in this quarter, do you see that going up on some of the older wheat covers and the other products tend to go away?
Not really. See, wheat cover -- it's not that we just do a certain cover, we obviously look at when is the new crop going to come into the market. So we keep doing the strategic covers when the time is right. So it's not that enough...[Audio Gap]
Excuse me. This is the operator. There seems to be a disconnection from the line of the management. We request you to please stay connected while we reconnect them. Ladies and gentlemen, thank you for being on hold. We have the management reconnected. And sir, we have Harit Kapoor in the question queue.
Yes. Yes, Harit. So I was trying to answer your questions. So it's not like we take onetime cover. We -- whenever we find the right opportunity, we take the cover. And we -- obviously, there is going to be some correction as we go forward as well because there are lots of mandates which are there in the market. Hopefully, those mandates will go away and some more sanity will prevail and demand and supply will play the game of economics and not just controls, et cetera. So I think things should become much better from a commodity standpoint as we go forward.
So lastly was on the price increases so you've -- I mean, the price increase impact was about 3% for the quarter. Has that been -- you've had some cash [ increment managed in Q1 ], how do we see that?
We did a very small number in Q1, but most of it is flow-through from a full year factor of last year.
The next question is from the line of Kuldeep Gangwar from ASK Investments.
This is regarding the Chipita JV, so as you mentioned there was [ about ] INR 5 crore costs related to the same. So whether continue to expect the similar loss rate in coming quarters? Or how to expect about it?
No, no. This was -- see, when you start-up a company, there are some costs because there was a team which was working on this for a long time, so the costs were diverted this quarter and some R&D work and all of that was happening. So all those costs, we think, came into play this quarter, and there was no revenue, so we were -- very little revenue. So once our products start to be sold in the market and revenues start to grow, there will be, obviously, sanity in this P&L. But it's a new category, we'll have to establish it. So it is going to be -- while the gross margins will become stable and good, there will be investments required to take this category forward.
Consolidation is done through equity method or its revenue also consolidated for this JV?
So revenue is consolidated. Loss, we take only 60% of.
Okay. And second bit, regarding this -- you mentioned you borrowed INR 500 crores for wheat. So is it fair to assume like in coming quarters, the debt will keep on coming down and this finance cost will also coming down in coming quarters?
So we have borrowed for a period of about 9 months. So by end December, it should be out of our balance sheet.
Okay. And last bit, like plant shutdown-related costs fully provided for? And what was the name of the subsidiary you mentioned for impairment of this [ event ]?
So this is a GVF.
Ganges Vally Foods. It's a little distance away from Calcutta. It was inefficient plant with the highest costs amongst our plants. And it was very small with very old lines, et cetera. And we had a fair number of workers there, who had been there for a very long time. So it was best that we looked at a technologically superior plant which gives us product with the right costs and the right efficiencies.
So cost is fully provided for, like whatever this one-off is there or it can come into upcoming quarters as well?
So which is what I mentioned some time back. So most of the employees, we have done the VRS, once again, we provided for it. There are about 40-odd employees who are still there. So the cost in the coming quarters as and when it happens, we'll...
It's a very small number. It won't be as large as what we've done in this quarter. So there might be a small number as we go forward.
The next question is from the line of Rajesh Kothari from AlfAccurate Advisors.
I had 2 questions. One is on product mix, would you like to give some more detail on that? Because while your realization growth, you said, is 3% but is it due to -- the more -- due to the product mix. And currently, in case, if you can give a little bit -- what is your -- how is your product mix trend? That's question number one. And question number 2 is, I'm sure this was probably one of the highest borrowing number in the recent years. So from a treasury committee perspective, considering that our raw materials has such volatility, they are -- makes you dependent, do you think that the treasury committee had -- there should not be any investment into any company or any instrument whereby it's not liquid in nature because on the one hand, [ to be with debt ], and the other hand, we have investment somewhere. So will there be -- in the future, is there kind of a stringent committee and stringent policy getting laid out?
Yes. So the working capital requirement, like I mentioned to you, is a short-term requirement. This is as and when we go and buy commodity, nonstrategic. Okay? So these get covered by a short-term borrowing, which is typically very competitive. So there is...
