Britannia Industries Ltd
NSE:BRITANNIA
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Britannia Industries Ltd
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Ladies and gentlemen, good day, and welcome to Britannia Industries Limited Q3 FY '21 Earnings Conference Call. [Operator Instructions] Please note this conference is being recorded. I now hand the conference over to Ms. Dipti Sudhir from Britannia Industries Limited. Thank you, and over to you, ma'am.
Thank you, Vikram. Hello, everyone. This is Dipti from the Investor Relations team. I welcome you all to the Britannia earnings call to discuss the Q3 2021 financial results. Joining us today on this earnings call is our Managing Director, Mr. Varun Berry; CFO, Mr. N. Venkatraman; Chief Commercial Officer, Mr. Gunjan Shah; Chief Development and Quality Officer, Mr. Sudhir Nema; and VP Procurement, Mr. Manoj Balgi. We will start the call with remarks on performance by Mr. Varun Berry. Subsequently, we will open up the call for questions. Before we get started with the presentation, I would like to draw your attention to the safe harbor statement included in the presentation. I would now pass it on to Mr. Varun Berry for his comments.
Good morning, everyone. It's a pleasure to be here with you today. So let's start with the presentation. I'll take you straight away to Page 3. So as you must have noticed from the results, we -- and also the statement that we made, we had a very robust general trade and rural growth this quarter. However, modern trade and institutional businesses are still extremely muted. And we are hoping that as things normalize, as the COVID cases start to fall, things would start to fall into place with these channels as well. We -- the diversification of the purchase basket as the unlocking of the country happened -- has started and we've started to get back -- people have started to get back to their normal lives, the pantry stocking which had happened pretty aggressively in the first 2 quarters, that's also -- that's become normalized as well. And there are more shelves which are getting into the shelves of consumers. We’re also seeing a steep inflation on palm oil only. The other commodities are well under control. So those are the highlights. Moving on to Page 4. So if you look at our top line growth, we've had a 6% growth for the quarter and a 10% for the 24-month period. From a profitability standpoint, we've had 22% growth as far as profit after tax is concerned, which is leading us to 14.7% of net revenue. Market share has moved up again. So this has been -- it's difficult to count the number of quarters, but probably 36 or 37 quarters of straight market share gain for us, and we are quite proud of that. I think it's quite an achievement for the team here at Britannia. Moving on to the next page. We continue to focus on our strategic planks. These planks are fairly consistent with what we've been talking to you about. So distribution and marketing, innovation, cost focus, adjacent businesses and sustainability. So on efficiency and distribution, we had taken a hit in the post March '20 period. And Nielsen had also gone off the charts. They were not able to do their audit. So it does seem that we had taken a little bit of a hit during that period, but now we are back. So the December numbers are looking fairly robust. We are back to direct reach getting to 22.9 lakh outlets. Our rural distribution is solid. We again put on more distributors in rural areas. Again, I think during the COVID period, there was irregularity of service from our distributors because of obvious reasons, but now we've got the discipline back into place. We made sure that supervision is happening and execution is happening as far as the norms set by us, and we are now back to a very solid 23,000 rural distributors. Our Hindi belt agenda is continuing to have the momentum that we assigned to that. So if you were to look at the 3-year period up to '17-'18 and thereafter up to '20-'21, you’ll see that each one of the Hindi belt states have moved up considerably from 30% to almost 60% increase in the growth rates as far as the sales are concerned. Moving on to next page. We've also come back to a normal pace of activity as far as marketing is concerned. So most of our pillar brands are back on air. So Good Day, Bourbon, Tiger, 50-50, NutriChoice, the Cake portfolio, they're all back on air. Similarly, there are some activations. e-commerce, which is a channel which is really growing exponentially, we've started to make sure that we feature very prominently on that. We’ve also had a promotion on our Swiss Roll. And similarly, promotions on some of our other products like Nice Time and Pure Magic Chocolush. Moving on to the next page, Page 8. We -- new launches have been a little muted. We haven't gone after innovation because of obvious reasons. Our first task was really to make sure that we get all our SKUs available, but we did do a few launches this quarter. So we did creme wafers -- Treat Creme