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 '21 Earnings Conference Call. [Operator Instructions] Please note this conference is being recorded. I would now like to hand the conference over to Mr. Yash Vardhan Bagri. Thank you, and over to you, sir.
Thank you, Janis. Hello, everyone. This is Yash from the Investor Relations team. Hope you all are keeping safe and well. I welcome you all to the Britannia earnings call to discuss the quarter 1 2021 financial results. Joining us on the call today is our Managing Director, Mr. Varun Berry; CFO, Mr. N. Venkataraman; Chief Commercial Officer, Mr. Gunjan Shah; Chief Supply Chain Officer, Mr. Vinay Singh Kushwaha; Chief Development and Quality Officer, Mr. Sudhir Nema; and VP Procurement, Mr. Manoj Balgi. 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 pass it on to Mr. Varun Berry for his comments.
Good afternoon, everyone. Welcome to the Britannia conference call.So let me just jump into the presentation straightaway. As all of you are aware, this quarter started with a lot of uncertainty and significant challenges. Moving on to Page 4. And clearly, there was some spectacular work done by a lot of people in the country, not just in our country, but across the world. So especially thanks to the health workers, our employees as well who did some exemplary work, and I'll come to some of that. Our business partners, our vendors and our customers. So a big hand for all of them who really helped us navigate through these times. These times were very, very tough, especially for some of the migrant workers who were stranded in cities and were not able to go home. So the team came together and we offered them help. And this was in different ways. There were hot meals, there were grocery kits. And there were bakery packs, which were done personally by the Britannia and the group company teams. So a big thank you to all of them who made that possible as well. Moving on to Page 6. The most important thing for us during this time was safety of our employees. And hence, the entire bit of protocols within our offices as well as in our manufacturing units were put in place. And we just made sure that none of these were bypassed. So we were very, very clear that even if we were to take a backseat as far as production was concerned, the protocol would stand. So -- and frankly, if you think about it, the brave Britannians made these -- converted these challenges into opportunities through their sheer grit, I would say. And coming to the next page, which is Page 8, some of the things that were done during this period. So from a sales and marketing standpoint, rural reach, obviously, we understood that urban was getting more impacted than rural. So we started to get after rural and started to make sure that we were able to expand reach and we were able to do that. Direct reach obviously took a tumble for the first 2 months, but we were back much better than where we were in February. We did a lot of direct telesales, SMS blasts, distributor point pickups. We did retailer surveys sitting in our homes. We focused on digital campaigns to make sure that we were reaching the consumers wherever they were. From a manufacturing standpoint, we were able to start factories much before anyone else in the industry. We were able to ramp up our volumes. We got production prioritization very clearly put in place. We slowly but steadily improved our productivity within our plants.People worked around the clock to make sure that everything was working very, very well. We added new capacities where required through contract packers. Even from a distribution standpoint, we made sure that there was no hockey stick towards the end of the month. So complete linearity in billing through the month. Calls every day. We were all connected. We all knew what was happening, what were the areas that we need to focus on. We serviced the entire requirement with very, very low inventory. And we started to do direct sales from our factories to make sure that the transit time, et cetera, was reduced and even the costs were reduced. From a procurement standpoint, it wasn't easy as well. There were -- obviously, we buy a lot of raw materials and getting all of them in the right measure to the right factory was critical, and it was very difficult as well during those times. But our procurement teams just did fantastically well to get the availability going. And obviously, the support functions did really well to make sure that everything was being monitored and supported through this period. The next page, it was pure passion that was seen during this period from all of the Britannia employees. Some of my favorite stories are on this page, our area sales managers, finance managers, HR managers, purchase, factory, customer service, all of them, just getting together and doing some exceptional work to make things work and to make sure that the business moves in the right direction. The results of what we were able to achieve are on the next page, which is Page 10. So our revenue grew by 26.5%. Our operating profit grew by 91%. And our profit after tax grew by 117%. So operating profit was 19.8%, went up by 670 basis points, and PAT was 16.1%, going up by 675 basis points. We also focused on our strategic plans to whatever extent we could. You've seen the strategic plans, distribution, marketing, innovation, cost focus and developing adjacent businesses and obviously, striving for profitability. Just a few indicators on that. From a distribution front, as I said, we had dropped from 21 lakh outlets direct distribution to under 20 lakh in March. But slowly, steadily, we moved that in the right direction. And now we are -- in June, we are back to 21.5 lakh outlets. Rural distribution, again, it had come down from March to April. But in June, we are back to 22,000 distributors -- rural distributors. So that's moved up as well. If you look at our