Britannia Industries Ltd
NSE:BRITANNIA
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Britannia Industries Ltd
Earnings Call Analysis
Q1-2025 Analysis
Britannia Industries Ltd
Britannia Industries is witnessing a positive shift in rural consumption, attributed to better monsoon conditions, moderate inflation, and a record-high rural employment rate. Revenue from operations reached INR 4,130 crores, reflecting a 4% growth year-over-year, and a 13% increase over 24 months. The operating profit surged to INR 680 crores or 16.5% of net revenue, marking a 10% improvement from the previous year and an impressive 51% growth over two years. Overall, despite ongoing challenges, the company continues to gain market share and strengthen its position in the FMCG sector.
Britannia has focused on expanding its direct reach to 28.2 lakh outlets and increasing rural distributors to 30,000, with a noticeable uptick in rural performance. The company's sales transformation project, in collaboration with Bain, leverages real-time data to boost distributor salesman efficiency by 42%. This initiative aims to enhance market coverage and increase the presence of key product categories. Early pilots in top metros are already in place to ensure robust results in the future.
Britannia's cheese segment, though currently holding a small market share, shows significant growth potential. With recent pricing adjustments and operational efficiencies, the company aims to close the competitiveness gap. Britannia is the second-largest player in the cheese market, holding double-digit market share, while market leader Amul’s share stands six times higher. The cheese business is projected to achieve an annual revenue upwards of INR 250 crores, significantly impacting the overall dairy business, which stands at around INR 700 crores.
The Hindi-speaking rural markets have posed a challenge, with a performance described as 'average'. These markets contribute approximately 15% to Britannia’s business but hold a potential of 35% market share. The company acknowledged the significant headspace to grow in these areas and aims to lift the performance above average in the coming quarters by addressing down-trading behaviors and enhancing the product value proposition.
While flour, sugar, and cocoa costs are rising, Britannia has successfully managed commodity inflation. Palm oil and laminates provide some cost relief. The company expects manageable inflation rates of 4-5% moving forward and plans selective pricing adjustments. Britannia remains committed to balancing cost efficiencies and competitive pricing to sustain profitability without compromising market share growth.
Britannia's innovation pipeline includes new product variants like 5050 Golmaal and JimJam Pops, tailored to regional tastes. The Fudge It and croissant segments are performing well. The dairy segment, including lassi, reflects a positive trend, supporting overall growth aspirations. The company sees international markets, particularly Nepal, as validating their long-term growth strategy with current operations bringing in significant revenue.
Britannia continues to drive sustainability through notable initiatives, such as the water stewardship program, sustainable packaging, and community development projects. Recognized for these efforts, the company maintains its commitment to ESG goals, ensuring long-term environmental and social responsibility.
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Ladies and gentlemen, good day, and welcome to Britannia Industries Limited Q1 FY '25 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Mayank Mundra from Investor Relations. Thank you, and over to you, Mr. Mundra.
Thanks, Nirav. Good morning, everyone. This is Mayank from the Investor Relations team. I welcome you all to the Britannia earnings call to discuss the financial results of Q1 '24-'25. Joining us today on this earnings call is our Vice Chairman and Managing Director; Mr. Varun Berry; Executive Director and CEO, Mr. Rajneet Singh Kohli; Executive Director and CFO; Mr. N. Venkataraman; Chief Commercial Officer, Sales and Replenishment; Mr. Vipin Kataria; Chief Manufacturing and Procurement Officer; Mr. Manoj Balgi; and Chief Marketing Officer, Mr. Amit Doshi.
The analyst deck is uploaded on our website. Before I pass it on to Mr. Varun Berry, I would like to draw your attention to the safe harbor statement in the presentation.
Over to Mr. Varun Berry with remarks on the performance.
Good morning, everyone. Thank you for joining the call. So let me just jump in straight off to Slide #3. Good news on the consumption front. The quarter has been -- the growths on value and volume have been about the same at about 6.6%, 6.5% for the FMCG industry. The rural growths are starting to come back, which is -- which had been lagging, urban, for some time, and that's something which will help us overall get better growth. So the reason for the same are obviously better monsoons, moderate inflationary conditions as well as employment, some employment data, which is showing that rural employment is at an all-time high. So things are looking a little better, still not out of the woods completely, but definitely better than what -- where we were.
Going to the next slide, the performance scorecard for Britannia. We did -- our revenue from operations were INR 4,130 crores, which was a 4% growth on a 12-month basis and a 13% growth on a 24-month basis. Our operating profit was at 16.5%, which was at a 10% growth on a 12-month basis and a 51% growth on a 24-month basis. So I would say good results in the current environment.
