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 Q2 FY '23 Earnings Conference Call of Britannia Industries Limited. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Mayank Mundra from Britannia Industries. Thank you, and over to you, sir.
Thanks, Stephen. Hello, everyone. This is Mayank from the Investor Relations team. I welcome you all to the Britannia earnings call to discuss the financial results of Q2 '22-'23. Joining us today on this earnings call is our Vice Chairman and Managing Director; Mr. Varun Berry; Executive Director and CEO, Mr. Rajneet Kohli; Executive Director and CFO, Mr. N. Venkataraman; Chief Sales Officer, Mr. Vipin Kataria; Chief Marketing Officer, Mr. Amit Doshi; Chief Procurement Officer, Mr. Manoj Balgi; and Chief Development and Quality Officer, Mr. Sudhir Nema.
The analyst deck is uploaded on our website. Before I pass 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. So let me just jump on to Page 3 of the presentation. If you will look at this, you will see that we've had a very good quarter. So we've got our revenues from operations, which have seen a year-on-year growth of 22% and a quarter-on-quarter growth of 19%. Operating profits have grown 30% year-on-year and 47% on a quarter-to-quarter basis, which is sequential. Market share continues to be a very good story. It's the 38th quarter of market share gains for us, which is a very, very positive story. And this comes out of all the hard work that the team has put in not just building and nurturing strong brands but getting the distribution of all our products in more and more outlets across the country, and I'll come to those details in a minute.
If you move on to the next page. This shows you what's happened from an inflation standpoint. So if you look at consumer food price inflation year-on-year, quarter 1 was 8% and quarter 2 is almost in the same vicinity. We know what's happened to the Indian rupee versus the U.S. dollar. It's now at about INR 82. While the wheat prices in the international markets have gone down a bit, and similarly on palm, palm is impacting -- is giving some upsides to us as well. But unfortunately, the wheat price decrease that we've seen in the international market has not happened in India. And the reason for that is that we've had a lower crop, which is about 12% lower than last year. As a result of that, the wheat prices have held fairly firm this quarter.
So moving on to the next slide. You will see what's happened in the last 7 quarters. So in this last 7 quarters, we've seen inflation of 32%. So if you were to index quarter 3 of 2021 as 0, from there, we move to 100 -- from 100%, we moved to 132%. So that's a huge inflation in 7 quarters. And as you see that it's not just year-on-year, but also quarter-on-quarter, it's been moving up. And this -- if you want to look at the key components of this inflation, wheat flour is 25%, industrial fuel is almost 40%, and palm oil is on a year-on-year basis, 10%. The overall, it's been -- and this is the first time that inflation has not just been in one country but across the globe.
What we do expect is that Q3, we do expect some respite on the back of palm oil. Milk prices continue to be on a boil, which has impacted our daily profitability. And wheat prices, we do expect these to be firm in Q3 as well. So that's the current situation and the outlook as far as commodities is concerned in a concise, short capsule.
Moving on to the next page. If you were to look at on the cost and profitability front, the overall inflationary pressures have been this quarter as well. If you were to look at sequentially over the last quarter, we've seen an inflation of 3% in this quarter. We were the first ones to action price increases, and we took it much ahead of the market. And we've been able to accelerate our cost efficiency programs as well, which I'll take you through as we go through this deck. We also plowed back into the business. The money is that for the last 2 years, we have not fully spent. This year, we've normalized our advertising and sales promotion spends as well.
But despite all of that, our operating margins have improved by 290 basis points on a quarter-to-quarter basis.
So just in a capsule, 32% inflation in the last 7 quarters, which has impacted our profits by approximately 23%. We've mitigated this through about 20.5% of price increases that we've taken, and we've got approximately 3% from cost efficiency programs. So that is the story of inflation and what it's done to our bottom line in the last quarter.
Moving on to the next slide, which is Slide 7. This you've seen in the past as well, so I'm not going to drain it. But these remain our strategic plans for driving profitable growth.