marketing efforts, we were optimizing our marketing efforts because we didn't have enough products to be put into the market. So we did just products where we had the right product as well as the inventories with us. Marie Gold, which was ongoing promotion, its done really, really well for us. Marie Gold is, today, I would think it’s become -- this property we own for the last 3 years. It's about supporting the woman entrepreneur in fulfilling her dreams of starting a business. And here, we'd partnered with some government agencies as well. So we went through with that and with great results.There were 10 winners of 10 lakhs each. 10 lakhs were invested in their businesses for their dreams to come true. So this has become a property that we are going to support on an ongoing basis. Besides that, not in the first 2 months, but in May and June, when we started to get some product in for NutriChoice, Good Day and for some of our cream products, we started to support them from an industry standpoint, and that started to give us good results. The next page, Innovation. Innovation results, frankly, are not bad at all. We pretty much did our innovation numbers for this quarter despite the fact that innovation was not a priority. And we did deprioritize some of the products which were -- which required smaller runs. But despite that, our innovation numbers were reasonable, and we were able to even launch 2 new products. We've launched Lassi in 2 flavors. This is not pan-India right now. It's just going pan-India as we speak. We started with the East, moved to the North, and then we moved to West and South. We also did Layer Cake (sic) [Cake Layerz] INR 5, which again started from the East because East is the biggest trade market, and we are spreading this as well across the country. Both of these products have had a very good response despite the circumstances with people not going out, we've seen a very good response to both of these products. And then finally, on a -- from a cost control standpoint, there were quite a few things that we focused on. And clearly, there was some cost increases that had happened due to the overall environment. So safety requirement, et cetera, was an additional cost. Shortage of manpower was creating a situation where we had to give incentives to the manpower, which is coming and running our factories. Vehicle availability was an issue, and hence, there was a premium that we had to pay to transport our product from our factories to the depots, to the distributors, et cetera. So there were some additional costs. But there were areas which we optimized on. So one was the mix. So we used the 80/20 rule. And 20% of our brands were in SKUs, which give us 80% of our total revenue, were focused on. And that gave us not just better productivity and better manufacturing capacity, but it also gave us a lot of efficiencies in terms of the factories and the distance traveled by the product, et cetera. So that was the first thing that we did.Now we are back. We brought in variety once again, but during the first 2 months, 2.5 months, we had to prioritize. So the priority went to the premium segment, which was Good Day and our cream products, Milk Bikis, Marie and the Digestive NutriChoice. So those were the ones that we prioritized. And these were all high throughput variety. From an efficiency standpoint, we did linear billing through the month, as I've already spoken about. Distributor stock reduction to almost half of what it used to be. Low distributor attrition because, obviously, the distributors were at this point in time, with lower investments, making better returns. So we hardly had any distributor attrition during this time. We reduced our market returns. And in fact, they were almost 0 during this period. Also, we reduced advertising and sales promotion spend because we didn't have enough product to feed the market fully. So till the time we started to get full products, we optimized on that as well. From a back-end standpoint, we had 0 stock write-off which is impossible to have in any business. We reduced the distance to market by -- in the first month, it dropped considerably from 370 kilometers to almost 320 kilometers. It's again slowly going up as we start to make variety. But it was just something which helped us optimize our business at that point in time.Direct sales from factory also gave us efficiencies. Depot space, we reduced wherever necessary because our inventories were low, and there was a lot of product which was going directly from the factories to the distributors. And then all of the wastage reduction throughout the system was at all-time low. From a cost reduction standpoint, our working capital had come down consecutively because of reduced inventories, reduction in debtors. We leveraged our overheads and our factory costs and our employee costs during this period because of the top line growth and we avoided discretionary spends and we renegotiated contracts wherever we could. So that was what we did from a cost standpoint. The next page talks about our adjacency businesses as well, which is one quarter where every business fired. So international also grew at a fairly good pace. Middle East came back to growth, albeit single digits. And the rest of international grew very strong double digits.In the bakery adjacencies, Bread and Rusk grew very aggressively, even faster than biscuits, even faster than our overall growth.And Dairy. Within dairy, cheese growths were fantastic, and the ones which are on-the-go did take a little bit of a hit. So any impulse product took a hit. And as a result of that, WINKIN' COW did take a little bit of a backseat during this period. But cheese was just fantastic during this period. So with that, and we also had this new campaign on cheese with Saif Ali Khan, which gave us good momentum. So as a result of this, if you were to go to Page 18, that shows how our revenues