Our market share on the next slide is also looking good. Our trend continues. We've continued to gain share, and we are hoping that we will be able to keep that track going. Our strategic pillars, which you're all aware of, distribution, marketing, innovation, growing adjacencies, cost efficiencies and sustainabilities. Let me take you through each one of these and where we stand on these.
So driving efficiencies in distribution, our direct reach is now at 28.2 lakh outlets. Our uptick in rural distribution, we've gone up to 30,000 rural distributors. And if you look at our rural performance, it's a better performance than what it is for urban, which is good. As we've seen, there's a little revival in the rural economy as well. So we are keeping our credo of going -- getting equal share in rural as we have in urban. As you know that we have a higher share in urban than we have in rural. So we are keeping that going.
And the next slide is about our sales transformation. This is basically a complicated chart, but you've just got to remember what we are trying to do. We are trying to do real-time data for all of us in the system. What this has done is this has increased the face time of the distributor salesmen, which is up 42%. So they are on their handheld, and they are getting real-time data all the time.
All our outlets, which are directly handled through our distributors are geo-tagged. And as a result of that, the time spent in the market by our salesmen is also up. If you were to look at what we are doing on our Route to Market, which is going on with Bain, basically, what we are trying to do is leverage our high potential outlets to make sure that all of our key categories and SKUs are available in these outlets. We are looking at upscaling our salesmen capability in these high potential outlets.
We're also looking at upgrading technology for better productivity. And there will be an increase in the number of salesmen, which is mentioned as increased feet on street. Now we've already started -- the project has been on for about a couple of months. And we've already started some pilots in the top metros to validate what is going to work for us in the long run. We are banking a lot on this project, and hopefully, this will be able to give us great results in the future.
On the next slide, which is Slide #10. If you look at our capabilities in organized channels, if you look at the first quarter, we've seen much higher growths for our adjacency business as well as our new businesses in the modern trade or the organized trade channel. The building blocks of which have been a very agile supply chain, which is focusing on fill rates; a modern marketing, which is based on social media, digital, et cetera; upskilling of our salesmen; and best-in-class service levels for our customers.
Next slide, Slide #11, building -- we've been continuously building on our business as far as e-commerce is concerned. We know that it's an important channel, albeit small for us right now, but it's a test bed for innovation and new categories. We can do precision targeting with real-time consumers, product ideas, which are based on social media trends as well as consumer feedback and reviews and ratings. It's a channel which can be used by us for a lot of our current premium products as well as making sure that we do products, which are actually what the consumers are looking for. And this is giving us good results. We've been seeing great growths in this channel. So hopefully, it's today at -- we been at about, what, 4% of our total sales?
Yes, Varun. So we're at about 4%, but I think the difference between us and other companies is that we purely focus on B2C, and there's a lot -- large component of B2B, which other companies have. But I think that's one big differentiator that we're creating.
No, absolutely. So we are not interested in the B2B business because that disrupts our distribution efforts. So we are purely concentrating on the B2C business, as Vipin said.
Okay. Moving on to the next slide, which is Slide #12. We've made some sustained investments in brands to drive consumer engagement. As you know that the biscuits brand was a slightly more traditional marketing category, what we are trying to do is we are trying to make it a little more alive with more, let's say, interesting products as well as interesting marketing ideas, which are more alive to what's happening today. And we've done that with Britannia Khao, Paris Jao on some of our brands. We also did it with Jim Jam Pops, where we launched the victory biscuit when the Indian cricket team won the T20 World Cup in Bombay. And similarly, a lot of other interesting initiatives which the marketing team has led on Good Day, on Little Hearts, NutriChoice.
Next slide, some of the other marketing initiatives and adjacency areas. We've had Rusk advertising on the Jio Mobile app. We've had the Cow Corner for Winkin' Cow during IPL, which was a very interesting idea. And other IPL campaigns, which we did on some of our other products, and tactical consumer promotions, which we run across our portfolio of brands.
Next slide, Slide #14. We've been recognized for the efforts because Amit and team have brought a differentiation to the way we've looked at marketing, and they've been rewarded by -- they got the Brand of the Year in the Shark Awards. Out of home, we were the #1 brand. In home, we were the #2 brand, et cetera. It's good fuel for the team that's doing so much of interesting work.
And the next slide is on innovation. We've launched Pure Magic Stars, which is a very interesting product. And we've -- the jury is still out. It's just launched in the market, so it will take some time for us to tell you how it's doing, but it's been really appreciated by consumers. We've also launched 5050 Golmaal, which is a variant of the earlier product that we launched. This is a butter garlic. And these are all doing well.
The in-market products are the base Golmaal, JimJam Pops and Butter Jeera, which was done only for modern trade, and these are doing quite well. We've got a very robust innovation pipeline, which will cater to the regional preferences and drive premiumization within our portfolio.
