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 Ltd. Q2 FY '19 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Piyush Bhandari. Thank you, and over to you, sir.
Thanks, Inba. Hello, everyone. This is Piyush from the Investor Relations team. I welcome you all to the Britannia earnings call to discuss the Q2 FY '19 results.Joining us today on this earnings call is our Managing Director, Mr. Varun Berry; CFO, Mr. N. Venkataraman; VP, Sales, Mr. Gunjan Shah; VP, Marketing, Mr. Ali Harris; VP, Supply Chain, Mr. Vinay Singh Kushwaha; VP, Procurement, Mr. Manoj Balgi; VP, R&D and Quality, Mr. Sudhir Nema; VP, Dairy Business, Mr. Venkat Shankar; and VP, Adjacent Bakery, Mr. Jayant Kapre.We will start the call with remarks on performance by Mr. Varun Berry. Subsequently, we will open up the call for questions.Before I pass it on to Mr. Varun Berry, I would like to remind you that anything which we say that refers to our outlook for the future is a forward-looking statement, which must be read in conjunction with the risks and uncertainties that the company could face in the form of general economic conditions, commodities and currency fluctuations, competitive product and pricing pressures, industrial relations and regulatory developments. I would now like to pass it on to Mr. Varun Berry for his comments.
Well, good morning, everybody. I'll move straight away to Page 3. Page 3, basically, there's a banner which actually is very close to our heart. It's all about consistency. And over the years, the greatest source of motivation for this team is our consistent performance, which is pretty evident on the next page, which is Page 4. So we've had a CAGR on the top line, up 11%, and 31% CAGR on the bottom line.Moving on to Page 5. The strategic planks, we see, are obviously heightened innovation. We've spoken about a number of new launches that we are doing this year. We've got new categories that we're entering into. We had the 100th year celebration this year, which we've got very good feedback because it wasn't just a one-dimensional celebration. We went out and we reached out to everyone, including consumers and old employees and all of you. I think it went off really well. Fourth is distribution momentum, which continues. And a very strong distribution momentum, which continues. Number 5 is our international business and Dairy. And there, I think we've made good progress in this quarter. And the last one is cost-efficiency program, which drive profitable growth for us. And obviously, the underlying factor is the team which is in this room and obviously the entire Britannia family, which is, today, fairly nimble, obviously, homegrown, stable. And our slogan, which is "Britannia for Britannians" continues. So there is growth for all our people within the organization.Moving on to the next slide, which gives the innovation that we've done this year. So we've had a fair amount of innovation in biscuits. We've launched products. We've launched some very interesting products in the premium segment and we've also gone down to the popular segment and launched, for example, the Good Day Cashew Almond product, which is a INR 5 product, which is giving us very good results. We've relaunched some of our brands. 50-50, which was relaunched about 2 months back, is showing great promise. And similarly, Bourbon is showing great promise. And we've got more innovation in the pipeline and very, very exciting innovation as we get into the second half.On the next page is the new categories. So we've entered the wafers category, and we had a certain capacity, and we thought that it would be able to take that capacity across the country. But what we've seen is that the response is so good that we've restricted our distribution only to the South. And even within the South, we've restricted it predominantly to 2 states, and we are running out of capacity. So we are in the process of now making sure that we have enough capacity to take this to work following their launch. Our Croissant project is underway. And we've got this -- as we speak, we are doing our production runs, trial runs, and it's looking very good. So we are, I think, about a month, 1.5 months from launching this product, which I think is a very, very exciting product for the Indian consumer. Other macro-snacking opportunities which we're also tapping on are cakes. We've got technology, which has been brought in, which are being -- we are -- as we speak, again, we are commercializing those technologies and we're commercializing those lines to make sure that we get to a launch earlier on in the fourth quarter.Next page is all about the massive multimedia campaign that we did this quarter for the 100 years. And I request Ali to jump in and just explain quickly on what we did.
So this 100-year campaign was an alternative campaign that we did across media. Of course, there's a large television campaign. There's digital campaign, which is a massive outdoor campaign. We also have done a very extensive visual identity change, which is across stores. We have put up very, very impactful visibility for Britannia, which is going to stay for some time. Also, the consumer campaign, of course, you look at our ads and we've communicated the 100-year milestone on our packaging. There was a large internal campaign that we did where we searched every single stakeholder related to Britannia and we've really thanked various stakeholders and partners for their contribution for the last 100 years. And we've shared our plans for the next 100 years, and there is a lot of excitement across for what we have in store.
So this is where -- we did spend more money on our A&SP this quarter. And I think it was well worth it because what we've seen is that it's just created a very, very positive momentum for us as we go forward. The next page is about distribution. Again, great momentum. We are -- our direct reach is almost at 2 million outlets, and I'll ask Gunjan to comment on our distribution agenda.