grew. So if you were to look at the average of '17/'18, we grew our revenues 10%; in '18/'19, 12%. In the year '19/'20, our revenue growths were very low at 4%. And then in this quarter, we've grown at 26% revenue growth. So we are delighted that on a reasonably large base, we've been able to grow our revenues at that rate. On the commodity side, which is Page 19, the overall inflation was low at about 3%. On flour and on milk, we had a deflation, while there was gentle inflation on sugar and a steep inflation on RPO, but towards the end of the quarter we saw that also softening a bit. So the forecast on the monsoon seems to be good and the harvest seems to be pretty good. So we are positive that the commodity -- gentle commodity inflation would continue and not change into anything else. So that leads us to our profitability chart, which is Page 20, which is, we grew at 91%. Consolidated operating profit grew 91% to INR 669 crores during this quarter. And it went up -- so if you look at -- the thing that I'm very proud of is the continuous progress that we make. So if you look at our profitability, it's gone up from 13.8% to 14.3% in '18/'19 to 14.5% in '19/'20. And this quarter is obviously out of the park at 19.8%. Going to the next slide which talks about the total numbers for the quarter. So net sales grew 26.4%. Operating profit grew 91%. Profit before tax went up by 88%, and profit after tax went up by 117%. The ratios at the bottom, profit from operations is at an all-time high of 19.8% from 14.5%. Profit before tax from 16.1% went up to 21.8%. And profit after tax went up from 12.3% to 16.1%. Now to the last slide. I think these are very, very uncertain times, so it's very important that we keep our bearing. We keep a very close watch on how things are panning out. Consumer behaviors are changing every day. Distribution models being peaked every day. So keeping an eye on that is very, very critical. And acting quickly to the dynamic environment that exists today, whether it be from a manufacturing standpoint or from a front-end standpoint also very, very critical. So we are making sure that we stay connected, not just internally but externally as well to figure out where this is all going so that we can remain on top of that. We are creating a culture where we do not go by whatever we hear or whatever we've seen, we have to start challenging the status quo. And each one of us in Britannia is doing that all the time. Knowledge sharing is very critical. And obviously, building and maintaining the nimble culture that we've seen so beautifully pan out during this quarter. So that's where we are at.There are a lot of other things that we are doing to make sure that the support, which is necessary to take this very uncertain circumstances through. So we are in the process of implementing S/4 HANA. And we are building a new distribution system in terms of the IT system for our distribution.So a whole lot is happening to make sure that we've become digitally very, very strong in this year. And we'll keep the pace that we've got in the first quarter in these circumstances, which don't seem to be changing in a hurry. So that's where I am. Very happy to open the house for questions.
[Operator Instructions] We take the first question from the line of Abneesh Roy from Edelweiss.
Yes. Sir, my first question is on the adjacencies. So first is on cheese, you had lost market share 5 quarters back. And then you had said that you'll reduce the price differential between you and Amul. I still see very big price differential between you and Amul. Now milk prices have crashed and you have done reasonably well in cheese. So could you clarify how is the market share in the last 5 quarters? And still why there is a big price differential? So do you get a benefit of the milk prices with a lag because of Amul's direct sourcing, they get the benefit much earlier?
Well, that's true. There is a little bit of a lag because of our contract packing mechanism. But having said that, I think it was -- this period was all about availability because even Amul was not able to make their products available throughout the country and I think availability played a big part.Our premium over Amul hasn't changed very much. We do have the same kind of premium that we've always had. And that will change once we start to get our plant going, which will be in another 18 to 20 months. Work has started there, and that will create a flat playing field so that's where we are at. But I think, overall, at this point in time, it was all about making sure that you got your product in the right place because people were sitting and consuming this product at home and availability for most companies wasn't great.
One follow-up here, rusk and bread has grown faster than biscuits. So some sense you can give, in 2 years how is the movement of bread plus rusk as a percentage of sales? And what could be the reason? Is it because bread is more of a daily consumption as in it can replace a meal. So that's why a higher off-take? And what was the reason for rusk if any?
So it's -- basically, I think, it's the percentage of home consumption for each one of these categories. I think the consumption -- home consumption for bread is almost 100%. The home consumption for rusk will be slightly higher than what it is for biscuits. And I think more than that -- so I think it was also our ability. See, you also got to remember that in rusk, the number of small players in local areas is a lot more than what it is for biscuits. So those players were definitely impacted during this period because of cash flow issues, et cetera. And due to the sheer grit and hard work of our team, availability was way better than anyone else. And during times like this, what happens is that consumers usually gravitate towards the most favorite brand. So I think all of those factors added up to bread and rusk doing really well for us.