Wafers, INR 10 launch, which has given us a very solid kick as far as volumes are concerned. We also did the Diwali greetings packs during this quarter, and we launched a Pure Magic Chocolush Hazelnut, which is also doing quite well. So those were the launches in this quarter. Moving on to the next page, which is about efficiencies. So as we've said that we've seen tremendous efficiencies during COVID and we wanted -- and we formed them into projects for us to make sure that we retained some of those efficiencies as we go out of the COVID period as well. So this is just a comparison of what we've been able to do. So our factory productivity was at [ 1x ] pre-COVID. And currently, it's much better than that, we are at 1.07x in terms of productivity. Our wastages were -- again, they've come down from the pre-COVID period by almost 30%. Our direct dispatches from factories, which gives us big efficiencies from a replenishment standpoint, pre-COVID have gone up by 50%. So we are directly dispatching which helps us take out 1 transit point and multiple handling of the product, and that's giving us great efficiency. Our depot space is 10% better than what it was pre-COVID. So these efficiencies, we are monitoring very, very carefully and trying to see that we retain some of these as we move forward as well. Adjacency businesses. International has done extremely well this quarter. We're seeing very healthy growth in Middle East and Africa, which are economies which have really suffered in the last couple of years, but still we tend to be doing reasonably well there. And rest of international, which is outside of Middle East and Africa, is growing at a very, very healthy pace, and that is probably the most profitable business for us. So international is looking very good for us. From a bakery adjacency standpoint, bread profitability continues to trend upwards. And also, we've seen a very stable growth and improved profitability on our rusk business as well. Our dairy portfolio, it’s -- cheese continues to grow double digits. We had suffered because drinks tend to be out-of-home on the go and we have suffered during the COVID period as far as drinks was concerned, but now we seem to be seeing a pickup even with our drinks. We -- as you remember, we have milkshakes, and we also launched Lassi and both of those products with the various variants that we have are starting to bounce back. And we also got some tailwinds because of lower milk prices during this quarter, which has led to improved profitability as far as the dairy business is concerned. Moving to the next page, which is on our sustainability agenda. So we have taken sustainability as a very important component of our business, and we are starting the journey on ESG with very, very clear targets, which have been integrated with the KRAs of all the managers. So some of the targets here you can see on the page -- and before I go through the targets and what we've done, et cetera, I would like to mention that we will publish an ESG report this year, which will give you a clear look at where Britannia is headed. So some of the targets we've incorporated in this journey. One is reduction of plastic. So just to give you a feel of what we've done till now. Laminates, we have reduced by 15% per ton of fixed finished goods since '13-'14 and -- but this is going to go to a very different level in the future. Plastic tray removal, we've already removed plastic trays from our cream products, and we will continue to do so. We would want to be almost 99% plastic tray free in the next couple of years. We are looking at laminates which are easily recyclable, and we transitioned this laminate for one of our major brands. Plastic recycling, we are building capability in-house, so that this can be done, and we are not -- we are being as conscious about our environment as possible. The second one is on enhancing the good in the product. So basically, we have taken a 5% sugar reduction target till 2022. Work is underway for 2 of our large brands. We've also taken a 5% sodium reduction. Again, work is underway for 3 large brands on that. Energy, fuel -- hello? Yes, as far as fuel reduction is concerned, we've reduced fuel -- hello, can you guys hear me?
Yes sir, we can. Please go ahead.
Okay. So we've reduced 35% fuel in our factories since '13-'14. And we will continue on this journey even as we go forward. We've got clear targets on that. On renewable power, we would like to reach up to 45% of our power being renewable by end of this year, which is 2021. Nutrition, there is community-based approach to improve the health and nutrition of children, adolescents and women. We are distributing iron enriched biscuits. The program is in 4 states across 36,000 children, which we are covering through this program. And I must say that this entire program has brought the entire Britannia team together. And the entire team is driving this with a lot of passion. Moving to Page 13. Hello? Can you hear me?
Yes sir, we can. Please go ahead.