Hi. This chart is something that is very familiar to you. The left quadrant talks about the direct reach that you can see it's almost at 3x from over the last couple, few years. And as Varun said, we are very close to -- hopefully next quarter, we should be talking about 2 million-plus. That has been also clumped with a significant increase in the kind of reach that we are trying to benefit into rural. I think it's something that's really extremely well, right? What you see out here, 16,500 stock points. We should be looking at now crossing 17,000, which was very, very far away a few years back. Also, rural continues to outpace the urban growth, and that is also something that we know has a lot more head space for us to grow faster. The bottom section there you see is also something that we have shown to you. It has been a focus area for us getting the Hindi belt growing. The 4 large states in the Hindi belt are growing extremely well. And clumped along -- while you see individual state growths across Rajasthan, MP, UP and Gujarat, clumped along, the Hindi states continue to grow. What we want is faster than the overall growth of the company, at about 1.5x.
Moving on to the next page, which is the international business. We've seen a double-digit growth in the International business despite a slowdown in the Middle East. A lot of countries have, in fact, quite shut down. But despite that, we saw a double-digit growth, and this is on the back of the order entries that we made into the new countries as well as our Mundra factory, which has just started up. And that's giving us a cost advantage. It's giving us the efficiencies to -- for us to expand our international footprint. And we are also almost very -- and we are -- in Q4, looking at commercializing our Nepal plant. On the dairy front, we've also had some interesting launches. I request Venkat Shankar to comment on that.
Hi, everyone. So this quarter, we have launched our milkshakes in the Tetra pack format. This is a product which was only available in the HPP bottle format as well. But with Tetra, we are achieving a few significantly incremental things. Number one, it was launched at a very competitive price point of 25 MRP. The second is that this is a national launch and it is being taken across the country. It is early days. We have launched in 4 flavors: chocolate, strawberry, vanilla and mango. It's about 15 days into the market. But initial indication from our teams is that this has been received very positively from the market and we will update shortly on our launch objective have been made. The second product that we're launching this particular quarter is our dairy whitener in a new format, which is a jar format. Now this is a category which is largely present in refill pouches only. And our belief is that the jar is a long-phase need of the consumer. And therefore, we feel a little bit better with strong competition for the whitener.
Okay. Moving on to the next page, which is about cost-efficiency programs. We've taken -- we've indexed this to the year '13/'14, and you've seen how we are doubling up and getting fresh efficiency to the entire Britannia system. So last year we did about INR 225 crores of savings, this year, we're looking at a similar kind of number. And this number, you got to remember, is not -- we don't recycle anything from last year. This -- the block starts on the 1st of April and closes on the 31st of March. So these are all fresh efficiencies that we bring to the table.Moving on, Ranjangaon, which is our flagship factory as we speak, we have commercialized Ranjangaon. I'll let Vinay comment on that.
Hi, everybody. So Ranjangaon is a project that we started critical work sometime in January this year. While the photograph here shows biscuits being rolled out, the Marie line of biscuits, which started commercial production. We also started the cake production on one of our cake plants. It was set up in Ranjangaon, which we've started in July. We've got additional 2 lines that are at various stages of startup. So Ranjangaon is looking good. It's going to be a very large play for us. On its full scale, it will have capacity [ Audio Gap ] center. So it's onstream and it's firing well for us.