No. I understand. I mean there's no doubt about it. Being Britannia, it will be competitive and the cost would probably be lowest on the street, I completely appreciate that. But I'm saying the risk management policy, considering that raw material is volatile, I'm saying from the government and from treasury committee perspective, whether there is a thought that you should not make any investment which is probably not liquid or liquid, let's say, thing that can call whatever -- whenever and whatever is. I mean tomorrow if there is a acquisition opportunity, when you say INR 1,000 crores, but if you have investment in this, I think you have to borrow in the market. On net debt basis, you're right, but as a treasury committee, don't you think you would be better to have a right [ investment ] policies and work in place?
We have a right balance of liquid and not so liquid investments. The reason is that, typically, the yields on funds were quite low. The yield on slightly long-term instruments are a little better. We'll have to balance between need for liquidity and need for returns. That's the kind of fine balance between need for liquidity and need for returns. That's the kind of fine balance that we need. Investments are primarily for day-to-day operations, and these kind of strategic [ covers ] that we go for, they better be -- this is the decision of the committee also, that these are typically met out of working capital borrowing that we do for a short period of time at very, very competitive rates.
Okay. My only feedback would be, of course, I'm sure even you would be aware that the market environments are becoming very, very challenging and demanding and the best of the companies like Infosys, they decide to put into 100% into liquid and kind of, let's say, instruments, that gives lot a confidence, and what I would say, lot of unnecessary rumors and -- can be avoided. And at times, a low-yield market gives us significantly higher than the initial value in the corresponding yield. So that's only my feedback. Of course, I'm sure management is competent enough to pick that -- such costs if required.
No, no. But thank you for that. I think that's a very good advice. While we do that, we will make sure that we put more emphasis on that because you are absolutely right, times are challenging, and we have to make sure that we go with 0 risk at this point in time.
And second question is on product mix, would you like to comment on that?
The product mix. So basically, if you look at versus last year, so just one point. As I was telling you, last year, one of our major competitors had a problem in terms of meeting the demand of one of their largest brands, and as a result of that, our cookie business was growing at in the first half of last year at about 70%, 7-0 percent is what our cookie business was growing at in the first half of '18-'19, and that has become our base. So what has happened is that there is -- we've seen a flat cookie business on a base which is that high, and obviously, this base starts to change as we go forward, yes. So basically, in that category, which is the value category of cookies, we certainly are now at a growth rate which is reasonably small compared to what it was last year. So that is one of the issues. And that -- as a result of that, the mix has changed more towards the premium categories that we sell today. But it's a matter of time. It was an opportunity last year which has come back to become our base this year. And we are hoping that as we move forward, this will all come back to -- used to be in [ the new ] mix.
So currently, between, say, mass, core and premium, I don't know how you define internally, how -- where do you see the product mix currently? I understood that last year there was one-off there, that's not a problem. I'm saying from product mix perspective, where is this currently? And how do you see that over next 3, 4, 5 years?
So actually, the product mix is very good at this point in time. What we are seeing is a fair amount of momentum for our premium categories and a slowdown as far as our value categories are concerned. So it only helps us from our overall mix standpoint. So -- but it'll normalize because the low unit price packs, which I was talking about, the low unit price packs for our cookies had a very high base, so it'll get normalized. But what we've been seeing for the last, even 2 or 3 years is that the value part of the portfolio is growing much slower than the premium part of the portfolio.
Sir, and it will continue. I mean do you expect that kind of thing to probably continue? So your premium would be what, 35%, 40%? Or I mean any ballpark number which you would like to put as a mix?
It'll be -- so our premium part of the portfolio will be almost 65%, growing 20%.
It is growing faster than value.
Yes.
Ladies and gentlemen, this was the last question for today. I now hand the conference over to the management for their closing comments. Over to you.
Yes. Thanks, everyone, for spending time with us on this call. We look forward to interacting with you again.
Thank you.
Thank you very much, members of the management. Ladies and gentlemen, on behalf of the Britannia Industries Limited, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.