Moving on to the next slide, which is Slide #8. Now this is a slide on distribution and truly a great job done by our sales team. So if you look at it, we build our rural distributors, which is the first bar chart on top from approximately 8,000 distributors in March of 2016 to 28,000 distributors in September of '22, which has helped us gain more share in rural. The share gains in rural are approximately 1.5x what they are in urban, so that's helped us. And a lot of companies have called out a slowdown in rural. As a result of our programs, we've not seen that slowdown in our business. So -- and if you were to look at it, we've build our rural sales by almost 4x in the last 6.5 years, which has given us the rural momentum.
As we've said earlier as well, rural has not been a stronger force for us. We've always been slightly weaker in rural, and that's what we are trying to fulfill. Now looking at the bar chart at the bottom of this slide, you will see that these are direct -- the outlets that we distribute directly to. These have gone up to 26 lakh outlets, which is approximately 4 lakh outlets more than what we were doing till March of '22.
Moving on to the next slide, which is Slide #9. Marketing activities have been fairly regular and almost back to normal. Some of the big campaigns that we've done, Milk Bikis Atta, the Croissant campaign, which some of you would have seen. A new launch in Biscafe, which is a very fine, very tasty coffee cracker. We've relaunched Bourbon. We've got 50-50 Potazos on television. We've got 50-50 Golmaal, which is, again, a new product that we've launched and is doing extremely well in the East. And we've done the Cheese campaign, which is around the properties of protein.
Besides that, we've been doing digital activities and engagement initiatives on quite a few of our brands, which we have enhanced after Amit Doshi joining the team and bringing the experience of digital company. We've started to look at this in a way that we look at how we can make our digital efforts accretive to our mainline media efforts.
Moving on to the next slide, which is Slide #10, which shows some of the innovations that we've done and innovations that will fuel the next phase of growth for us. Biscafe was launched in Q1. It's almost 3x revenue shift quarter-on-quarter. We've also done NutriChoice Seeds, Herbs & Proteins, which were launched against in the first quarter of '23 and -- '22-'23, and we've done approximately 2.5x the revenue from quarter 1 to quarter 2. Similarly Golmaal, I've spoken about that. It's East-only launched for the time being, and has done really, really well, the 85% quarter-on-quarter increase in revenues.
Treat Croissant has been launched nationally after a prolonged market research and figuring out what to do with the product, what to do with the packaging, et cetera. And I'm very happy to report that we've seen amazing results as far as Croissant sales is concerned. We've seen a revenue growth of almost 70% quarter-on-quarter. Wafers, again, I would say, a reasonable progress as far as wafers is concerned. We've got a new wafer, which is a cheese wafer that we've launched in the South. We've got limited capacity. We seem to be hitting the top of our capacity. So we will have to look at more capacity into our newer plants. But I would say reasonable progress, but tremendous opportunity for even better performance as far as wafers is concerned.
Cake and rusks are back. On cake, we've done a lot of new products, including what you see on this slide, which is Marble Cake with a 2x revenue shift quarter-on-quarter. So -- and Marble Cake has actually given us a very good revenue growth as well for the cake business, which has turned the corner and has started to do extremely well, not just from a top line perspective, but even from a profitability perspective.
Moving on to the next slide, which is Slide #11. So again, something that we've been talking about, bakery adjacencies, objective being profitable growth journey continues with bread, which used to be a very unprofitable business and is turning out to be a hidden gem for us. Growths in rusk and cake are back. From a croissant perspective, I've spoken about it. We are growing at 250% versus last year. We've done a aggressive national scale up, supported by end-to-end marketing campaign. I won't say that we've found a certain level that we would like to be at from a distribution -- numeric distribution standpoint. So there's a lot more to do. And we are testing the waters as we go. We are looking at how far we should go in terms of the width of distribution. But what we are seeing is that offtakes are very, very good. Repurchase rates are very good. So we are very, very happy about the performance that we have on croissants.
International, we've just signed up for a joint venture with a controlling stake in Kenya. There used to be a brand called Britania, which had a different spelling from our Britannia. And as a result of this deal, we will have control over that brand so that we will not have a infringer in Africa doing the same brand that we have on our doors. Middle East growth continues and so does the Americas. The Americas has shown us a very good growth in the last few years, and that continues, especially in Canada.