And also the Croissant plant is at Ranjangaon, which is going to start in the next 1 month or so. Okay, going on to Page 13, which states our strategy which is to be a "Global Total Foods Company". I'm just restating it just to emphasize where we are going. Now from there on, moving on to the Q2 results. So if you would look at the top line growth, there's been a very strong top line and volume growth on the back of a very positive momentum in the market. We are hoping that this momentum continues. But as you see, in Q2 of every year, we are a little bit up in terms of the top line. But this year, the up that we've had is larger than what we've seen in the previous 2 or 3 years. So I think we are moving in the right direction. And even if you look at the 24-month growth number, it's again moved into the 20s. So while it's a positive momentum for this quarter on a 1-year basis, but even on a 2-year basis, it's now 21% growth. So that we track very, very closely and we are happy that we are seeing this positive momentum on the top line.Now on the commodity front. We did go long on our commodities, which has really helped us. So we went long on flour. We went long on sugar. And to an extent, we went long on RPO and milk as well. And this year, it's proved to be very, very helpful for us. As a result of that, we've been able to curtail our overall inflation to under 4%.Moving on to the next page. Also so if you were to look at our bottom line performance, there are 2 underlying factors to it besides the one that I already spoke about, which is our commodities and going long on commodities in a year like this. It's accelerated cost-efficiency programs, and obviously, the leveraging fixed costs have been the 2 big pillars that we've been following. In this quarter, you will see the expenses going up, and Venkat can explain to you the other reason. But one of the reasons is the A&SP because of the 100-year celebration has been fairly high. The other reason is that there is a business model change that we made in bread, which is showing some expenses there. And I'm sure there will be questions, which Venkat will answer at the end of the presentation. Now if you look at our profitability chart, which is on Page 18, you will see that, again, a very consistent chart with profitability going up quarter-on-quarter, and a strong 14% consolidated operating profit in the last quarter and 13.6% operating profit in Q2 of last year. We moved to 14.6% in this quarter. And if you were to look at the growth on a 12-month basis, it's 21%. On a 24-month basis, it is 35% on the profitability front.Moving on to Page 20, which gives the consolidated number. So net sales, up 13%; profit from operations, up 21%; and profit before tax and profit after tax, 17% and 16%.And the numbers, which are the percentages, are given at the bottom. So profit from operations has gone up to 14.6%; PBT has gone up from 15.6% to 16.1%; and PAT has gone up from 10.2% to 10.6%.That's all for me. So we can now open the house for questions.
[Operator Instructions] Our first question is from the line of Aditya Soman of Goldman Sachs.
First question is on premiumization. Did you see any sort of significant momentum in premiumization during the quarter? And the reason I ask this is because you have double-digit volumes on net sales of 13%. So is that -- is the gap between the net sales and the volume growth premiumization or is it just price increase?
Well, yes. There is a better mix, because, for us, the value segment is not growing and it's the premium segment which is showing the bigger growth. So that's where it is because there's hardly been any price increase during this time.
Okay. So you said the majority of that gap is -- and in terms of price increases, do you expect to take any pricing action in the rest of the year? Or do you think that the commodities currently are in a place where you should be able to manage?
So we will have to take pricing actions because what you see for our inflation is not the story outside of our company. What we have seen is we've seen a fairly steep inflation on wheat. We have seen inflation on sugar as well. So there is inflation which we'll have to cater to. So we plan to do a price increase as we move forward towards the next year. Our covers are halfway through Q4. So as our cover is exhausted, we actually will have to make sure that we check ourselves with a price increase.
That's very clear. And lastly, in terms of other expenses during the quarter, we saw a 20% jump in other expenses in the stand-alone numbers. Is this largely a function of higher advertising and freight expenses? Or is there anything else?
So there are 2 factors to this, and I will let Venkat comment on that.
You're right, there is an increase in the other expenses line. So 80% of the other expenses are variable expenses. So it includes things like conversion charges, distribution charges, labor cost for contract-related costs and advertising, right. So 80% of it is variable to the volumes that happened. So the one explanation is the volume, therefore. The second part is that we had some onetime 100-year activation that happened during the quarter, right. The third is we had changed the business model so far as Bread is concerned. So last year, same quarter, we were buying finished products from vendors. Now during this quarter, we have moved from buying finished bread crumb vendors and supplying them material and paying them conversion. So there's has been a shift between the lines of material conversion and other expenses. So if you remove these transactions that I'm talking about, the increase will be in line with the increase in the costs.
Understand. So if I exclude the...
This is in line with the last 2 quarters as well.
Okay. So if I exclude the activation and change in the Bread business model then you're saying it should be in line with volume growth.
Yes, absolutely.
Our next question is from the line of Latika Chopra from JPMorgan.
My first question was on demand. What are you really seeing on the ground? You've been delivering double-digit volume growth. We are heading into second half where the base catches up to some extent. And we are seeing a very encouraging base of new product launches. Should we expect a high single-digit, low double-digit volume momentum to sustain? Or would price hikes, which you talked about, we could expect some moderation here?
So price hikes really give a moderation on the volumes. But we are not looking at price hikes which are completely out of whack. The price hikes will be in the range of 3% to 3.5% when they are fully out in the market. So the thing is that, right now, what we are seeing is a reasonable momentum in the market. And when the momentum comes, it lasts for some time. And next year, as you know, is the election year. So usually, election year, momentum on consumer goods products continues. So we are hoping that this momentum should continue. And obviously, we are continuing on our innovation journey on our new product launch journey. So that should give us that extra edge in the industry as well.
All right. And just prodding a bit more on new launches. I understand that last time you mentioned these accounts are roughly 5% of turnover. How -- what kind of contribution one could expect, say, 2 years' time for this new segment that you are looking at, including the Chipita JV?
So Latika, these days, you can't tell what's going happen next month and you're asking me what's next year, it's very difficult to answer. But hopefully, this will become -- all these, the new segments that we are talking about, we are hoping they'll become a reasonable base for us as we move forward.