Next slide is on adjacency. We have seen a resurgence in our adjacency business. The Fudge It product has been doing extremely well. Croissants have been doing very well. Our Rusk and Millet Breads have also done well for us. Similarly, on cheese and on drinks, drinks have been a good story for us, especially Lassi. So we've been doing better than what we were doing. Still a lot of hard work for us to be able to get to 1.5x the growth of the base business, but we are working towards that.
Our international business has also been doing really well with good profitability. And Nepal is a validation of our strategy of seeding products and then establishing our manufacturing footprint in the country. This business used to be a INR 20 crore business. And today, we are at what, Venkat, about INR 180 crores in Nepal?
INR 170 crores.
INR 170 crores, INR 180 crores business in Nepal. So we are doing well, and there are some other countries where we are also looking at the same strategy to be able to establish ourselves so that we don't burn the bank. At the same time, we established a footprint in these countries through a slow and steady strategy.
On our cost leadership across verticals, our strategy remains the same, truck upsizing with full utilization, distance traveled by our products, digital adoption, renewable energy, fuel consumption and our line throughput. And in '24-'25, we will be at 8 times what we started in '13-'14. So this continues. We continue to target 2% of cost efficiencies every year.
Moving on, just to give you an idea of our manufacturing footprint. It's a very interesting footprint with 54 factories located across the country, 16 of these are our own factories, which give us 65% of the total requirement that we have across the country. We have third-party factories, which are 38. We've got 154 manufacturing lines, out of which 81 are in our own factories with annual capacity I've already spoken about.
Now we are -- we've got a mega food factory, which is in Ranjangaon. We've got fully integrated factories in -- which have got 4-plus lines and have more than 1 category. And then we've got small factories, which give us the ability to be nimble. So we've got a very robust and a very solid manufacturing footprint, which is holding us in good stead in the current times.
Just a quick look at Ranjangaon Dairy operations. So we are now collecting about 300,000 liters of milk in Ranjangaon. Out of which, 90,000 liters -- and we are scaling up this 90,000 every month, 90,000 is directly through our partner farmers. These are about 3,300 farmers across 105 villages with 70 milk collection centers that are created in and around our factory. We do a lot of developmental initiatives, which is farmer training programs, animal health camps. And we also provide quality fodder and seeds to our farmer friends. Our program results have been that we've improved farmer retention to now 95%.
Our farmer yields are up 13% over the last 2 years, and we've had improved quality of milk that we receive at our factory. We've now got a processed cheese plant, which is commercialized. We are doing cheese blocks. We are doing cheese cubes, cheddar cheese. We're doing slices. So -- and we are looking -- we've got a quick scale-up across formats and our product quality today is much better than what it is. We are working on making sure that we leverage the technology that we put in our factory to get much better productivity than what we've got in the past. I just wanted to give you an idea of this operation because I thought it was important.
Next slide is on ESG. You know the 4 building blocks that we have: people, growth, governance and resources. We continue to work on these. We've been recognized as the best 3 sustainability initiatives of the year in 2024 at the Global CSR & ESG Awards, which was conducted by Brand Honchos. The key initiatives included water stewardship program, sustainable packaging, employee wellbeing and development, community development programs. And we also were -- we also did Har Pocket Ab Dustbin program. The campaign was in Q1 of this year. And we continue to do our employee volunteering program, which is on plastic waste collection across our factories and across our offices. We won some awards, which I won't dwell on, but I must compliment the ESG team from -- bringing us from being at the bottom of the pack to where we are today, and we hope to be right at the top in this in times to come.
Now getting to cost and profitability. Slide #22, commodity costs are going up marginally. Flour costs are up. Sugar costs are up. Palm is the balancing factor. Cocoa is through the roof. The cocoa costs are completely through the roof. Laminate costs, so the 2 -- 3 costs which are balancing out flour, sugar and cocoa are palm, laminates and corrugated boxes. One that is not here is also milk. While milk powder is okay until now, but milk costs are up. So in times to come, SMP costs will also be up. So we are seeing a trend of prices going up marginally. But these are -- this is inflation that we can manage, and we are hoping that it remains within that manageable range.
Next slide is on what we are looking at. We are stepping up investments on brand and innovation. We've actioned pricing actions wherever necessary to drive -- to make sure that we remain competitive, and we've also delivered cost efficiencies across all our functions. We are closely monitoring the commodity situation, and we are assessing its impact. I think it's important that we balance the commodity increases as well as the competitive pricing actions, and we've done it quite well until now. Our strategy will remain to focus on driving market share and our top line growth, which have been evading the Indian FMCG industry for some time.
Getting to the financial results. So I've already spoken about this. So we've grown 4% as far as topline is concerned on a 12-month growth basis and 13% on a 24-month basis, with a revenue of INR 4,130 crores.