Dairy has been a tough story. Although we've done some fantastic work of putting up our collection centers, getting farmers to pour milk for us, setting up the factory, which is probably going to be commercialized in the next month or so. We've got -- we've already commercialized SMP plant, but some of the other facilities that are going to be commercialized starting next month. And we've got -- the problem there is the inflation that we are seeing. Milk prices today are at INR 41 a liter in the West. And Manoj, correct me if I'm wrong, it's INR 58 a liter in the North for buffalo milk?
Yes. Yes. Yes.
And so there has been from about INR 30, INR 31 they've gone to INR 41. So there's a very high inflation on dairy. And while we are taking price increases, this is turning out to be a lot more than what we had ever imagined. So profitability remains a challenge as far as dairy is concerned. So that is the story of our adjacent businesses, but very happy about some of the progress that we made in each one of these buckets. This was a little bit of a worry for us, but I think we are slowly coming into our own with all of these products and starting to do well, not just from a top line, but from a bottom-line perspective as well.
The next slide is about cost efficiency programs. You will see that from 1x to 8x from 2013 to 2022-'23. And in the last 1 year from 5x to 8x, so almost 1.5x the cost efficiencies that we used to get last year. The themes were the same that we've been talking about. So process automation, reduction of distance to market, optimal power sourcing, renewable energy, the sourcing strategy as far as raw materials are concerned, vendor development to ensure full efficiency is accruing to us. Packaging initiatives, that's been a big area for us. We've developed not just packaging from a sustainability standpoint, but we've also been able to bring costs down. Vendor cost optimization, we've looked at various ways of optimizing this depending on our factories and what needs to be sent to our factories.
Other areas have been, market returns, which has been this year, the lowest that we've ever seen, and we continue to optimize on that. That's giving us a very good feel of how high is high and how we can bring savings to the table. Commitment charges, basically, commitment charges are charges that we pay to our contract packers because we take capacity from them and if we are not able to draw that material then we have to pay them some kind of commitment charge. So we are reducing that by making sure that we optimize our -- not just what we need from them but optimize the demand centers and sources for all of these demand centers. That's given us pretty good savings. Fiscal incentives and also on media effectiveness, we've done some major initiatives to make sure that we get more bang from the buck.
The next slide is about ESG. This has been a fantastic story for us. While we've been focusing on a lot of these programs for quite a few years, the issue has been that we were not doing it in a structured way. We started to do it in a structured way about 2 years back. And our Dow Jones Sustainability Index score in '22-'23 has come out to be 52, which is the 91st percentile of companies in the sector. And this has actually gone up from what was the score 2 years ago, Manoj, 11?
11 to 37 last year and 52 this year.
So 11, 37 to 52. So it's been great progress. And we made progress on all of our pillars, on growth, on governance, on resource management, on sustainability, on packaging and making sure that we get it from sustainable sources as well as on people, which is about diversity. On the shop floor, we've got great diversity. We still have to do some work in our management team, et cetera, to get diversity up. We've got great work on nutrition, employee engagement. We are top quartile of FMCGs as far as that parameter is concerned. And finally, a reduction of incidents from a accident standpoint, we have been doing pretty well there as well. So as a result of all these programs, which are a part of the KPIs for the Excom team, the progress has been remarkable as far as ESG is concerned.
Moving to Page #15, which is the top line movement. As you will see, our top line movement has been remarkable this quarter. We've grown by 22% versus Q2 of last year. And on a 24-month growth basis also, we've grown at 29%. This quarter growth has been something that -- and if you were to look at even the 6 months, Q1 and Q2 put together, we've seen 16% growth.
Moving to the next slide, which is on operating profits. After what happened in the last 7 quarters or so with inflation and making sure that we put all the right measures to beat this inflation, we've come back. There were these 3 quarters in '20-'21, where we've seen huge numbers as far as operating profits are concerned, but that was because we didn't have capacities. And we were able to sell whatever we've produced due to COVID and the demand created at that time. But -- and we were able to get great efficiency as a result of that because we were running our lines flat out with one product and getting great efficiencies. But thereafter, our profit -- our operating profits had witnessed a lower number. But this quarter, again, we've come to 15.2% which is better than what it was pre-COVID.