And just last small one. 1.9 million direct reach that you have today, what's your ambition here, where you can take this to?
Gunjan, would you like to comment?
So Latika, we -- as you can see from the graph, we have been adding in the range of about 2 lakh, 2.5 lakh outlets every year. And I think the universe is extremely large. Obviously we go [indiscernible] we need even larger number of outlets. And you've seen the success and the gains that we have seen from direct reach to many of these outlets. So I hope the pace will continue in the range of about 2 lakhs per year.
So Latika, there are 2 factors to this. One is, obviously, the expansion in our direct reach. And I've said this last time as well that till the time we reach about 2.5 million outlets directly, I think we are -- we don't even have to think because we can see that there is at least another 5 lakh outlets which we can add in the areas that we operate, outlets which are not covered directly by us. Second is -- second agenda for us is also going to be as we get into innovations, as we get into new categories, the second agenda is now going to be how do we create a pipeline which is going to transport all these products to the retail outlets. So what we did 5 years back by splitting our routes and looking at creating bandwidths within our distribution system, we are now evaluating that once again to make sure that all the new products are well-executed and are in the market as we would want them to be because what we would not want is to have these products but not have the kind of execution that we need for these products in the market. So again, it's a dual agenda. While we increase our direct distribution, continue to do so, we will also make sure that we increase our depth as we move forward.
Our next question is from the line of Sameer Gupta of IIFL.
This is Percy Panthaki. Sir, my first question is on Dairy. This dairy whitener which you have launched, would you be able to give some idea on the size of the market and how it is split between B2B and B2C and what your strategy is in terms so focusing within the 2 segments, B2B and B2C?
Yes. So current estimates for the consumer part of the dairy whitener is about INR 3,000 crores, predominantly dominated by a few consolidated brands. The institutional market is at least about half its size. But they are inquiries on that on estimates on that part. So that's as far as the market sizing of this particular...
Sir, when you say institutional, are you counting HoReCa and stuff in that?
Yes, exactly.
Okay. And you will focus more on the retail market or on the HoReCa one as well?
We're almost exclusive focused on the retail side of this business, which is the consumer part of it, which will be all the packs up to about 1 kg, starting from 10 grams to 1 kg in different pack formats.
Right, sir. Sir, my next question is on Biscuits. I just wanted to get a sense if you've done any internal exercise on the contribution of premiumization to your overall sales growth on a slightly longer term, let's say, last 3 to 5 years on, what internally you classify as premium. And what is the contribution of that now versus, let's say, a few years back? Any kind of sort of flavor or data you can share on this?
So broadly, I can tell you that broadly we have felt that our contribution from our value portfolio has gone down considerably and so has the industry. So overall industry, the value portfolio, it has become a much smaller part of what it used to be. So just to quote some numbers, while I've been in this company during these last 6 years, I remember it used to be north of 50%, the contribution of the value portfolio. And now it's south of 40%.
So then, what is the definition of value portfolio?
The value portfolio is anything which is less than INR 100 a kilo. Currently, [indiscernible].
And this 50% to 40% change is for Britannia or for the industry overall?
For the industry. We are much lower. Our contribution is much lower in the value portfolio. It's about [indiscernible].
Right, sir. And finally, just wanted to understand your competitive strengths versus the 2 or 3 other large players. I mean, everyone is doing more or less the same thing, that is launching new products, innovating, trying to premiumize, reaching out to more number of stores. Everyone is doing these 4 or 5 main things. So where do you sort of have a competitive edge among all these drivers? Where do you think you sort of are better than the competition?
So the first competitive edge is our brands. I think we've got the strongest brand in the category. Second competitive edge is then distribution. Distribution, as we look at it, we've widened the gap between us and the third player. And we've narrowed the gap between us and the first player in distribution, right? So we are not the leaders as far as distribution is concerned. We might be the leaders by far from a share standpoint. And we are leaders even in the premium segment, et cetera. But from a volume standpoint and from a distribution standpoint, we are not leaders. So we've narrowed the gap considerably between us and the leader from a distribution standpoint and also widened it with gap #3 player. So that gives us a competitive advantage. Our distribution numbers have been moving faster than any other company in this segment. And I would hazard to say that within the industry, we've really done some spectacular work from a distribution standpoint. And the third is obviously our -- the new R&D center and the entire R&D team, which has been delivering very, very spectacular innovation projects for us. And last but not least, the fact that our supply chain and our finance team together have a very, very tight spine in terms of our costs. The cost-efficiency programs that we run, the supply chain efficiencies that we track, the kind of costs that we take out of the system year-over-year, I think those are the competitive advantages which are easy to talk about but very difficult to replicate.