Next slide is on operating profit. Operating profits are at INR 680 crores, which is 16.5% of our net revenue. Growth of 10% on a 12-month basis and a 51% on a 24-month basis. Getting to the ratios, net sales, up 4%; operating profit, up 10%; profit before tax, up 13%; profit after tax, up 14%. These are all before exceptional items. And the ratios are at the bottom. Profit from operations, 16.5%. Profit before tax, also at 16.5%. And PAT at 12.2%.
So that's all I have for you. Let me open the doors for questions. Over to you.
[Operator Instructions] The first question is from the line of Abneesh Roy from Nuvama.
Congrats on the volume growth. My first question is on the cheese business. So I noticed that you've mentioned on profitable growth. My specific question is, do you need to work further on the pricing aspect? Because I remember a few quarters back you had said the pricing premium is high for Britannia in cheese and you would like to reduce that. So where are we in terms of that?
Second is would you have a market share in cheese? Because clearly, that opportunity is very high given the kind of technology you bring to the table, the huge facility you have now. Any numbers you can share with us directionally how you see market share next 3 years in cheese?
So, Abneesh, yes, pricing, we've taken a few actions as far as pricing is concerned. Now we are -- premium is slightly lower, but we are working on seeing if there's any further possibility of us becoming more competitive. So that quest for pricing and quality continues, and that will also come with the efficiencies building in our lines because we've just commercialized our lines. We are still building the efficiencies. So hopefully, over the next 3, 4 months, we'll be able to bring something more to the table. What was the other question, Abneesh? I missed it.
Shares.
The market share on cheese, we are very small, Abneesh. It's predominantly, we are #2 in the industry. But we are in -- just in about double-digit numbers while -- so there's a lot of bunching at the bottom with low 2%, 3% share. So a lot of players are at 2%, 3% share. We are just about in double digits. And Amul is 6x our share. So that's the story as far as cheese share is concerned.
So yes, you are right, there is opportunity there. And we've got to look at now that with our tie-up with Bell and Laughing Cow, having an interesting brand to talk about, the product categories that we are in, the new innovation that we can bring to the table, our own factory with efficiencies and all of that put together, if we get everything right in the next 3 to 6 months, there could be a lot of potential as far as the cheese market is concerned.
Sure. My second question is on the demand side. So in the B2C in Q1, there were 2 headwinds and 1 tailwind for biscuit consumption. One was -- one headwind was the hot beverages consumption, which went down, lot of Indians consume biscuits along with tea and coffee. So did that suffer?
Second one was out-of-home travel was severely impacted. So was your INR 5 pack or INR 10 packs impacted in any of the brands? There was one tailwind also, lot of election rallies, so of course, in election rallies, there is a good consumption of biscuits and snacks. So would you like to call out any of these either in terms of negative or positive? Because 8% volume growth was a good number. And similarly, on B2B demand, Varun, any impact? Because that was a key focus area a few quarters back, QSR, restaurant, et cetera.
Well, B2B demand, I didn't -- did I speak about that? Not for biscuits, Abneesh. But you're right -- yes, non-biscuits, yes, we're making great progress there. But biscuits is not a big part of our overall agenda, but still has been going up. You're right about hot beverages. Our products are consumed with hot beverages. And it's a good point that you bring to the table. We've got to evaluate this and understand if there is any correlation there.
Out of home, we didn't see any negative impact, although the growths are what they are. They are not where we would want to be. We would have wanted the growths to be at least 2.5x what they are currently. And we are hoping that we'll get back to those numbers. Election rallies do not impact us that much, Abneesh. We've seen it in the past as well. It doesn't give us an up or a down in any way, and we sailed through those this year as well.
[Operator Instructions] The next question is from the line of Avi Mehta from Macquarie.
Sir, with the marginal inflation that you have seen in commodity costs, how would you -- how do you think -- could you share your thoughts on the FY '25 pricing growth? How do you see that?
Look, we might have to take a little bit of pricing, but it will not be what we saw in the past. If you remember in the last -- for about 20 months or 18 months, we saw inflation of 22%. And that's what sort of gets us off track because those are the kind of numbers which impact consumer consumption, et cetera. So I don't see that happening. Even if there is inflation, it will probably be in the range of 4%, 5%. And to that extent, we will have to figure out which are the brands, which are the categories where we go ahead and take some pricing, if required.
Got it, sir. So -- okay, so some pricing, but depending on how it kind of pans out, but it looks benign in that sense. Got it. Sir, on the adjacent businesses, I just wanted to check, would it be possible to share where do we stand at the EBITDA margin level now? And whether that is the focus when you highlighted that there's a focus on consolidation in this category or that margin trajectory is something that we would -- I mean, your thoughts on that one, please?