So moving to the next slide, which is Slide #7 (sic) [ Slide #17]. If you were to look at our algorithm, net sales has grown by 22%, operating profit by 30%, profit before tax at 26% and profit after tax at 28%. So overall, good results, quite happy with the progress and how we've been able to bounce back as far as our top line and bottom-line growths are concerned.
As a result of that, you will see the percentages. The percentages have moved up. If you look at '19-'20, profit from operations was 14.5%. That was the pre-COVID year. And now we are at slightly better than what we were at in '19-'20. So happy with that progress and hoping that we'll be able to keep that trajectory.
So that is all from me. Very happy to answer all your questions. One more point. We have Rajneet for the first time on the call. Rajneet joined us on the 26th of September and was on induction to understand the company and its operations. He has just completed that. And just a few more sessions to go, but pretty much on the ball now. So over to you for any questions that you may have.
[Operator Instructions] The first question is from the line of Abneesh Roy from Nuvama.
Congrats on a very good set of numbers. If I see last 5 quarters, your sales has been stable at that INR 3,300 crores to INR 3,600 crore number, quarter-on-quarter jump of 18%. So I had a question on that only how much would be the pricing growth quarter-on-quarter, plus because festive was earlier this time, how much is a one-off because of the inventory buildup because of the festive season-related pipeline filling? And when I refer to your Slide #10, your new products have seen very strong growth quarter-on-quarter, 70% to almost 2.9x quarter-on-quarter. So is there an inventory filling because of that because you are seeing good demand, which could further accelerate? So if you could explain any one-offs out there?
There are no one-offs, Abneesh. Abneesh, I must say that Abneesh from Nuvama sounds a little funny. We are too used to your Edelweiss. So I was a little taken aback. Okay. But to answer your questions, first of all, no onetimes at all. It's all progress made from a 0 base. We've seen very good demand. We've been able to do enough for our brands this quarter. We've taken a step back on that. But we've gone back on air. We are supporting our brands and as a result of that, and we have done a lot of innovation, as I had spoken through the deck. And that's giving us momentum with our customers. And this is despite the fact that we had taken the price increase before some of our peers. So that was your first question. What else did you ask?
How much would be the pricing growth, say, quarter-on-quarter and Y-o-Y, if you could give that number?
Yes. So well, pricing -- total pricing that we've taken -- total pricing -- sorry about that. Total pricing that we've taken is approximately 22.5% and this is in the phase of a 32% inflation. As I told you, this quarter, we've taken -- Venkat, what is the pricing that we've taken this quarter?
I'll tell you. I have -- so quarter 1 -- quarter 2 versus quarter 1 has been about 7%, okay? And between...
We've seen a inflation of 3%, but we had some catch-up to do. So we've taken a 7% price increase this quarter. Yes. Go ahead, Venkat.
Yes. Year-on-year is the question that Abneesh was asking. So year-on-year is about 18%, Abneesh. What Varun was referring to is over a period of longer 6 or 7 quarters, is what he was referring. So year-on-year is 18% quarter-on-quarter, it's about 7%.
So does it imply 4% to 5% kind of volume growth, 18% Y-o-Y pricing?
Right. Correct. .
Yes, approximately mid-single-digit volume growth.
Sure. One related question, Varun, was on your direct reach expansion, which was extremely strong. But I do note that in FY '22, it came down also sharply versus FY '21. Was it just a COVID-related impact? And now in the rural, when I compare the market share between you and Parle, could you give us some sense where is the indexation now versus, say, 6 years, 7 years back when you had started the focus on Hindi states? Where is the gap now?
So still a big gap, Abneesh. While we've made up, it's too small to really make a big difference. So just to give you an idea, we are probably now about 18% share in a market like UP, right? Large state of UP. I'm just giving you some rough numbers, we would be about 18%. And 7, 8 years back, we were probably 11%, 12%. So still, yes, good progress, but still a long way to go.
Varun, last question is on your overall group-related and your long-term debt. So I do see ICDs coming down versus 6 months back and quarter-on-quarter, it is stable, which is okay, which is good. But on the long-term debt, INR 1,000 crore, it has gone higher. I understand CapEx is happening, plus also there are the investor concerns on the group entity of Bombay Dyeing-related SEBI issues. So if you could address, is there a better way of financing this CapEx through the internal accrual rather than the long-term debt? And on the group related, could you address some of the concerns? I know there is no direct impact, but if you could address what -- on the concerns?