Varun, my second and last question is on the overall business. So last 7 days, other FMCG companies are saying that things have again become quite tough because lockdown has come back in most of the states. In your case, lockdown has an adverse impact than other companies. So are you again seeing a pickup in, say, Bihar, Bangalore or Bengal, et cetera, wherever lockdown has come? Are you seeing a pickup or the trend is now sustaining which was there earlier?
It's more or less sustaining, Abneesh. It's a sustaining trend. I don't think it's accelerating any further. But the uncertainty continues, to an extent, this is going to linger through.
We take the next question from the line of Percy Panthaki from IIFL.
Varun, I know the syndicate data right now is all over the place. But to the best of your ability, if you could give me an estimate out of this 25%, 26% growth you've done, how much is on account of industry growth? And how much is on account of market share gain?
Very difficult to answer that. But what -- from our understanding of what's happening in different states and different companies, it does seem that we are certainly ahead of the market in terms of growths in most categories that we operate in. And that's because of our brand. It's because of the hard work put in by the team in terms of producing, manufacturing the right products and then distributing them in the market. So I think we had an executional edge, which has certainly got us share during this period.
And do you think this share gain is sticky? Or will it sort of revert once these other players also are able to ensure availability?
Well, I would think a bit of both. There will be some big players with some kind of a cash issue at this point in time who could face issues in the long term. And obviously, execution and support at this point in time goes very well with our distributors and our retailers. Because they remember that when they were in trouble, there was one company and one brand which was still supplying product to them. So there's some amount of loyalty that definitely sticks. So I would think that there will be a lingering effect of this as well.
Right. Secondly, obviously, the industry itself has benefited because of change in habits on account of people staying at home. So just wanted to get your view. I mean, once the lockdown starts opening and it has opened in many places, at least to a large extent, do you see that trend reverting? And I mean, let's say, 3, 4 quarters down the line when the -- supposing the virus is almost completely gone, do you think that this kind of performance that you have done will sort of present a very high base, and it's difficult to grow on that base from then on?
See Percy, we are in a situation where we don't know what's going to happen tomorrow. So it's a very, very uncertain circumstance that we are going through. But what we've seen in the past is that once you built a base, then you find ways of growing beyond that. So we might not see similar growths as we go forward. But obviously, we will strive to grow over the base we would have created.
But as of now, since the lockdown has opened, you have not seen a deceleration in your growth rate as of, let's say, the last 15 days or anything like that?
It's too short a period to really talk about. You've seen in the numbers for the 3 months. We told you that the first 2 months of the quarter were at about 24%, and we ended up at about 25%, 26%, actually more than that for the third month as well. So very, very difficult to say really. But I would say that it's -- yes, we are not seeing a significant downtrend in growth numbers over this period.
Lastly, one bookkeeping question. Your other expenses has seen a Y-o-Y sort of contraction of 450 basis points of sales. How much of this is attributable to lower A&P spend?
So there is about -- we spent less on A&SP, which would probably be about 200 basis points or so. But the rest is all leveraging fixed costs, et cetera, because of the top line growth.
We take the next question from the line of Shirish Pardeshi from Centrum Broking.
I hope everyone is safe at Britannia. Just I have 2 questions. The first question is broadly on the category. Would you be able to give a sense? I'm sure June number may not be out, but in April and May, what is the category growth? And the reason why I'm asking is, if I go by your quarter 4 commentary, you said the category growth is up 2%, 3%. So what is the category growth would have happened in April and May?
Impossible to say at this point in time, but I would think that it would be a double-digit growth for sure.
And in your past experience, do you think this category growth will prevail at least for next 2, 3 quarters?
The situation is such that it doesn't seem to be going away. So yes, I would think so.
Okay. And my second question is on the ICD. Would you be able to give some color, what has happened June ending?
So June ending?
Yes. I mean the quarter ending, what is the status on ICD outstanding?
Venkat, would you like to comment? You are at home. So we are not together, unfortunately. We're all completely shut down.
Yes. So the group ICDs are within the limits approved by the Board and is in the same range of the total investments.
And I think Go Air has repaid.
This is as of June, you were saying, Varun?
Yes.