We do not do separate consolidation on an adjacency business level. But if you look at our overall margins, and I frankly haven't looked at EBITDA margins, but if you look at your net margins, they're reasonable. Cake and Rusk are in the double-digit territory. Rusk would probably be accretive to our overall margins. And bread, as you know, we used to be negative margins. We've brought it to a stage where they are almost touching a double-digit margin. So that's a great achievement in a category like bread.
And Croissant, the gross margins are fantastic. We continue to invest. The gross margins there are probably 25% more than what they are on our base category. Obviously, we are investing in that category, and that's necessary at this stage because it's a fledgling category. And dairy is the one where we've made some investments. So there is need to look at EBITDA margins because there is depreciation there. But dairy is, again, an investment mode. We really want to make sure that we invest in this category, and we start to see gains as far as our topline and our overall business is concerned.
Next question is from the line of Arnab Mitra from Goldman Sachs.
My first question, again, was actually on pricing. So the deflation in pricing this quarter seems to be slightly more than last quarter, correct me if I'm wrong. And do you see that, any incremental changes here going ahead? Does this anniversarize very quickly? Or do you expect some more deflation in the coming quarters to continue?
No, there is no deflation, really. What -- I think what you're alluding to is the fact that we have taken price rollbacks. So basically, if you look at it, our rollbacks have been on for some time now. But now is the time to start to consolidate. We've done what we had to. There might be a few promotions here and there. But as far as rollbacks are concerned, we've done what we have to. As we were saying, we expect 4% to 5% inflation in the coming months on the back of flour and sugar and cocoa. So -- and if that happens, we will start to take slight price increases in the future.
Understood. Just a follow-up on this. So the carryforward effect of the year-on-year price decline that then you're saying should -- could continue even though there is no incremental price cut that you are taking or rollback price you are taking?
Yes. Yes. Because of the base, because it's probably not in the base, you might have a slight difference in our volume growths and our revenue growths, but it will even out. The good news is that the volume growths are now coming close to double digits. And that's what's going to keep us instead as we go forward.
Sure. And one last question is the other operating income, there is a very sharp spike Y-o-Y. Is there any bunching of PLI here? And any sense of what could be the steady-state run rate here?
Yes. So this is for our factory in Ranjangaon. So as you know that we are qualified as an ultra mega plant. But that was subject to us reaching a certain investment. And as we reach that investment, we got some benefits from the past year. So that's what's coming there.
The next question is from the line of Percy Panthaki from IIFL Securities.
Recently, I saw your back snacks extruded Time Pass in a shop in Bombay. So is this something recent? Because until now, I think it was a South India kind of launch. And any kind of views you have on how you want to take this forward?
This is an experimental stage, Percy. So we are doing some market tests, et cetera. So it's in that stage, to figure out if we have a solid rate to succeed. So it's -- at this point in time, it's not like a rollout across the country or anything like that. As you know, we've put up 2 lines, 1 in Ranjangaon and 1 in the South, in Bangalore. And both of these lines have very small capacity. We can do about 200 tonnes a month. And we are using these lines to do some experimentation, figure out what works, what doesn't work.
Varun, hasn't it been really too long for it to be in test phase? Because it's been like 5 years plus since we first launched this product. So what is really holding us back here? The market opportunity is huge, and it works on distribution, and we are the kings of distribution. Whatever little contribution is required of a brand that also we have. And I understand margins are lower, but it's incremental absolute profit opportunity. So what is really holding us back here?
No, there are 2 or 3 things, Percy. One is, obviously, the outside opportunity. See, if we look at the outside opportunity, yes, the total market is large. But you look at the number of operators in this category, there are about 2,600 salty snack operators, right? And what I hear from the market is that all of the organized players have not been really gaining. It's the small operators who've been gaining because they are giving more grams in bag. And obviously, when you give grams in bag, you have no profitability. And so all those things need to be tested.
The second is internal. The second is that internally, we've got different products, right? One is a product that sits in the shelf, which is biscuits and cake and rusk and croissant and all of that, and this is a product category which is hung outside, right? So it's an impulse category. And so our internal ability to do justice to that also has to be tested.
I agree with you, it's taken longer than what it should have. But we don't want to do anything without really being 100% sure of success. So I do not worry about a little more time, but we have to be sure-footed. And if we are not sure-footed, believe me, I will not launch it. That also I'm very clear about.
My second question is on the margins. So for the last several quarters, we have been clocking margins of about 19% plus. This quarter, we have come to about 18.2% and that, too, with some bunched one-off of Ranjangaon. So going ahead, what is the sort of margin roughly that we are targeting? Is it going to be a 19% plus number? Or are we at this 18% to 18.5% kind of number for the next 4 to 8 quarters now?