So yes, I think this question was going to come up in any case. So let me address that. So Bombay Dyeing, they've already clarified, while I'm not on the Board of Bombay Dyeing but whatever we know is that Bombay Dyeing has already clarified through the press release that it's fully compliant and will exercise its right to appeal against the SEBI order, right? I also understand, Venkat, correct me if I'm wrong, I understand that the company has since filed an appeal with the Securities Appellate Tribunal as well, right?
That's right. That's right. No, that is right.
So -- and the matter is sub judice. So I wouldn't want to -- and I am also like you. I also heard more than what you've heard, I've also heard the same. So as the matter is sub judice, I don't think it's right to comment on that any further than this. But happy to clear if there's any more information that we get or we'll be happy to clear any other doubts that you may have on a larger basis.
Coming to the debt that you're talking about, we've taken debt, yes. We've taken debt to -- for our Ranjangaon expansion, which was, a lot of that in dairy. The dairy plant is almost ready and should be commercialized soon. So dairy, then we've got a factory coming up in Tamil Nadu, a factory coming up in U.P., to fund that, and we've got the loan at a very low price. We've got a loan at what, Venkat, 5.8%?
That's right. Correct.
Yes. While our treasure yields are 250 to 300 basis points more. So -- but we do understand what you're saying. I think we are fairly measured in what we are doing. Venkat, happy if you can comment on that as well.
No, you covered them all. I think the borrowing currently is at about 5.8% and our treasury is yielding roughly 8.5%. But the point being made by Abneesh is clear, Abneesh. And like you rightly said, ICDs -- group ICDs have been coming down from what was about INR 740 crores in March, it's currently at about INR 590 crores.
[Operator Instructions] The next question is from the line of Kunal Vora from BNP Paribas.
My first question is on raw material. So on raw material, what would be the broad breakup between wheat, edible oil, sugar, fuel and how much wheat inventory do you typically hold? And how does the wheat procurement work? Do you mostly acquire after the Rabi harvest?
So wheat, palm oil and sugar are the 3 largest components as far as we are concerned. Manoj, you want to comment.
Yes. So wheat, palm oil and sugar roughly together would constitute about 65% of the value of procurement. And wheat is typically procured during the harvesting season. That is in April, May, June.
Okay. And what's your initial view right now with some good decrease of wheat -- do you think wheat prices will ease up or any initial view there?
Wheat prices are quite high, and I think government is taking actions to stabilize those.
Okay. Okay. My second question is on the management change with Rajneet joining, what will be the role division between the CEO and MD, Executive Vice Chairman? And should we expect any changes in the strategy?
No. So I think it's going to be a seamless management working. So Rajneet will take full charge of day-to-day operations of the company. He will also use his digital e-commerce experience to build a pathway to bringing Britannia's digital quotient up and building a digital interface, which can make this company into a data-driven organization. So I think that will be a big part of his agenda as well. I will continue to have overall responsibility for the company as the Managing Director. I'll also focus on strategic priorities like building future categories, geographical expansion, strategic partnerships, JVs, M&A, driving the ESG agenda and obviously, mentoring and guiding Rajneet through this process.
The next question is from the line of Arnab Mitra from Goldman Sachs.
My first question was on the commodity inflation. So you mentioned that 32% number. Given where palm is currently and the rest of commodities are, how much -- how would you expect this to trend in the 3Q, 4Q? And in that context, do you then expect your gross margins to continue to sequentially improve from where it is in this quarter?
So Kunal (sic) [ Arnab ], yes, I do think that prices are going to stabilize. Palm oil has already shown some signs of stabilizing. It actually went down quite a bit before surging a bit upwards thereafter. But in wheat, because the country has produced less wheat, I think that's going to remain a little firm till the time the next season comes through.
As far as sugar is concerned, we are seeing a little bit of a upside as far as sugar is concerned. And I've already spoken about milk and milk products. That's on a complete boil. So I don't think it's going to cool down substantially. But yes, it's going to be stable to slightly cooling down, I would say, in Q3 and Q4. Venkat, Manoj, if you want to add something, please do so.