Okay. My last question is on the raw material. We saw that ARPU is going higher, but do you think this trend, what we have seen in margin expansion, I mean, broadly, it is because of ad spend and assume that ad spend will come back. But do you think the rest of quarters we still have a story because we have revisited all the cost, and there is a cost containment, which you have already said about and you are going to rejig the distribution. So is there any one-off item which will come in next 2, 3 quarters because of distribution rejig?
Well, there certainly are opportunities that have emerged. Because of this situation, we've been -- as you know, that we've been getting almost 2% of our net revenue as savings or efficiencies every year. And every quarter, I get this question from all of you that how long do you think this is going to continue? And my answer always has been that we see that this is going to continue for a long time. What has emerged during this time are opportunities. And clearly, these were unearthed by our team. And now we are trying to see how we can make them as a permanent fixture within the way we operate. So some of them, obviously, will be onetime, but there will be opportunities, which we'll take forward and try to see how we can make it as an integral part of our P&L, of our business.
Next question is from the line of Manoj Menon from ICICI Securities.
First of all, congratulations for an extremely good execution, which you guys have -- the team has demonstrated over the last 3, 4 months. And I say this with all seriousness actually because it's one thing to be in a business on autopilot. The second, which is actually come out of autopilot, and I actually say this, you have gone through -- actually piloted. I genuinely mean it, because we cover the food space stocks, and we find Britannia to be one of the top on execution. The question here is beyond biscuits actually. And I also observed that a lot of the questions are on the stock burn. Honestly, I'm not going to ask you on that because it's a little unfair because there's a genuine market reset which is feasible at this point in time.
Manoj, you will have to come a little closer to your mic. Your voice is cutting a bit.
Is it better?
Yes. It's a little better, speak a little slower and come a little closer to the mic.
Yes. Sure. Sure. The question is actually on the new ventures, which you have outside of biscuits. The reason I'm asking this because we have looked at closely about or we have listened to the management talking to us about ramping up dairy and snacking, Croissant and a lot of the other businesses, which will have its own trajectory. But the question here is, is it anything which is changing to your medium-term outlook on each of those subsegments, whether it is dairy, Croissants? Yes, so each of those, actually, right? There are about 5 of them actually. So I just want to listen to your thoughts on this?
Yes. So well, first of all, this was a period where it was not about variety. So there were some which were completely deprioritized because we were short on manufacturing manpower, we were short on distribution manpower, we were short on all sorts of things, right? There were plants which were shut and all of that.So it was about getting the top 3 or 4 brands out of the door. So -- but that will be a short-term thing. Now coming to long term, dairy, for sure, is a big priority for us. We've started to implement our project. And we are in a process where I think in about 20 months or so -- Vinay Kushwaha, you can comment on this after I finish. But yes, in about 20 months or so, we should be in a position to start to do commercial production on our dairy projects. So that's -- and we are betting big on that.I think there is tremendous potential there because of such a large market. Croissants, we are -- because it's a first-to-market product, we just want to make sure that we fine-tune it extremely tightly. And I must say that during this period, any kind of market research was a no-no. There was no way that consumers were either going to come to a central point to try out products or would let anyone come into their house to get them to try products.So we've not been able to move very much on our research. So there has been a little bit of a setback maybe 2 months or so. But we are confident that by the third quarter of this financial year, we should be in a very good place to have had a fantastic product with exactly the right marketing mix to be in the market. And I still maintain that it's a product which has got legs, and it's going to do extremely well in the Indian market. So that's the second.Wafers has been doing well for us. Again, during this period, it did take a little bit of a backseat in the first 2 months, but it's coming back, and we also are investing in wafers to make sure that we have all the right manufacturing platforms to get all the right formats as far as wafers are concerned. So we will be investing in a wafer line in our plant in Perumudaria and thereafter in Ranjangaon. So that's a good business, which we are looking forward to growing as we move forward. Salty snacks, again, we are in a situation where we are test marketing it and fine-tuning it. And research, again, has taken a backseat. So it will take a little more time, but I think we'll be, again, with the right marketing mix out in the next 3, 4, 6 months as well, as soon as things get a little better. Dairy drinks has been, again, a category which has been extremely good for us. We launched WINKIN' COW and it has done very well for us. We first launched the Milk Shake. And recently, 2 months -- 1.5 months back, we launched Lassis in 2 flavors. And both of those are doing well, albeit it's on-the-go product. So it's not growing as we would have expected it to, but that's true for all drinking products in the market. So that's where we are at. I would say -- I wouldn't say that we've hit the ball out of the park. But I would certainly say that we are on the right track as far as adjacency businesses are concerned.