Your next question is from the line of Arnab Mitra of Crédit Suisse.
First question was on the Cream Wafers market. If you could just help us with any kind of category-size estimation here. Is it a very fragmented market in terms of market share? And is it a growing market in the last few years?
So yes. So let me just ask Jayant, who handles our adjacency businesses to talk about this.
This is Jayant here. So the market is approximately INR 400 crores to INR 500 crores. It's been growing at a CAGR of 20%. And this is a market which is quite fragmented in terms of smaller local players and some private labels in the modern trade. And that's why [ the price to succeed ] is quite high here. And the initial response to the market also reflects that.
And just to add to that, I think this is a completely unexploited market as far as India is concerned. If you were to see outside of India, there are companies, like Loacker and Manner. These are 2 European companies which only do wafers. They don't do anything else. They don't do biscuits. They don't do cakes. They don't do chocolates, nothing. Only wafers, they do. And they have businesses ranging from 250,000 -- EUR 250 million to almost EUR 0.5 billion only doing wafers. I think it's an unexploited market. If it's looked at in the right way, this could create a much larger niche than what it currently is in the country.
I'm sure. So in that sense, you would say that one of the reasons why most Indians aren't pretty familiar with the format. It possibly hasn't grown is because nobody has like seriously invested in it. Would that be how you'll be looking at it?
Absolutely right.
Sure. The second question is on the P&L overall. So in the last couple of quarters, your EBITDA has grown pretty strongly. But the pack growth hasn't much below EBITDA, I think largely because of other income and a few other factors. Do you think those factors continue in the second half, that pack growth much below EBITDA, including the increasing depreciation and things like that?
Venkat, would you like to comment on that?
Yes. So other income last year had an exceptional credit. We had an interest on pension deposit of about INR 14 crores that came in versus the last year quarter 2, right? So if you take that out, this growth has been definitely there. And if we look at the overall percentage, even at the PBT level, for instance, it's moved from a 10.3% last year quarter 2 to about 10.8% this quarter. [indiscernible] also has moved.
[Operator Instructions] We'll take a next question from the line of Ravi Naredi of Naredi Investments.
Varun, in your overall guidance, company able to reach new heights again and again in last 6 years. Only one concern Varun, large amount reaching that INR 1,123 crores. This amount divested into other companies [as underlying ] growth. If you keep this amount in [Bank FD], our market can realize more than EBITDA. So what is your view on this?
So basically, it's -- something that -- Venkat, do you want to comment on this, what he has been talking about?
No, [indiscernible].
So, Ravi, the returns -- so the total company treasury in excess of growth, INR 2,200 crores. I'm sorry. What we have done is moved a few of them from mutual funds to better-yielding investments. So we have currently a return of roughly about 9% on average. But we take your point, we take your point.
But mainly, what is the other main [indiscernible] from biscuits and other products. We are not here for [indiscernible] investing in big deposit in group companies. So this is the main concern of investor. And if you do by changing the long-term advances to Bank FD your market [pays double] company market [indiscernible] by 10%. You have nothing to do, but you have to discipline targets and stuff.
Sure. No, we take that point.
And sir, what is the right CapEx plan after this Ranjangaong?
So we embarked -- so we are talking about strong volume growth. As the volumes grow, our requirement for new lines, et cetera, keeps going up. So as we speak, we are now looking at probably a new plant, maybe 2 plants in the East. We've already just commissioned the Guwahati factory. But the East, we are looking at 2 plants. We are looking at probably 1 more plant in the South, and maybe 2 years down the line, 1 more plant in the North as well. So there will be more capacity required. And also important to remember that Ranjangaon is a very, very large facility. While we've got guidelines coming out in the next 2 or 3 months, the fact is that the fully blown plan is to have at least 14 lines there and also our dairy facility in Ranjangaon. So that is the capital requirement which the company has. And just to put that in perspective, as we require more funds to invest in our own business, obviously the requirement of putting in for higher deposits will also go down.
Our next question is from the line of Nandan Vartak of Wealth Managers.
So my question is on subsidiary performance. So we have witnessed a good gross profit margin shift from the range of 40%-odd to 55% now. So what are the drivers there?
So basically, the Dairy business as well as the International business both are doing well for us. So we are seeing good growth in -- yes, as well as Dairy is concerned, we are seeing good growth in the strategic portfolio. There is some kind of shift that is happening from the high-margin value-added portfolio is growing and the low-margin commoditized portfolio is not growing. And that's by design. So that's one. Second is in the international markets, where our gross margins are very good, that also has seen a double-digit growth this quarter.