No we -- I mean, you have covered it.
Yes. So that's how we see it. I don't think there's going to be a complete cool down happening in the next 2 quarters because there are fundamental issues. Wheat has a issue of availability. Sugar is not an issue of availability. It's about, the government is trying to keep the prices firm so that farmers, et cetera, can get the right amount of returns and palm is out of our hands, but seems to be coming at the right level. So let's see. I think things will be equal to or slightly better.
The second and last question was on your volume growth. So you've seen this sequential 7% price increase and yet volume growth has actually probably slightly stepped up in a relatively weak macro environment. So from what you have seen on the ground, are you reasonably confident that the price hike has been well absorbed and there will be no negative effect on volumes going ahead? And therefore, this complete step-up in the quarterly run rate, any concerns that, that could kind of slow down as the pricing starts affecting volume?
No. So Kunal (sic) [ Arnab ], the point is that pricing has affected volume. We were seeing a lot more volume growth. Yes, we have come back reasonably well in this quarter. But still, I would say, at the lower end of volume growth and the result of that really is the price increases that we've taken. Now the question that you're asking is why is it that we are obviously doing a little better than what other categories and other companies are doing. The answer to that is -- are 2. One is the execution, which is the distribution build, et cetera, that we are doing, which is keeping our share up. We are getting more share. But share is one part of it.
The second part is that even the category is growing. And the reason for the category growth is that it is a category which is the cheapest form of food. And when there is inflation which happens across different categories, obviously, the impact on the higher categories, et cetera, will be a lot more. And because we have the cheapest form of food, and we are wholesome and tasty as well, I think we've been slightly better than all the other categories, and we've probably benefited out of that. So those are the 2 reasons.
The next question is from the line of Shirish Pardeshi from Centrum Broking.
Hearty congratulations, Varun, for becoming Vice Chairman. I think 2 things, just one observation on Slide 10. You have seen so many new products. So I was more keen at least the trade is very positive on croissant. So maybe if you can help me, what is the number we look at this year and maybe next year, specifically for croissant?
So we are looking at approximately a exit rate of about INR 150 crores, which is, I would say, a reasonable number for a product which has just been launched.
Okay. And you normally used to give the NPD contribution. What was the NPD contribution in quarter 2?
It's approximately 3.5% of the revenue. So see, the thing is that our overall revenue has also been growing pretty fast. But no, this is in our definition. If you were to look at the total NPD contribution, it will probably be about 5% because we look at a shorter period, that's why it's 3.5%. But overall, it will be about 5%.
It's interesting to see that I think last year, we started with Potazos. And in this slide, I'm not seeing Potazos any comment. So is that product is still on or it's low focus for us now?
No, no, no, it's doing quite well for us. We've spoken about it. So we don't want to repeat what was done earlier. Otherwise, it will become a very long session with you guys.
Okay. My second question is on the growth path. You normally used to give 3-year CAGR. So I'm more interested, what is the 3-year CAGR volume growth?
Three-year CAGR volume growth will be quite substantial. I would hazard a guess. It will probably be 8%. Venkat, would you have that number?
I'll -- give me a couple of minutes.
Okay. Meanwhile, let me ask the last question on the dairy part. You mentioned that dairy has now gone up. And I think somewhere last 2 quarters, you've been indicating it's about INR 550 crores. So maybe if you can spell it out, what are the new categories, product distribution and what number we should model in FY '23 and '24?
Our growths are reasonably good in dairy. We've been seeing reasonably good growths. But we are working on some very strategic measures as far as dairy is concerned. And hold on, in the next 15 days or so, we will come back and chat with you on what we are looking at as far as dairy is concerned. The pressure on dairy is not top line at this time. The pressure is bottom line because of the milk prices going from INR 30 to INR 41. So that is the big pressure as far as we are concerned. And obviously, as we start to commercialize our dairy factory, again, there will be a momentum. But we have to make sure that we do it all in a way that it all becomes the way we conceptualized making this business a very large part. And as I promised, we'll come back. We'll be back discussing with you in the next 15 days or so on how we are looking at making this a very solid business for us in the future.