That's a very pointed question, and I can't give you a pointed answer. But let me give you what I feel. I think it's the time to drive top line right now. We, as an FMCG industry in India, have suffered the topline growths that are required. And I would not mind if my margin stays at 16% rather than going to 18%, but it's important that we drive topline. I'm not saying that we will compromise on margins. We will do whatever is necessary to get margins as well, but the time is to drive top line.
Next question is from the line of Mihir Shah from Nomura.
Congrats on good volume performance. Sir, on the pickup on volumes, I wanted to check if there is any element of higher-than-usual in-home consumption that you're seeing due to extreme heatwave? And also with the price rollbacks that you have initiated, do you think these volumes get sustained and inch up further as we were thinking about or these numbers can probably go down from here?
No. I wish I had the ability to predict this. But in a country like India, getting to high single-digit volume growths should not be a big issue at all, and we've been seeing it for years and years. It's just that we've had a lull for about 2 years, 3 years, but -- and that's because we've taken a lot of pricing because of the high inflation. So the objective will be to continue to see volume growths in our business. And we will do whatever is necessary to be able to get there.
Perfect, sir. Got it. Sir, secondly, I wanted to check on other expenses a bit. It seems that the costs have gone up. Is this largely due to higher ad spends? Or are there any other elements to it? And historically, other expenses in 1Q are usually lower as an absolute basis versus the remaining part of the year, which indicates that if other expenses inch up for the remaining part of the year, then the margins can come under pressure. Sir, how should one think about this line in the margins on operating level?
No, we will -- see, we -- it's not -- we don't balance out our ad spends by quarter. So there are -- this is our high quarter, right? So we did spend a little more than what was budgeted, and that will get evened out as we go forward. But yes, essentially, it was ad spends that we spent on. And I think we were able to get a bang for our buck during this quarter with good volume growths.
Perfect, sir. Understood. Sir, if I can ask one bookkeeping question on the other operating income side? Should we expect INR 120 crores to sustain or INR 60 crores to -- roll back to INR 60 crores or the PLI benefits? Maybe Venkat can give some indications.
Yes. So let me answer it this way. Like Varun mentioned, Ranjangaon facility will start being counted as an ultra mega facility starting April this year, so which means the incentive that we will be eligible for will be higher. And also the units in UP and Bihar will start getting the benefits. So I'm not answering you the question directly, but these are the 2, 3 things that are going to help improve the operating income going forward.
[Operator Instructions] Next question is from the line of Binay Shukla from PhillipCapital.
Question is on focus markets. Since you have been emphasizing a lot in your focus markets, and this is growing much faster than the company's overall growth. And I also do understand that this may be driven by the distribution expansion or investment around the brand building. So my question is how much there is still gap between you and #1 player in the focus markets in terms of market share now versus 3 years back?
Second is what was the key learning for you from your focus markets and those successes you wanted to replicate in your weak markets. So when I say weak markets, I mean where you are #2 or #3 player.
And third or last question is, what percentage of revenue is coming from your focus markets because that will give us some relative direction from the future growth perspectives given the rural recoveries on the track and the ongoing RTM of 0.2 initiatives going on? Yes, that's all, sir.
So very loaded question with many sub-questions in it. I'll try and answer it as much as I can. So our focus market performance has not been great. Let me put it straight across. I had expected much better performance there. And the reason for that is that the rural markets are still coming out of that phase where rural was lagging urban. And there's a little bit of down-trading happening in some of the markets as well, where people are going to the lowest common denominator and the cheapest product in the market. So our performance this quarter as far as the Hindi belt is concerned has been average, I would say. And the endeavor will be to take it to above average as we move forward.
What do the Hindi belt markets contribute to our business, Vipin, do you know?
Yes. Sir, it will be 15-odd percent. The other clarification I just wanted to also put on the table is that, see, there are shades of these focus markets. In some focus markets, we are doing fairly well, whereas wherever there is a large value resurgence, that's where the struggle is, and that's making the performance average. So our average contribution is about 15-odd percent. Over the last 3, 5 years, we've been growing at 1.5x. So the salience of these focus markets are going up every year.
Yes, going up every year, and -- but the resurgence that we expect has not happened this year, which we are working towards getting, and 15%, Vipin, and what is the industry contribution?
Industry contribution will be almost 1/3 because these are large markets like UP, MP, Rajasthan. So it will be...
Yes. So that's the point. The point is, for us, internally, it's 15%. For the market, it's about 35%. So we have a lot of ground to cover.
How much there is still gap between you and #2 player in terms of market share now and when I look at 3 years back?
No, very big. See, we are not doing a big bang strategy where we are saying that we'll go from a 10% share to a 40% share. That's not going to happen. It's a slow and steady gain. As you've seen, we've been gaining about 1 share point a year for the past 8, 10 years. So we are now at about, let's say, close to 18% share. And the #1 player is still at about 50% share. Am I right? Or 40% share?