Okay. Now moving to Page 13. As far as our revenue growths are concerned, I've already spoken about that. So 6% growth, 24-month growth of 10%, which could have been much better had all the channels started to come back to normal. And we are hoping that, that should happen in the next 6 months or so. On the cost front, Page 15, on flour, there is deflation. On sugar, there is -- it's almost flat, just the inflation of 1%. Milk from a last year perspective, while there is deflation, but milk prices have started to slowly come up again. And RPO, there’s inflation of 25% which has led to an overall moderate inflation for us this quarter. I've already spoken about some of the cost efficiencies, which we are monitoring to make sure that we are doing much better than the pre-COVID period. Now those are the ones plus all of the other cost efficiency programs that we drive, which is leading us to a sustained improvement in our profitability, Page 17, please. So if you were to look at it, our operating profit is -- consolidated operating profit is at INR 563 crores, which is a growth of 24% and a 24-month growth of 38%, which is quite a solid growth. And moving to the next slide, which is giving us the total algorithm. So net sales growth of 6%, operating profit growth of 24%. Profit before tax going up by 23% and PAT going up by 22%. And you can see the trend as far as all of these are concerned in the table below, right? And just one point that I wanted to make here. Our PAT this year in the first 9 months is at INR 1,500 crores and we crossed the last year’s PAT, full year’s PAT, which was INR 1,400 crores for the full year. So we've got almost 1/4 and a bit more than last year. So that's something that we've been able to achieve, and I think with a little bit of help from what we did during the COVID period. Moving on, as we go forward, one is that we need to accelerate the pace of innovation, which had taken a backseat during this period. We are also looking at some new launches. We will strengthen our distribution, which I must say that from a quality standpoint, has taken a hit because supervision was not happening as we would like it to because everyone -- everything was disrupted, and similarly on reach as well. We are going to focus on brand building and visibility, which again has taken a hit because it was such an uncertain environment that we were not advertising in the first 6 months of the year. We are also doing a very large IT transformation project, which should be concluded in the next 3 months or so and that will make a huge difference to the way we do our business. And finally, driving the ESG agenda, which I had outlined for you. So that is all from me. Over to you for any questions that you may have.
[Operator Instructions] We have first question from the line of Manoj Menon from ICICI Securities.
Varun and team, good performance. Just a couple of questions only. So the first one is just wanted to hear your thoughts on some of the learnings in which you might have had in the last 9 months. Also in conjunction with any potential consumer behavior changes, which you would have observed. And these 2 inputs, how does that change, let's say, the trajectory of your revenue launches or ramping up of some of the existing new avenues which you're working on, which you said was dairy or wafers and breads and bakery and -- or even something like let's say, UHT milk consumers would have picked up in the 9 months, et cetera. So that's the question number one. So what are those inputs which can potentially change the trajectory of your existing new avenues and any likely new avenues, which we would look at it. So that's one. Or should I just ask the second one right away?
Yes. Well, your first question is a very broad question. I can do a 3-year talk on that. So let's take that first Manoj. So it's been such a tumultuous period that it's very difficult to really figure out what is going to continue, what is not going to continue, but I’ll try and tell you what my feeling is about the last 9 months. So the first thing that we saw was that, obviously, home consumption had become the biggest draw for consumers. They were going back to their most favorite brand. Third thing was that it was comfort food. It was important that it had to be at the right price. And obviously, there was some amount of down trading, which happened to -- if there was a brand which was the cheapest brand and had a very strong brand pull, then that would become the culmination of what the consumers would buy. So while we had very strong brands, we were not the cheapest, right? We are a premium player as far as the categories that we play in. So for us to maintain our trajectory and to gain share during these times, was not easy. And it required a lot of effort for us to keep the trajectory on market share. And I think the team did a fantastic job as far as that was concerned. It was a time when costs were -- there were extra costs happening because safety, security, hygiene, et cetera, was very important. But there were also a lot of cost savings happening because there was no travel and obviously there were no advertising spends, product was not there, so people were not advertising it, et cetera. So I think we have learned a big lesson from cost efficiencies. There were --from manufacturing efficiencies, we have got a peak as far as our efficiencies is concerned, and we started to enumerate what were the reasons for that and what could be retained as we go forward. And that's something that we've internalized, and we are doing a lot of work on that. Third was health, health and wellness became a big ask from consumers. So people did start to go back to products with the thought were healthier than the others. And I think that is a trend which is going to stay. It's -- as most of the publications are also saying, this is not going to be the large pandemic that the world sees. So people are going to be taking a lot of care as far as their health is concerned, their wellness is concerned. And hence, it's going to become very important for most companies to ensure that they bring out the portfolio, which supports this quest from the consumers. So that's all Manoj, I think we can set up a call separately if you want, and we can discuss this in more detail.
