Britannia Industries Ltd

NSE:BRITANNIA

Earnings Call Transcript 2018-Q3

[Piyush Bhandari]

Thanks, Karuna. Hello, everyone. This is Piyush from Investor Relations team in Bangalore. I welcome you all to the Britannia earnings call to discuss the Q3 FY '18 financial results.Joining us today on this earnings call is our Managing Director, Mr. Varun Berry; CFO, Mr. N. Venkataraman; Head Marketing, Mr. Ali Harris; Vice President, R&D and Quality, Mr. Sudhir Nema; Head Procurement, Mr. Manoj Balgi; and Vice President, HR, Ritesh Rana; and Vice President, Bread, Cake & Rusk and Adjacency, Mr. Jayant Kapre.I'd like -- before I pass 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.We will start the call with remarks on performance by Mr. Varun Berry. Subsequently, we will open up for -- the call for questions.I would now like to pass it on to Mr. Varun Berry for his comments.

[Varun Berry, MD & Whole Time Director]

Good afternoon, everybody. Happy to have you on the conference call today. So let me jump in and -- straight to the presentation.If you could move to Page 2. One thing that we're really proud of is the consistency of performance over the years and that's for the team here is the greatest source of motivation.On the next page, it gives us a quick view on how the performance has been on the top line as well as on the profit front over the last 5 years, and again, something which motivates us to do better as we go forward.Now getting to Page 4, which I think is a very simple statement, but for us, it's very, very deep. What really makes us stick is the focus on the basic execution, which we do day after day after day, which really is the reason -- real reason for our underlying growth.Now getting to what are the execution areas that we focus on. Obviously, the core of it is to drive profitable growth, but we do that through -- from a premiumization and innovation standpoint, increasing our distribution footprint, including gaining more share and getting a stronger foothold in our weak markets. Attaining cost leadership, which we strive for every day and leveraging fixed costs and making sure that we become -- we make up P&L healthier and better every day.Now moving to the first one, which is delightful innovation and activation of brands. The first and the most differentiated innovation that we did in Q3 was the Pure Magic Deuce product, which has been in the market for now 1.5 to 2 months. And[Audio Gap]from consumers has been fantastic. So we are very proud of that product. And while we are trying to limit our distribution because it's a sensitive product and can melt, so we are doing it to a small set of outlets but despite that, it's doing really well.We've also revamped our Good Day Chocolate portfolio through chocolate chip as well as Choconut, both of which are great products and doing well in the marketplace.We've also had activation of brands. We've had a very good campaign behind Bourbon, NutriChoice and one, which is closest to my heart, but -- and it's a good day to talk about. It's Valentine's Day, and this is Little Hearts, a little brand, which has done really well through some activation on the digital platform. So besides that, we've obviously done a lot on Good Day, et cetera, but these are the new campaigns that I'm talking of here.Moving on to the next page. On our execution as far as sales and distribution is concerned, we've moved our direct reach now to almost 1.75 million outlets, which is 2.5x what it was in the year 2013. Our rural surge also continues. We are growing our rural thrust month after month after month. And that's very clear from that graph that you have in front of you. We've almost got now 13,600 rural distributors who are helping us distribute these products to smaller villages and smaller outlets.Our weak states continue to grow faster. And the thing is that, there was -- there were questions on UP and, frankly, while UP has been growing faster than the market, but it wasn't back to what we were expecting as a team. And now we've started to see UP also get close to a 20% growth. In the last quarter, we've seen almost 20% growth in UP. And the other states continue to do well. Rajasthan is top of the charts with almost 30% growth. MP as well as Gujarat are doing well, and which is giving us the required share in our weak areas.The third one is about accelerated cost efficiency programs. I'm happy to report that we'll end this year with a total cost saving of about INR 230 crores, which is 4.5x what it used to be in '13, '14. And the themes are pretty clear. It's at the bottom of this slide, reducing distance to market, new and large factories. This actually is turning out to be the efficiencies that we've been able to garner through our new factories, which is giving us a lot of savings. We are deploying the right technology, which is giving us cost leadership as far as those products are concerned.Reduction in wastage, which we strive for every day. And wastage is not just about market returns, which in any case is moving in the right direction. It's wastage at every stage of our supply chain and we've been -- as a team, we've been able to do a great job as far as that is concerned. And then, our projects on value engineering.The next slide gives you what we are doing from a technologically superior factory standpoint. So there are 2 greenfields, which are going to be commercialized soon in the next month or so. One is in Guwahati and the second is in the SEZ, which is Mundra in Gujarat, which is going to cater to our international business. And both are state-of-the-art very good factories, which we are looking forward to commercializing soon.Next slide, which is Slide 10. Frankly, I feel that our simple dream of Total Foods Company is very, very powerful. And we can have a dream and not do too much about it. But I think we are moving pretty rapidly to fulfill that dream as well.If you were to look at the next slide. The first, which is our partnership with Chipita, where we are looking at launching filled Croissants, is moving in the right direction. We've started to get the machinery. We've started to do the civil work in our new Food Park in Ranjangaon. And we hope that in about 8 to 9 months, we would be in a position to commercialize and launch our