Yes, yes. So for the #1 player is 3x our RMS, and we would be at that 17%, 18% share. But I think that's the head space. So that's the opportunity that we've got a very large headspace between us and the large competitor. And like you said, that there are a lot of these markets where we are #1 and #2, so we are picking up learnings from these markets and trying to improve our distribution, our assortment, our marketing effort to go up.
The other thing, which Venkat also spoke about, is the investment in these states, which is, let's say, Barabanki factory and that will help us giving more competitive assortment to the market. So I think it's a long-term gain. I think last 5, 7 years, we have done well. I think this is a phase, like Varun is saying, where we have stagnated a bit. But I think we are fully on and focused on that agenda. And I think next 3, 5 years, we will certainly narrow the gap.
Last question on biscuit side. Recently, a north biscuit company highlighted that they are experiencing a higher competition from the market leader through the aggressive consumer promotion. So my question is that the aggression was restricted to North and West market only? Or is it also we have done some consumer promotion in Eastern markets? Because what I have observed that 2 strong regional brands called Anmol Industries and Bisk Farm, who are around INR 1,700 crores to INR 1,800 crores revenue size, and they are also expanding their footprint in Eastern belts. So I'm just little keen to understand about market share in Eastern belts, so have we witnessed any marginal competition loss? Or is it more or less same given the biscuit industry is growing at the same pace in the Eastern markets?
No. So see, the growths are about the same across. I would say the growths have been anemic for some time now. What our strategy is? Our strategy is to become -- act like a nimble regional player. So if there is something that's required in a certain region in terms of brand, flavor, whatever else, pricing, recipe, we are ready to do all of that to make sure that we cater to that region, and that's holding us in really good stead.
Now the companies that you are talking about, some of these regional companies have been extending their footprint across the country. And hence, their growths might look big at this point in time, but overall, the regional -- in the regions that they had started, the growths are pretty much the same as what you've seen for us.
[Operator Instructions] Next question is from the line of Kunal Vora from BNP Paribas.
First question is, if you look at the pace of distribution expense, and it seems to have slowed down. Earlier, you were expanding your direct reach rural distributors by double-digit every year. Now that number has come down to high single digit. So is there low-hanging fruit behind? And like how should we think about the volume growth in that context over the next 3 to 5 years, that is what we have seen in the recent past.
No. As we just said, there is still a lot of opportunity as far as distribution is concerned, especially in the Hindi belt, where obviously, we are lagging a competitor big time and especially in rural. So while you're right, it has come down, and the focus -- so we -- as we've always said, our strategy is depth in urban markets, width in rural markets, right? We will continue on that strategy. We will -- now what we are doing with Bain is to make sure that we build that depth in our urban markets. However, having said that, width in the rural markets strategy will continue to make sure that we become more and more salient in our weak areas. And also in some of our strong areas, where we have opportunities in rural, in small towns, et cetera, that strategy will continue.
Vipin, do you want to comment?
Yes, sure. Okay. Vipin, again, this side. So like Varun said -- see, so -- while numeric distribution is important, I just want to also apprise everyone on our weighted distribution. So in our urban markets, our weighted distribution is almost 95%. So we reached all -- close to 95% of the weighted outlets. At an overall company level, we are at about 90% weighted distribution. And therefore, going forward, it's going to be more about extraction from the right type of outlets, and therefore, this entire project that we are doing with Bain & Co, which is about identifying the ultrahigh potential outlets and how do we sell the relevant range, how do we sell more diverse categories.
On the rural, while the width expansion will keep going on, especially on the focus market because like we have a large gap in our market share, there is also an immense opportunity on distribution. And therefore, from a distribution perspective, those focus markets are very critical.
On the non-focused markets, what we are doing is we are going and populating and extracting a lot of priority markets in rural because that is where a lot of category sits. So I think today, it's more about horses for courses and not about just keeping increasing the distribution. And therefore, the relevant set of geographies, you will see width increase. In metro, in the large markets, even in rural, there is an extraction opportunity, and that's what we are planning to do going forward.
Understood. Second and last question is, last quarter, you had mentioned that you will target double-digit volume growth in second half, and there could be 3%, 4% pricing contribution. Going by the discussion on this call today, it looks like pricing could even be slightly negative and you're aspiring for high single-digits volume growth. Have I understood this right, and if you can please clarify how you're thinking about second half?
See, the revenue growth depends on how we are cycling because last -- from last year onwards, we've taken quite a bit of price decreases. But having said that, we have come to a stage where we are now getting double-digit volume growths. Towards the end of the last quarter, we were almost at -- we were at actually double-digit growths. So we are in a position for that to happen. It's just that last year's base will put us below our revenues of last year. But as we start to get to the next quarter, we will have to also evaluate some pricing actions because of the inflation that we are seeing. So very difficult to say at this stage how the volume price equation will work. But I would say a quarter from today, it will probably even out, and we will start to see volumes almost being equal to the revenues.