Okay. And if you could please give guidance about our top line growth here? The subsidiary top line growth has been flattish. And that's what I would like to understand.
So that is what I was talking about. Basically, the commoditized dairy part of the business has not been growing. And hence, that is the reason that basically overall dairy growth has been a little tepid. But within that, the strategic part, which is the value-added part of the portfolio, has been growing very rapidly.
Okay. And can we expect that this would be in line with the overall consolidated growth going ahead?
We don't give a future forecast, so won't be able comment on that. But obviously, the endeavor is that each part of our business should grow aggressively.
Okay. And the International business, which has been reporting double-digit growth now, so which new geographies which have contributed to this growth?
So basically, it has been doing well for us. And there are some new geographies that we went there in Africa, et cetera, which are giving us some good results as well. But Middle East, which has been fairly flat for some time, we have seen some growth because of share gains that we've gotten there particularly.
Our next question is from the line of Tejash Shah of Spark Capital.
Sir, our thrust on innovation pipeline has been here for a while now. So I just wanted to know what would be the revenue contribution from innovations which are more than 12 months old now.
So about 5%. So what we do is we don't track 12 months, we track 24 months. So after a product is launched, we consider it innovation for 24 months. And we look at what it's generating for us from the top line perspective as well as from the bottom line perspective. And that number is about 5%.
And sir, is it fair to say that the incremental growth is the largest share from this pipeline?
At this point in time, yes, we are getting good momentum from there. And we are hoping that, that will continue.
And sir, on rural growth momentum, if you can share some observations, if you have any.
So rural growth momentum for us has been very, very good. And in fact, even in the times where there was a slowdown in the rural market, we have continued to see very high growth. And that has only accelerated. And the reason for that, it's very difficult for us to bifurcate what is the market growing at and what are we growing at because our agenda is to go as deep as we can. And as you know that our urban shares have always been higher than our rural shares. So the opportunity in rural always has been very high for us. And we have tried to make sure that we go deeper into rural and we get our rural share to be equal to our urban share. We still haven't gotten there. But the growth are very, very good at this point in time.
And sir, lastly, one follow-up on other income. What would be the weighted average yield on our treasury book for this year at least?
For the quarter, we're looking upward of 9%.
This is for the whole book or the ICDs that we have given?
Whole book. I'm talking about the whole book.
And then ICD is how much?
ICD is about 10%.
Our next question is from the line of Het Choksey of K.R. Choksey.
I have just one question, actually. So I think we have been growing exceptionally well in the premium category and trying to avoid the crowded space. How is the company positioning itself as far as the shelf life and shelf space is concerned? I understand that we are having a lot of competitors also innovating and also fighting for the same shelf space in the urban and rural areas. So I would like to understand a bit on how -- with every category that you develop, how is it that you command this kind of a shelf space and the entire economics around that?
So the shelf space is our -- it's a factor of your execution in the marketplace, your relationship with the customers. I think given the fact that we are a 100-year-old company with a lot of focus on brand-building, a lot of focus on distribution, which has been rejuvenated by the sales team in the last 4, 5 years, I think that's what gives us the ability to dominate shares in the markets that we are strong. But having said that, there are a lot of markets that we are not strong in. And that's what we are focusing on. So if you think about the Hindi belt, I keep getting feedback from friends and family that we are not strong and we are -- we can build markets. And that's why we are focusing so much on those markets to make sure that we are -- so if we were to look at the South and North, it's [shock to see] . While the South share will be between 50% and 60%, the north share will be in the teens or even less. So the objective really is to make sure that we identify these weak markets and keep doing what we are doing in the strong markets and keep getting more shelf space and keep getting our products in, et cetera. And that's what we -- that's what we dream, that's what we think of and that's what we do in the marketplace.
Understand, I think fantastic. So just one follow-up on that. Are you seeing that same positive response as far as the smaller SKUs are concerned? Because I understand that you launched more categories. And except those categories, you launch more SKUs for the wider visibility in the rural area. So is this the same response in the rural area, maybe in a smaller shop, where you are getting more -- commanding more presence gradually than direct competitors?
So if you're talking about low unit sales tax, we have seen tremendous response to our Good Day offering. Good Day Butter, which we launched about 5 years back, has been a tremendous driver of sales for us. And we recently launched Good Day Kaju Badam in the INR 5 segment about, what, 2 months back, Gunjan? And that's also starting to pick up very, very well. So yes, that does gives us at the same kind of muscle that we get in the urban markets.
[indiscernible]
Our next question is from the line of Dipan Mehta from Elixir Equities.
Sir, over the last few years, you've been increasing your own production. But at this point of time, what is the production which is outsourced? And what are these own production in terms of revenue contribution?