Sure. Sure, Varun. Completely understood that, and I shall follow-up with you later. Secondly, one observation was that -- before that actually, the good news is the brilliant performance for the team actually on the Hindi belt, but then I actually try to work out, it does appear that the market growth in your core markets, possibly is very low. Because, one, yes, there is some significant outperformance actually on the Hindi belt, so that's one. The second is -- so that's a fact, actually. The second assumption here is that you are gaining market share in your core markets as well and not just in the Hindi belt. If these things are true, it implies a significantly lower market growth, let's say, in a market like South India. And if yes, just want to hear your thoughts on how do you overcome that in the longer term?
So Manoj, the traditional trade growths are not bad. The rural growth is very solid, but the channels are not growing. And also, even for traditional trade, urban, the bigger towns and bigger cities, the growth there are smaller than what they are in smaller towns and villages and rural areas. And we can see that it will take a little bit of time for the large cities and the channels, which is modern trade. Obviously, the biggest sufferer is the alternate channel, which is all the transit clusters. There were hardly any trains plying, and that’s a big consumption point for us. The transit clusters were completely not performing at all. And similarly, offices were closed, hotels were closed. So that consumption was also not there. So I think those are the ones which will start to come back and will give us some more momentum.
We have next question from the line of Abneesh Roy from Edelweiss.
My first question is on the adjacency. So you have said that rusk has seen stable growth. You have done a lot of innovation last 2 years in cake and rusk. So wanted to understand, have these 2 seen good double-digit growth, maybe even high teens growth or because more of urban indexation, so there would not have been a good double digit?
So Abneesh, rusk has shown solid double-digit growth. Cake has not. So Cake, the innovations on Cake are doing extremely well, but the base cake category has not seen double digit growth. And the reason for that is that, one, it's urban centric. Second, there is also a lot of school consumption. It's in the tiffin box, all of that. So I think it's a little bit of a tricky situation there. But we gained a lot of share during this period as far as cake is concerned. It's a very solid share gain during this period. So the good news is that, we saw the challenge. We fought that challenge. And as a result of that, competitively, we've become much stronger. But we are hoping that the consumption will also come back in the next 3 to 6 months, and we will benefit from that.
Right. In Q2, you had said mid-month was the slowest growth. I reckon in Q3, November would have been the fastest growth given festivals were bunched up there. And any comment on exit difficulty, because offices are coming back, local trains are starting, the long-distance trains are increasing. So is the exit now looking better in terms of -- versus the average different quarter growth in Q3?
Well, it's pretty similar, I would say, Abneesh. But it's not such a dramatic change in trains, et cetera. But as time goes by, I'm sure, I don't know how many trains are running. I know that there were only 600 trains out of a very large number…
Out of 13,000.
Out of the 13,000, only 600 were running, maybe that's gone up. But it's not back to where it used to be. But I'm sure that it's a matter of time. What's the story Gunjan, on train?
Sir, the trains have moved up to thousands, but the occupancy is at 50%, vacant alternate seats, et cetera. So that consumption will pick up, but I think if things should pick up as well.
Yes. So hopefully, as we go forward, things will start to pick up.
And Varun, one small and last follow-up. So market share data, when I see the #2 player has gained significantly in the last 9 months versus the last 8, 9 years. And #3 has lost significantly again. So will this be more because of the down trading, which you explained to us? Is that the main reason or there is some more aggression from the #2 player?
It's -- I think -- well, it's also they executed very nicely during this period. There's no doubt about it. But yes, they've benefited. As I was saying, we are at that culmination of cheapest product, also one of the strongest brands. So that gives them a lot of strength during this period. And as a result of that, they've gained more share than us. That's for sure.
We have next question from the line of Latika Chopra from JPMorgan.