Next question is from the line of Shirish Pardeshi from Centrum Broking.
I have a bigger question. On Slide 9, you have given the DMS application, and you did some -- mention that some pilot which you are doing. So quantitatively, after implementation of this Bain project, what is the materialistic change we have seen? Is the SKUs per order has gone up, is the packet growth -- some indication, if you can help us to understand?
Yes. So SKUs have gone up, also -- and that's because the salesman is spending more time with the customer and the market. And that's our biggest objective, and I'll hand over to Vipin in a second. But the biggest objective that we have is to have depth. And that means having more SKUs in the outlet, and that's what we've worked on as a part of this. Go ahead.
Yes. So, Shirish, there are 2 parts to the slide. The left side is done internally. For the last 5 years, we've been building this backbone, which is right from our distributor management system to handheld, which is today AI-driven, then we have got a continuous replenishment system, which connects to the depot. And then there is geo-tag and geo-fence.
And then even in rural, what we have done is that more than 60% of orders are today captured through the digital app, right? So this is what we have done internally. 8, 9 months back, the feeling was that we have done this internally, but we need to get this outside in perspective. And that is where Bain & Co was on-boarded, right?
So we -- so like Varun mentioned, previously, it's only been 2 months. We have started slicing the data. We are discovering that there is a lot of scope, especially in the top end of the book, and the pilots have just started. So today, no shift attributable to this new project has come. What we are saying is that in this quarter, next 2, 3 months, we are piloting different concepts, and probably the tangible gains will start coming in quarter 4 of this year or quarter 1 of FY '26. So right now, this is -- because this is a very large project, there is a lot of data, there's a lot of market types. So the next 2, 3 months is when we are doing a lot of pilots, testing out what's the concept and then blueprinting and then will be the phase of scale-up and getting the tangible benefits.
Vipin, his question is on tech-enabled sales transformation. His question was on that. But ever since you've done that, what are the -- what is the impact that you've seen on the business?
Yes. So on the left-hand side, like I said, Shirish, so there are tangible gains. One is -- what you can see is that close to 2-hour of market working has gone up, and that impacts the extraction from the outlet as well as increase in the number of lines or number of categories. What it also does is that it basically takes out any kind of corruption in the system. So our salesman cannot be a go salesman. He has to go to the market to pick orders. The entire distributor management system basically makes sure that we have got the right stock, and therefore, the out-of-stock instances are reduced. And all of these are fairly quantifiable, and we have got robust dashboards and tracking mechanism to make sure that all the sales and distribution efficiencies or KPIs move northwards every month.
Okay. My second question, Varun. We have made a lot of investments in dairy. And I think you made further acquisition of 26%.
Sorry?
There were some announcements that we have made some further acquisition in the Ranjangaon.
Acquisition?
No, no. Taking a 26% stake in that a company, which is supplying solar.
No, no, that's the solar power, has nothing to do with dairy.
No, no, I'm only saying that there is a lot of effort which we have put in, in dairy business. So -- INR 1,100 crores, what could be the contribution of dairy? Because you said you wanted to achieve around 10%. So where we are in that journey? And maybe specifically on the drinks portfolio, what would be the contribution, and cheese, if you can split?
So drinks, we will end at over INR 200 crores, maybe INR 220-odd crores this year, which is, I would say, reasonable. Cheese growth and cheese business, what is the total cheese business, Venkat, this year?
It will be upward of INR 250 crores.
So cheese will be about INR 250 crores, which is very small for that category, although that category is also not very large. But we can certainly do better there. Drinks is also crossing INR 200 crores, INR 220 crores now. So both these categories would be a bulk of our dairy business today, which will be about, what, INR 700 crores?
INR 700 crores.
So our total business -- dairy business will be over INR 700 crores, out of which cheese and dairy put together would be about INR 460 crores, INR 470 crores.
This is your aim to deliver in '25 or this already has happened?
No, that's the run rate that we have currently.
Okay. That's really helpful. And maybe if you can say that what is the gross margin we are at this time? Because you mentioned that milk prices are up. So maybe if you have a ready number, what price procurement we are doing now?
It's -- gross margins are pretty much in line with our overall gross margins. It's just that the investments and the depreciation, which is looking at a lower net for us. But our net margins are -- our gross margins are pretty much the same, slightly higher, in fact slightly higher than our core business.
Ladies and gentlemen, we will take that as the last question. I will now hand the conference over to Mr. Mayank Mundra for closing comments.
Thank you, everyone, for spending time with us on this call today. We look forward to interacting with you again.
On behalf of Britannia Industries Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.