product.Dairy, we've been speaking about dairy. Now we've started to do a pilot on milk collection, again, in Maharashtra near the Ranjangaon area and that's going quite well. If we get the right kind of scale and if we get the right kind of output that we desire, then we will move forward with our dairy project as well.The new geography, Nepal, is -- while it's a small country, I think, there's tremendous potential. And we are really looking forward to putting up our plant there. The land has been acquired. All government requirements have been fulfilled. Now we are looking for the environmental clearance to go ahead and construct our factory. Usually, in Nepal, it takes about a year to get the environmental clearance, but we are hoping that we should be able to get that through in the next 3 months and move forward and start a country operation in Nepal.The last but not least is the whole macro snacking area where we are looking at very, very new and very differentiated offerings from our cake. And these new technologies are going to, again, come up in our Ranjangaon facility and some new formats as well. And we are in the process of evaluating our right to succeed in some new categories within macro snacking, which we think are, again, moving in the right direction. But it will take a little bit of time before we are able to divulge where we are at there.The next slide gives you just an idea of our Ranjangaon facility, which is a very large facility, about 150 acres. And we are hoping that we will be able to not just make it our largest facility, but the highest technology, the lowest human intervention kind of facility with products and capabilities, which could be first-to-market. We are certainly looking at Croissant, which is going to be first -- very differentiated and a new product for the Indian consumer. But even from a cake standpoint, there are going to be certain offerings, which are going to be highly differentiated and first to the Indian consumer.We are also looking at putting up our dairy facility there, which while we will do, we will start with what we are already doing through milk collection, which will be done by us through 25,000 farmers. But it will also have new capabilities, which could be new to the market, new to the Indian consumer. But that is, as I said, in the phase of validation from a milk collection standpoint.From a backward integration standpoint, also we're going to do, obviously, as we spoke about milk collection from 25,000 farmers, we're also going to have a flour mill there and warehousing, raw material storage, et cetera, et cetera.Moving on to the next page, which is really saying that while we are expanding and we are looking at a whole lot of new stuff and really fulfilling our dream of becoming a Total Foods Company, our true strength really is our people. And we are going to make sure that our people build capability and have the ability to build the kind of dream that we have.So 3 parts to that: first is, building design and capability to propel the organizational growth, which I've already spoken about. So there are going to be new operational structures for the organization. And it has to be catering to certain growths that we are looking at. And also for the adjacency, the businesses that we are -- the new businesses that we are trying to create, we are -- we brought in Jayant, who is now handling bread, cake, Chipita JV and rusk business. Similarly, we're going to build a vertical, which is dairy. We've recruited recently a very high-profile person for our dairy operations as well. So that's how we are building. Obviously, our first choice is to look at internal people. But for some of the high-profile jobs where we don't have the talent, we are mixing a little bit of outside talent with our existing high-profile talent that we have in the company.From a functional standpoint, we are building capabilities in R&D, in manufacturing. Because R&D, there is a lot happening in very, very different and very divergent directions. So we need to build that capability. And also in manufacturing because now we are looking at a lot more plans, we're looking at different technologies, et cetera.So and -- the last point I've already spoken about, which is about acquiring key skills from the market and providing opportunity to internal high-potential employees to create the future of Britannia.The second vertical is about building a large food products and building international expansion agenda, et cetera. For that, again, we need skill development. We need, obviously, internal talent to rise up to the occasion and -- so we are doing that. Diversified skill sets, we are building for the new geographies that we get into. Functional capabilities, focused development, et cetera. And this is very exciting for our people. In fact, for Nepal, we've already brought one of our current managers to become the country manager, who has started to work on that project. And it's a very exciting thing because we were a India-centric company. And now we've got opportunities for people who can handle the business end to end in these countries and get their -- roll up their sleeves and really understand what real business is.And the third is about sustaining and propelling the culture for our new business objectives. So we are building a lot of excitement and collaborative practices across functions to support the new vision and expansion by way of making sure that we create a appreciation culture. So we've got these awards now where we get our boards to attend the award functions. These award functions, they sort of start with functional awards, which happen every quarter and then they roll up to a yearly award, where the entire board is there to felicitate these winners, these high performers.Vision and core values, dissemination and also leaders connect calendar whereby we get our leaders to connect with cross-functional managers wherever they travel to, et cetera.Getting on to Page 15. Now this is something which is again very close to our heart. If you look at the status in India, the National Family Health Survey, which is a body of the Ministry of Health and Family Welfare. They do a study, which shows that the anemia among children and women is very, very high in India. And similarly[Audio Gap]