Understood. That is an extremely comprehensive response, actually because you addressed each of those lines. Only follow-up, if I may, on the same question is, how are you looking at the next 12 to 18 months, given the context of the economy, given the context of the unorganized competition? Of the relative competition in general, in conjunction with the opportunity for large players like you probably buying media properties relatively cheaper? How are you looking at ramping up some of those or all of those with newer opportunities beyond the opportunity which you got in biscuits from the last 3 months?
So we will discuss that in detail. That's a very big question with a very big answer. So Manoj, I'll have to sit one-on-one on that with you. But certainly, we are looking in that direction.
We take the next question from the line of Aditya Soman from Goldman Sachs.
A couple of questions from my end sir. Firstly, in terms of CapEx, any sort of guidance on what the CapEx is likely to be, especially in the context of this big dairy plant that you have over the next couple of years?
Yes. So the point I would say is that, one, obviously, the dairy investments that we are looking at. But beyond that, what really is coming true now is that even the manufacturing capacities that we have today are falling inadequate for our requirements. See, we operate very tight. We operate with a maximum hedge space of 10%, right? And this has been way beyond that, right? So growing 26% is way beyond what we had expected. So there will be obviously the dairy CapEx. But beyond that, we are looking at 5 more facilities. So there will be augmentation of manufacturing capacity in our Orissa plant.We are looking at putting up a new plant in Bihar, a new plant in Tamil Nadu, a new plant in U.P., which is -- U.P., by the way, is emerging as the second largest market for us now. So -- and we don't have any facility in U.P. We've only got a factory in Uttaranchal. So U.P., so it's Orissa, then Bihar, Tamil Nadu and U.P., and we will require a few more lines in our Ranjangaon facility, which is also a very large facility. So that's what we are looking at, which could -- in the next 2 years or so, which could mean an additional CapEx of approximately INR 700 crores just for our bakery products. And beyond that, CapEx is for dairy as well. So we will require CapEx to take this momentum forward.
I understand sir. So you said -- so you'll have your normal CapEx. In addition, you'll have an additional CapEx of INR 700 crores for bakery, is that correct?
Yes, yes.
I understand.
Over 3 years.
Over 2 to 3 years?
Yes.
I understand. And just a second question following up on the earlier one. So one is you mentioned markets like U.P., which is now emerging as your second largest market, what -- has there been any change in the market itself over the last couple of years? Or is it the continued strategy that you've driven sort of distribution and penetration in that entire Hindi belt?
Well, the share has been like the biggest change possible, and we are coping with that. So I would say that every day is a new day in the current circumstances. So we've got to just make sure that we deal with the ambiguities on a day-to-day basis and deal with them in a nimble-footed way.
Understand. And do you think this is just a function of more people going back who are earlier in cities and then consuming some of those products in those states? Or is that actually developing originally?
No, I don't think that is making a difference. I think it's about -- the 2 things that I've always spoken about. Basically, it's home consumption and it's a strong brand, which is obviously becoming magnet for most consumers.
We take the next question from the line of Latika Chopra from JPMorgan.
Congratulations, Varun, for an impressive performance again this quarter. My question was more on distribution reach. What core do you see to enhance the direct reach further? And also if you could comment on how the rural revenue share is now panning out for you? And how is the share of modern trade and e-commerce panning out for you now?
Yes. So that's a very interesting question. Our share has been going up in most channels. But if you were to look at the 3 channels, you will see that -- if you were to look at traditional trade, our growths have been just fantastic this quarter. So our growth have almost been 30% higher than our overall growths in -- for the total company. And the reason for that is that we've made some significant progress as far as our rural agenda is concerned, and we've added some distributors, added towns and villages to where we reach, et cetera. So I think that's one.Second is, from a modern trade perspective, modern trade has been hit, right, very clearly from overall category growths perspective and also from our growths perspective. So modern trade has 2 or 3 components to it. One is the stores that you have, the modern trade stores. And a lot of these stores have been shut because they are in malls and they are in big towns, et cetera. So there has been some amount of downside on the growths of that channel. And one of the modern trade operators has been under stress. So that has also impacted the modern trade growth. E-commerce has been on a very, very different trajectory, up 300%. They were also struggling in the beginning, but they caught up pretty quickly, and they've really ramped up the business that they do.The alternate channel, which is the institutional business, which is railways, et cetera, airlines and institutional canteens, et cetera, that has taken a big hit because everyone is working from home. So that's where it stands.So I think as we go forward, our focus will remain on rural and traditional trade. And we will try to build back our modern trade growths as well. As the growth of that category and that channel grow, we would like to build that as well. And e-commerce, I think, will continue because people have now gotten into that habit of shopping online. So I think that's a channel which -- although it's still only 1% of our total business, but it will continue to grow pretty aggressively.