My first question was on margin outlook. Clearly, this year has -- you have clocked very high margins. Now as the advertising spends are coming back to normalcy, you've talked about sustaining cost efficiency benefits. And your base is your view on promotional intensity and pricing outlook. How do you see operating margin outlook for the coming quarters? That is question number one. And the second one was on -- you talked about a big portion on innovation. Now I wanted your thoughts on what are the segments where you are targeting new launches? And also on the non-biscuit portfolio, what will be the key priority products here?
Yes. So Latika, it’s very difficult to predict where we are headed on margins. But obvious, our endeavor is going to be to make sure that we keep the margins very close to where we reached. These are very solid margins, and we would like to maintain them as much as possible. From innovation standpoint, there are a slew of innovations within our existing categories. There are new products. There are brand extensions that we are looking at, very exciting products. We're also looking at innovations in adjacencies. So we got some very exciting innovations as far as cake is concerned. We are making the same products that we have, very exciting products also, affordable. We've launched a layer cake, INR 10. Now we launched layer cake, INR 5. And it's not as simple as I'm making it sound because these are very sensitive products. To make sure that we are able to produce the products with that price, the volume, surface area, ratio, et cetera, all those are very, very important so that we get sufficient shelf life as well. Similarly, we are looking at other affordable products because affordability is a very important part of life going forward. We're also looking at some premium products. So there are going to be a slew of products within core as well as within the adjacency portfolio that we have.
We have next question from the line of Arnab Mitra from Crédit Suisse.
My first question was that we have seen across huge categories, it seems the slowdown in biscuits has been more than in many of the other food categories where the growths are still quite robust. So you did mention about the pantry normalization as one of the reasons. I was just wondering, is there a strong comeback on the unorganized sector also, which is -- which could be causing this, because sometimes Nielsen data does tend to have a lag, especially from the 3, 4-month perspective. So just wanted your sense that could there be other factors also which could have driven the slower growth in the category?
Not really. What we have seen is that unorganized is actually suffering. There are only 2 players who've gained share during this quarter, and that's us and the #2 player. So to that extent, we have not seen any signs of that happening. It's just that there was -- as I said, there was diversification of purchases during this time. People had been living out of home. So they also took to street food and then started to go back to restaurant, started to buy other products as well. So when that diversification happens, this sort of has a lag effect on what they've been consuming for some time. I don't know which categories you are talking about. But yes, could be possible that certain categories are showing marginally faster growth. But I do think that it's all going to normalize over the next 3 months or so. And we will know because it’s really gone through a very, very difficult phase. We'll know in the next 3 to 6 months where category growth lies.
Sure. That's very helpful. And my last question was on the 3 new segments, which you had entered and probably took a backseat last year due to the situation, which was the croissants, wafers and salted snacks. If you could just tell us that would you restart your aggression here? Wafers of course you have made a few new launches so that's very clear. But on the -- all these 3 segments, would FY '22 see a bigger ramp up in this stage, are they in your cycle?
Yes. No, for sure. So wafers has done extremely well. We are growing 30% plus. So that's done very well. Croissant also, we are seeing growth but in only test markets. We have rejigged our product considerably. We are fine-tuning it, as we speak. We've got some very exciting insights into what we can do with the product. So I definitely think that once we are able to get it to perfection, this could become a big plank for -- of growth for us. So I don’t think that, yes, these product categories, as we go forward, will become extremely important to provide us the growth that's going to come to the company.
We have next question from the line of Percy Panthaki from IIFL.
Varun, my question is, when you started this quarter, basically, is this the kind of growth you expected? Or has the growth come below your expectations, let's say, on 1st of October whatever your expectations were?
No, no, it's come below expectations for sure, Percy. It’s -- we had expected more growth than this. But these are all cycles. It's a matter of the period of time, et cetera. And as I said, the good news is that rural growth as well as traditional trade growth were very good. It's very clear that where we are lagging, the channels is where we are lagging. And within channels, if you think about it, Future Group used to be a very large part of our business. And now it's completely muted. The other modern trade chains were also not growing as fast in large cities, et cetera. So -- plus the alternate channels, which is transit cluster, offices, hotels, et cetera, they were all shut or operating at skeletal kind of operations. So all that led to this. And -- but yes, to answer your question, we expected more than what we got.