Do you want to talk, Venkat?
In terms of volume, 45% is outsourced currently and 45% is done in-house. In value terms, it should roughly be a little over 60% in-house.
60% in-house? And that you expect over the next 4, 5 years would be almost 70%, 80%. What is your target scenario as far as in-house manufacturing is concerned?
So in terms of volumes, 65% in-house is what we are looking at. So in value terms, it should be about [70%].
Okay. And second question, sir, is regarding the contribution of new products launched. If you can give us some data point, like 3-year-old products or 2-year-old products, 1-year-old products or the contributions of the total sales volumes?
It looks like the management line just got disconnect. We request you please hold the line while we try and get them back. [Operator Instructions] [Technical Difficulty]
Ladies and gentlemen, thank you for your patience. We have the lines for management reconnected. Mr. Mehta?
I just wanted some data point if you are disclosing as to the revenue contribution from new products, maybe, say, 1-year-ago launched products or 2-year-ago launched products or even 3-year-ago launched products.
So what does that mean?
Supporting products that you launched 12 months ago, 24 months ago, what is the contribution of those new products to total revenue of the company?
Yes. So as I was saying, we track products which have been launched in the last 24 months, taken as innovation products. And they deliver about 5% of the total revenue of the company. And that's what our benchmark is and that's what we work towards.
Our next question is from the line of Latika Chopra of JPMorgan.
Just two small follow-ups. One was what was the growth in advertising spend in the first half that you have seen? And the second one was if you could mention the CapEx outlay for FY '19 and FY '20.
Yes, Venkat, what is the number for...
It's an increase of roughly 20% over the previous year.
Okay. And for the full year, you would expect this to moderate because of the -- this will include 100-year celebration expenses, I believe, in Q2?
That is true. Yes. So this quarter was a very heavy quarter. And rightfully so that there's -- it is a momentous occasion for us. So yes, it will moderate.
Right. And the CapEx?
The CapEx number for this year is INR 500-odd crores. And in the first half, it's about INR 200 crores. And in the second half, it will be an under INR 300 crores.
We'll take the next question from the line of Kunal Bhatia of Dalal & Broacha.
Just wanted to know what's the capacity build-up you're doing in Q4 for Croissants.
For croissants. So the capacity that we have is about 200 million pieces per year. So that's the kind of the capacity that we have currently. And we thought that, that capacity would be good for us for 3 years. But we'll have to see. And if we see the product flying off the shelves, then we'll have to hasten to make sure that we put up more capacity. So this is one of the biggest lines that they make. But it's also one of the biggest countries in the world, so we'll have to, you'll have to wait and see.
Okay. And sir, in case of Ranjangaon, as you were mentioning with the 14 lines, what would be the capacity?
So overall capacity, these are going to be very different lines. But it would probably be about 130,000 tonnes per annum, about, let's say, 11,000 tonnes per month.
Okay. And so this would be approximately 10% of our overall capacity [indiscernible].
Yes, maybe about 11%, 12% of our overall capacity.
Okay. This should be done by FY '20?
It will be done in the next 2 years.
Next 2 years?
Yes.
Okay. So we should reach 130,000 tonnes by next 2 years.
Yes.
Our next question is from the line of Kaustubh Pawaskar of Sharekhan Limited.
Sir, my question is on efficiencies. This year, we are targeting about INR 225 crores of cost savings. So what would be the key drivers? And with the commercialization of the Ranjangaon facility, will -- that will further add to the efficiencies or it is included in whatever targets you have been set?
Yes, it has been included in the targets that we have. So efficiency programs remain broadly the same. So it's all about energy saving. It's all about reduction of kilometers traveled by our biscuit. So those programs remain the same. But I'll let Venkat comment on this and talk about what programs we have for this year.
So as Varun said, the themes will remain largely the same. There will be efficiencies in factory. This is in terms of releasing parts, fuel and labor. It's in terms of production in distance. It's also incentives in some of the new facilities that are coming up. It is also reduction in material usage to focus on the defectives, et cetera. So largely, these are -- this will continue to be the themes for the next couple of years. And the INR 225 crores that we are talking about is going to come out of all these initiatives.
Okay. And so what is the cost inflation -- raw material cost inflation you are expecting for the second half?
Well, it's about -- it'd probably be about 4%, not second half. Internally, this quarter, we are covered. But in the fourth quarter, it'd probably be 4%, 4.5%.
Okay. So the 3% and 3.5% price hike, what you are planning to take, will cover up whatever the inflation that you are expecting?
Yes, a little less than the inflation, so cost-efficiency programs, et cetera, also come in.
Our next question is from the line of Rahul Ranade of Goldman Sachs Asset Management.