And where would rural revenue share -- rural contribution stand in your overall revenues now?
It's very difficult, Latika, because how do you define rural? Do you define it like Nielsen defines it or we've got a different way of doing it. But the way we do it, it's about 37% of our total revenues.
All right. And just lastly, for the quarter, what was your underlying volume growth? What was the component of pricing, if any, or -- and the mix contribution to the growth rate?
Yes. I would say that 26.5% was our total growth, out of which about 21.5% was volume. And the balance, 5% was half and half between mix and price.
We take the next question from the line of Krishnan Sambamoorthy from Motilal Oswal Securities.
Your annual report indicates that about 2% of sales came from new categories. This is interesting because the -- most of these categories are fairly new for your presence. Since salty snacks as well as Croissants are in test marketing phase therefore a lot of the contribution, as I understand, comes from WINKIN' COW as well as Creme Wafers. Am I right in understanding that?
Yes, yes.
Okay. That's really remarkable. And so what's driven, particularly, I think, Treat Creme Wafers itself is a smallish market? I think a large part of the contribution there comes from WINKIN' COW. Anything to highlight on what has been...
No. Yes, it is a small market as of now. But I think we've got a reasonable business going there. Gunjan, would you like to comment on that?
Yes.
Growing at about 40-plus percentage.
Yes, the category is expanding pretty fast. And as I think Varun talked about, I'm talking on wafers right now. And the other thing is that it's also -- it's also exploring new formats. And that is something that we are working on also parallelly while we have made some decent inroads in the start of the business, but I think there's a lot of potential and worldwide wafer segment is a pretty large segment and has decent comparison to even biscuit as a segment. So there is potential.I think the Indian market is slowly getting used to it. And we being one of the largest national players playing in it, we'll hopefully aid that entire journey of that segment. So we see good promise on that. On milk shake, which is the other one, I think you rightly said that both of them have led the charge as far as the last year goes and hopefully going forward, but milk shake has been a good entry. And as I think you saw in the presentation, Lassi has been the addition in the last quarter.
Understood. The other question is regarding ICDs, just a clarification. At the end of the March quarter, it was -- the group ICDs were about INR 600 crores. Varun mentioned that Go Air has repaid, is that entirely repaid? And if so, what's the group ICDs at the end of this quarter?
The group ICDs are about the same level, but there's no longer any ICD to Go Air.
Understood. And the -- there was -- last year, there was also a INR 50 crore exposure to Sterling and Wilson Solar, which was repaid by the end of this year. Has there been any fresh exposure to Sterling and Wilson.
No, no.
No, no.
Venkat, please comment.
No, no, no.
We take the next question from the line of Richard Liu from JM Financial.
Varun, can you help us visualize your gross margin?
Richard. Your voice is not clear, Richard.
Okay. Is this better?
Yes, it's better. Yes.
Yes. Varun, so what I was asking is, can you help us visualize your gross margin bridge that was there during the quarter? The expansion is quite a bit when compared to what we saw in the March quarter. So my question really is that how much of the gross margin expansion was contributed from a mix perspective, since you were selling only a few select SKUs? And while on this, can you also explain the divergent trend in stand-alone gross margin and consol one? The subsidiary's margin expansion seems to have been totally out of the park. And is there some intra-segment movement that's involved in this?
Venkat, I'll let you answer this.
Yes, I'll do that. So the top line of subsidiaries has been about 60-plus percentage growth. This has been led largely by dairy that Varun was talking about. Within that, the growth was largely led by cheese. So that explains both the top line growth and the profitability.
Right.
So there's nothing -- so the second part is also what Varun talked about. Rest of international grew by very, very healthy. So it grew faster than overall business of Britannia group. So these 2 are highly profitable, dairy, within that cheese and international. And this grew by over 60% in this quarter.
Okay. At a gross margin bridge from mix?
So mix would not have made too much of a difference. Yes, it was there. But the impact of mix would have been roughly about a percentage, 1% to 1.5% at best.
So after -- so what I was asking is that if I look at your March quarter gross margin, it was in the ballpark of 38%, 39%, which has now become 41%. So this 2.5 percentage point expansion that we saw between March and the June quarter, you're saying 1.5 percentage out of this is because of mix.