Sure. All the best to you, Varun, and Rajneet, welcome to our interaction.
Thank you.
The next question is from the line of Percy Panthaki from IIFL. As there is no response from the current participant, we move to the next question from the line of Manoj Menon from ICICI Securities.
Very impressive performance, must say, given the context. So I got 1 clarification on the savings part of it and the other one on the marketing part of it. And if time permits, I just also want to understand the 5.8% loan. It appears extremely good. So just was wondering if you could tell us where it is available, if it's a CP or something like that. Anyway, so the first is on the sales side of it, Varun. Could you just help us understand the exact modalities which you are actually using to get these sort of outcomes? For example, you talk about 28,000, is it substockists or is it actual distributors? Point #2, is it just a classic case of awareness higher than availability and you are just driving it?
These are distributors, but they are not as organized as our large distributors. We -- they are appointed in a smaller area. They cover anywhere from 40 to 100 outlets in their area. These are all small areas which are rural small towns, villages, et cetera, 10,000 kind of population kind of areas. Now what we have with them, we do have handhelds and we do get data that -- their sales, et cetera. We get all of that data. But obviously, the quality of supervision, et cetera, tends to be, I would say, a notch below what we do with our larger distributors.
Now these are serviced through -- it's a hub-and-spoke model that we do because we have to break bulk as far as these distributors are concerned. So we create the C&FAs who then distribute to these smaller RPDs. So it's a different model. It probably costs us 1 percent more, but it gives us a long-term sustainability in that area or in that village. And the way it works is that after they become larger, so let's say they start with 30 lakh kind -- 30 lakh a month kind of a business or 20 lakh bill a month kind of business, and then they get to a larger size. As we see them graduate to a larger size, then we -- and we can start to service them directly. Then we cut out the C&FA, we make them distributors. And so the evolution continues. So I'm just trying to simplify things so that you understand what we do. That is how...
Sure, sir. So it seems actually a very much a repeatable sort of a model, understood. One linked question on the sales side of it is that when I look at the direct touch points, which you have comfortably more than 2 million currently, which also happens to be the best-in-class, let's say, largely at par with Lever. The question automatically, which comes is, maybe there is another Lever, which is, which you have is, let's say, more line selling or, let's say, extracting more from the current set of outlets. Any color on that?
Yes. So that is a KPI as well. I'll actually let Vipin answer that. But we have this KPI of how many lines that we sell to each one of the outlets. So actually, the way we look at it is that in urban, the objective that we have is to get depth of distribution. And in rural, it's about width of distribution because we want to start in rural. We want to get our products into those outlets or if that outlets, if the outlets do stock our products, but they buy it through a wholesaler or something, then half the time, they will not be available. Those products will not be available. The wholesaler is not as trustworthy as a direct distributor going to go those outlets. So we try to make sure that we go there directly. We deal with the customer directly, and we put our products in there. So that's how we look at it, but over to Vipin.
Yes. Manoj, so there are a few things that we do to increase our range. And Britannia, as you know, is a range-driven organization, right? So we've got 25-odd brands. So I think the first thing which Varun explained is using the entire technology, which is handheld and various app. Now these handhelds and app are basically predictive as well as prescriptive analytics, right, which basically tells that this needs to be cross-selled or upselled to the outlets, right? So that's the first principle that we apply that for a lot of empirical data through the tech basically predicts that this is going to be the forecast for this retail or the wholesale outlet, and therefore, that's active selling that we do. The second part is that our distributors, our super stockists, they have got these stock norms, which basically ensures that the entire range availability is there at that point in time, right? And therefore, that can be then connected with the retail market, right? So therefore, it is a fairly full driven system.
The third is that in rural, we have got a fairly large feet-on-street team, which is taking these orders directly, right? And therefore, we keep impacting the range. I think the fourth and the most important is that the range of selling is also part of the trade term or the margins that we give to our super stockist and RPDs. And therefore, it is a self-motivating commission, which basically helps us sell this entire range. So these are the 4 principles, basically we apply, and therefore, it is a scalable model for all the states.