Okay. And I just wanted to get a sense on the underlying demand. As you say, a quarter here and there can be many reasons. It could be pantry realignment or whatever. But on the ground, what is the kind of demand you see. So pre-COVID, we were clocking about, I think, 5%, 6% kind of sales growth. But in the last few months, I mean almost all categories at least seemed to have a demand or sales growth which is higher than pre-COVID level. So is that an optical illusion in the sense that they were very, very badly affected in first quarter and therefore the growths we are seeing now are very robust? And in fact, what seems to the company themselves that demand has really rebounded and is above pre-COVID levels, that's not the case? Or do you agree that actually overall demand is now above pre-COVID levels? And what you're seeing right now is just a quarter aberration and you will also sort of come back through double-digit growth very, very soon.
So Percy, I'm not able to figure out in my mind why the demand should be beyond pre-COVID levels because the turmoil that is created in the country will come to ruse at some stage. There are people who have lost their jobs, there are small businesses which have gone belly up. But on the contrary, if you were to look at the budget, budget has been very solid. So all that will get balanced out. But I would think that overall, it will come back to a pre-COVID growth scenario, unless there is a big surge after the budget. And rural completely takes over and starts to grow at a very fast pace. At this point, if you were to look at this quarter that we are talking about, I would think that our traditional trade growth and rural growth were above pre-COVID levels, right? It was the channels and the urban growth which were lagging. And if you were to analyze that and if you were to say, if you normalize urban and channels, would that be growth, would that be beyond pre-COVID? Yes, it would be.
Varun, is that the right way to look at it channel wise? Because in Q1 actually modern trade was the worst affected, even more than what it is now, and yet you grew 25% because there is some amount of substitution. Ultimately, it will boil down to what the consumer is consuming, right? And there will be some amount of channel substitution that the consumer will do?
Yes. No, the channel substitution was happening. But you got to remember that it's not channel substitution, it's substitution of food. So there's -- nobody was going out of home. It was all in-home consumption. So in that time, there was substitution of street food, substitution of restaurants, food, et cetera, which was happening. So that has been normalized at some stage.
Sure. And since I'm not asking a second question. I just want to dig a little deeper into this. You basically mentioned that you don't see a very strong case to say why demand should go above pre-COVID levels given the job losses, et cetera. But if that's -- if that is what you're saying, it is a pretty bearish statement because pre-COVID your sales growth, if I'm not wrong, was in the region of 5% to 6%. So are we saying that's the stable state growth now for the next few quarters?
No, but that also, Percy, you are quoting only 1 or 2 quarters. If you were to look at a longer period of time, it wasn't as low as 3%, 4%. It was -- so it's a matter of time. If you were to take a year, there would be no year where we would have grown less than 9%, 10% -- 8%, 9%.
9%
9% would be our lowest growth in a year. Yes, quarters might be lower, but overall growth for a year is what we will look at. And I would say, that would probably be the benchmark that I'm talking about.
Your next question is from the line of Aditya Soman from Goldman Sachs Asset Management.
So a couple of questions. I was just beginning towards the previous question. What would you say -- has it been an overall negative or a positive impact if you were to look at it as we stand today? So you've got obviously a negative impact of channels being shut, schools, offices, et cetera being shut. On the other hand, you've got some market share gains and in-home consumption that’s been higher. So net-net, do you think we are at a point where growth -- I mean, your growth -- are you making the statement about growth going back to pre-COVID because some of these positives will unwind and some of the negatives will improve?
Yes, that's right. So what I'm saying is at some stage, life is going to normalize. And then it's a demand supply, which will play, right? And yes, we are looking at more innovation. We are looking at more categories that will all add to our growth. But there's no reason for COVID to create a demand surge in the future as well.
No, I understand, very clear. And in terms of channels, can you give us a sense of where we are now in terms of local and modern trade contribution and e-commerce contribution, let's say, for the third quarter?
So e-commerce is at just about 1% contribution. Yes, as far as e-commerce is concerned. But growth there of phenomenal, it used to be about 0.5% of our total business, it's now at about 1%. Modern trade would be -- Gunjan what…
About 10%.