Correct.
Yes.
Balance is on account of deflation. So April, May, June is the season for wheat. So typically, we see that. And also, RPO, which was highly priced, has come down in quarter 1 of this year. Dairy also saw a reduction in price and so did cashew. So actually, it is these 4 commodities, flour, RPO, dairy and cashew.
So now that you are back to the full range and the full variety, and no longer selling only to select SKUs, and I guess would have been the most profitable. Do you expect margin to come off sequentially or will the deflation part make up for it?
No, Varun explained that in his presentation. He spoke about many of the back-end efficiencies. He was talking about factory efficiency of labor, power, and fuel. Actually, we saw an efficiency improvement of 5% to 10% in the factories. We saw direct dispatches which meant really a reduction in transportation cost. We could reduce the space of the depot by almost 10% in this period. There was working capital extension that happened, which helped improve our treasury balance. There was 0 stock write-off that happened in this quarter. So many of these that he spoke of, we are in the process of trying to see how we can manage and sustain.
So we want to monetize these opportunities in the future, but your question is that how much of your gains are going to be sustainable? Obviously, there'll be A&SP, which is not coming in the gross margin, but below that, which probably is not sustainable, we will have to start spending what we were spending earlier, and we'll start to get full product. But there we are trying to make sure that we study every possible gain that we've had and see if we can scratch out anything out of it. And we made this into a large project for us. The entire team is involved in this, and we are going to, in the next month or so, get this ready so that we are able to get maximum out of this as we move forward.
Okay. And Varun, one more question, if I may. If -- let's say -- I'm sure you're working with various permutations and combinations at this stage in terms of what could happen to the markets, to lockdowns, to lifting of lockdowns, et cetera. So my question really is that what is the circumstance and the combination of circumstances that you see based on which you think that these super normal growth delta will start coming off? Or you think they are here to stay?
Are you talking about the top line growth?
Yes. Yes, on the top line growth. Given that -- see, the economic environment that we are living in is not all that rosy after all, right?
No, no, absolutely right. Absolutely right. So the economy is not great, obviously, because of all that's happening during this period. So all that is -- might come to roost at some stage. But what we've seen is that you've got to look at how you make your business grow at a pace which is -- and we are seeing circumstances which could support our business. So we are going to take all advantage of that to make sure that we continue with a certain momentum as we go through the year.
We take the next question from the line of Harit Kapoor from Investec.
Just had 2 questions. Firstly, on the price and mix that you spoke of, you said that 2.5% of the business was price -- of sales growth was price and 2.5% mix. So even if -- then firstly, is this pricing fresh pricing? Or is this carryforward from an earlier time?
It's a carryforward. It's a carryforward from earlier time.
Which would anniversarize by when in your opinion?
So it would probably towards the third quarter or the fourth quarter of this year.
Third quarter, third quarter, fourth quarter, you are right. Because we did all that in quarter 3 of the last year.
Yes. Yes.
Got it. And on the mix side, now that you have -- you're able to get your entire range in the market and you spoke of that in June as well that you're trying to get your whole range in the market. Would we also assume that the significant kind of uptick of mix also normalizes as we go forward now?
No. So see, even today, if you think about it, we still don't have enough capacity so that we can feed all our products to the market. So what we are doing is the value segment has taken a back seat, right? And that is a segment which is not a very large segment for us. At some stage, we would want that to be back, but it will be a slow build. So that situation will remain for a little more time. And it's not going to be a visible change as we go forward because slowly, steadily, we've been building variety, we've been bringing in products, et cetera. So it will just melt into the overall monthly numbers as we move forward.
Very clear, sir. The second question was on the inventory pipeline which you spoke of. So what would be the current situation? Would it still be extremely dry versus what it was in pre-COVID levels? I mean, what were those levels earlier? And what are they now if you could just help us understand?
So we used to have about 11 days of stock, which was approximately, let's say, 40,000 tonnes in our system. Today, it's not more than 2 or 3 days, 3 days stock is what we carry. So it's a very, very tight inventory and a very tight replenishment system that we are running at this point in time.
And this is as of July, you're running that right now as well. That's...
Yes, about a 3-day stock position.
Well, ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mr. Yash Vardhan Bagri for his closing comments.
I thank everyone for spending time with us on this call. We look forward to interacting with you again. Thank you.
Thank you. On behalf of Britannia Industries Limited, this concludes this conference. Thank you all for joining. You may now disconnect your lines.