Loud and clear. Thank you so much, Vipin and Varun, for the exhaustive response. I had a question on marketing, but I'll come back in the queue. But just quickly if my request Venkat on the 5.8% loan, some more color on it, given that it seems to be very low and very attractive.
Loans essentially are including bonus debentures that we had issued the last year. It also has some borrowing that we have done in respect of the dairy project through a funding arrangement, which is available with the animal husbandry. And the third is the normal term loan. And I think we've managed to borrow it right in time.
Understood. It's a blended rate, okay. Sure.
Yes.
Ladies and gentlemen, we take the last question for today from the line of Avi Mehta from Macquarie.
I just wanted to ask on the margin side. Now clearly, we are seeing while input costs have risen, you have been able to kind of pass them on quite effectively. You were arguing that input costs remain quite stable and are likely to kind of moderate down. In that kind of context, would you say that a path forward to reach back to that 18% to 19% EBITDA margin exists?
Listen, I think we also dream like you. Those numbers were reached during COVID. Yes, obviously, we would want to endeavor to get to higher numbers. But I think it's important that we make this as gradual as possible and create funding opportunities for new products or new categories and support these new products and get them to be of a certain size. Given the -- the problem is that it's not a problem, actually, it's actually a good thing. That the base business is so large that INR 150 crores, INR 200 crores kind of innovation just becomes a drop in the ocean. So we have to create a much larger pieces of innovation as we go forward. And that's what we'll endeavor to do as we move forward. We'll try to see how we can make each one of these categories fairly large.
There are now 3 innovations which are over INR 100 crores. Milkshakes have become INR 100 crore plus last year. Croissants will become INR 100 crores plus this year. Wafers has become -- is headed towards INR 100 crores plus this year as well. So there are 3 or 4 categories which are going there. And similarly, products like Biscafe, products like Potazos are becoming very close to that number as well. So as we start to create these kind of innovations and we take them to scale, I think that's the time when it'll all start to show on the adjacent category growth. And that's really what our endeavor will be. So yes, we will try and maximize our profit as we go forward, and we've shown you that, while managing to make sure that we gain our market share and we also grow our top line. But we also want to support all of our adjacent products.
Got you, sir. And sir, the second bit is I'm just trying to -- so we have seen another quarter of market share gains in this period. Congratulations on that. But that I was trying to reconcile it with the fact that things are opening up. You highlighted biscuits being the cheapest. So price is an aspect, and we have taken sharper price increases. So in that context, is it that the competition is still not back to normal and probably they've structurally impeded to a lower level? Is that the reason? I'm just trying to kind of reconcile because what you said is biscuits are the cheapest so then pricing would be the aspect and but you tool higher price increases at least from a ...
Yes, you're right. You're right. You're right. So see, the point is that what hits us hits other competitors more than us because we've got scale, right? So all other competitors can do is take short-term advantage of getting prices below us for 4 months, 3 months, 6 months, 8 months, whatever it may be. And that they've done already. And it's not really impacted us in any big way. Yes, in pockets it did impact us and we took whatever action was necessary to make sure that we get back to what our plan was.
But at some stage, it all comes back to normal. Now I would say that 95%, at least the A players are at the same level as they were pre the inflation. Yes, the smaller players sometimes take their time and they'll continue to sell their product in a small territory at a much lower price, et cetera. But it all normalizes, finally impacts everyone.
And as I've said in the past as well, everyone has got used to profits. Biscuits was not a profitable category. So people were not really making big profits and they were living with whatever conditions they were in. Now everyone's got used to a profitable existence. And why not? It has to be a profitable company to be able to become more successful in the future.
And everyone's on that path now, which is a very, very good thing. And frankly, I'm very proud of the fact that we've been able to garner that in some way. We've been able to guide the entire industry to look at competition in an execution way rather than pricing advantage there. So I think it will all get back to numbers. I don't think there will be any big issues on that front.
I now hand the conference over to Mr. Mayank Mundra for closing comments. Over to you.
Thanks, everyone, for spending time with us on this call today. We look forward to interacting with you again.
Thank you. Ladies and gentlemen, on behalf of Britannia Industries Limited, that concludes this conference. We thank you all for joining us, and you may now disconnect your lines.