Just two quick questions. So firstly, can you give us a sense of the biscuit industry overall in terms of geographic split? I mean, we shared market share for -- in the south versus north. But as an industry as a whole?
It's fairly even, I would say. So while we dominate the South, the North is also in terms of -- I'm talking in terms of volumes. The North is more of a value space. So a lot more value products are consumed there. But in terms of volumes, it will be evenly split between North and South.
Okay. And this value portfolio guide that we give, it was more than 50%, say, 5, 6 years ago, which has gone down less than 40% now. I'm sure that this is inflation at this rate, right, for the value [biscuit] versus premium?
Yes, like-to-like.
Your next question is from the line of Binoy Jariwala from Sunidhi Securities.
I had a quick question on the Hindi belt. If you could give some color as to what is our distribution penetration in the Hindi belt, which I believe is the largest player. And how far can we expand -- how deeper can we go with Hindi belt?
So if you look at the gap between us and Parle, it's probably, Gunjan, what, about?
[indiscernible]
So about -- no, there in the north. But if you look at all India, all India is about, let's say 6 lakh outlets, right? So if we get to, let's say, 5 million approximately, they get to 5 million plus 6. And the delta between us and them in the north is about 8 or 9 lakh outlets, right? So we dominate all other territories. Most of the gap between us and the market leader in terms of distribution, 150% of that sits in the Hindi belt, right? So that's the kind of gap. And hence, that's the kind of focus that we provide to those weak markets.
And Hindi belt as a contribution to the overall sales, how much will that be? And how is our market share in the Hindi belt look like, vis-à-vis [ India ] market share?
I told you it's about in the teens. Our market share in the Hindi belt is in the teens.
Okay. And the contribution to our overall sales?
30%.
30%, 35%.
30%.
To the category.
Our next question is from the line of the Devansh Jain of Devansh Traders and Analysts.
Sir, two pointed questions. Since you have said that you had a 4%-odd inflation, which you're able to totally offset with the cost saving measures that you do, so it's -- that would be impacting the cost savings measures you have on the company's P&L. Could you just give a sense of what is the absolute quantum that we've been able to realize out of that INR 225 crores of targeted cost savings that we had for the year?
I didn't understand the question. But let me tell you. First of all, all of that 4% is not because of cost savings. That 4%, we've been able to neutralize because of the long position that we took in our commodities this year, right? It was a very good call that was made. And that was the reason for us to neutralize the inflation. Yet, the cost-saving measure also neutralize it to the extent of INR 225 crores. Now what is the question? Out of that INR 225 crores, what do you want to know?
I want to know what is that we have been able to realize this year, halfway into the year. So you would have realized some part of that INR 225 crores that are targeted for the year. So what is that number looking like for us in terms of [indiscernible] realizations?
So it's usually in the first half, it's lower than what is in the second half. So usually, it's about 35-65 because the program starts at the beginning of the calendar year and then we gain momentum month-on-month. So as we go through the year, it accelerates pretty rapidly.
Okay. And just to put that in perspective, so it looks like we'll be able to -- I mean, [indiscernible] as far as our commodities are concerned. And then costing also had its benefit that we sort of realized. So as far as the pricing or the [indiscernible] actions are concerned, we have not done anything significant is what you are saying, right?
What? No, we haven't done. Very little price increase has happened this year. So all of that, we'll have to work on, we have worked on and we'll have to look at what is necessary and we'll plan that in the fourth quarter of this year.
Okay. And sir, just one more question if you could allow me. In the Q4 last years, your purchased traded goods was abnormally high. It was INR 618 crores if I quote the number as far as stand-alone financials are concerned. So as was said when I had asked the question at the Q4 analyst call, it was said that there was some business model as far as that strategy is concerned. Now when we are -- now when we are facilitated group as a number, it goes up [indiscernible] purchasing the final FG from the vendor. But having shifted that strategy to a different, I mean, model of operation in Q2 this year. I mean, because the number again has come down to some [ INR 300 crores ] that we are used to seeing [indiscernible] in terms of Britannia.
Yes. So that's true. So in the last 3 years, we moved from supplying FG to the vendor doing the contract packing buying early. And now we have moved back to supplying FGs.
Okay. Between Q4 and Q2 of this year, is it?
Yes.
Ladies and gentlemen, that was the last question. I now hand the floor back to Mr. Piyush Bhandari for closing comments. Over to you, sir.
Thanks, everyone, for spending time with us for this call. We look forward to interacting with you again. Thank you.
Thank you, members of the management. Ladies and gentlemen, on behalf of Britannia Industries Ltd., that concludes this conference. Thank you for joining us. And you may now disconnect your lines.