10% is about modern trade, which has come down a bit…
Last quarter has been better than what we have seen, but it is still below the pre-COVID levels.
Yes.
Understand. And just one bookkeeping question. In terms of CapEx, what is your plan now for fiscal '22?
So CapEx, we've got -- what's the number, Venkat?
Currently, CapEx is going to be 60% of our normal levels. So it's going to be in the order of magnitude of about INR 200 crores. It is for 2021. '21-'22 is the question that you had, right?
Yes.
'21-'22 so far as bakery capacity is concerned, we’ll review the capacity that we have and the demand outlook and accordingly decide the spend.
Got it. And on dairy CapEx are we -- is it still?
Yes. That is on. We are going ahead with the dairy project as we have planned.
[Operator Instructions] We have next question from the line of Amnish Aggarwal from Prabhudas Lilladher.
I have a couple of questions. My first question is regarding the volume growth. What I'm trying to find out is that earlier there used to be a lot of focus on small packs, that is INR 5, INR 10 pack, which you used to sell under your transit location, out of home consumption. But during COVID, there were a lot of large packs launched by Britannia also and some of its competitors, which continue to gain a lot of, you can say, eyeballs as far as your online and modern trade is concerned. So what is our view on large packs? Has their proportion to sales increased? That is first part of the question. And second is that in one of the adjacent categories that is wafers. Earlier, we had 1 or 2 mid-sized brands. But now I think a couple of larger competitors, they have also entered that category with a lot of offers and competition over there. So what's your view on this?
Okay. So versus -- the large pack versus small pack thing. The fact is that a lot of our growth is coming out of rural areas where small packs is the one which is the largest part of our portfolio. And with modern trade taking a little bit of a backseat, it obviously will start to show up. But as things start to get back to normal, I think the balance will come back between small packs to large packs. Versus COVID times, obviously, the small pack growth is higher than what it was during COVID times because it was more home consumption, right? So I think that will be a balance. And that balance, we will find in the next 3 to 4 months, we won't know which way it's headed, but we are geared for both packs, whatever is required by the consumers. Your second question was on wafers. Yes, in wafers, we have some organized players who've come in, but that's only good. So wafers is a category which is as old as the woods, but we had not participated in it. It was only the B players who are playing in it. And it was a value category where people were selling it at a higher price, giving 1 plus 1 and giving a very high retailer margin. When we came in, we wanted to change that dramatically. We wanted to take it to our model, which is a reasonable dealer margin, a reasonable distributor margin, no big discounts and selling the product. It was tough, right? In the first year or so, we didn't even find entry into certain modern trade stores because they were used to a margin which was over the top. But we stuck to our brands, and we said that the model has to change for us to be interested in that product category. And we found in roads into most outlets and most modern trade chains, et cetera, now. We are now, I would say, in the -- Gunjan, are we #2 or #3?
#2 player and #1 distributor.
So we are the #2 player in the category and we are the #1 as far as distribution is concerned. So it's a matter of time before we get to the #1 position. There is some very exciting innovation, which is also lined up in this category. And this is one category where we think that it's almost like biscuits where you can have value products, which is what we have today. But you could go all the way to the top with premium products, and we are hoping that we will have a full range of products within wafers which are right from cheap to expensive and very expensive. And we are building a plant in Tamil Nadu, which is going to give us some very exciting innovation opportunities in this category. So we are prepared. We are willing to fight this way forward, but we are committed that we will dominate this category as we go forward.
Yes. Just one thing, as you said a few minutes back that there is a little bit of uncertainty as to what could be, say, the trends going forward. But what sort of a sustainable volume growth we should expect from Britannia over the, say, next 2, 3 years? I'm not looking at the next 3 or 6 months kind of a guidance.
I would think that we should look at what we used to see during the pre-COVID stages. And obviously, you guys are very smart, you know how to model, et cetera. There will be some amount of adjacent businesses adding to it. But I would say that it will go back to the pre-COVID levels as far as growths are concerned.
Okay. Sir, the only reason I asked was that in FY '20, actually, our volume growth for all the 4 quarters, they were subdued. And before that, we used to go to 9%, 10% kind of an average number. So what would be the sustainable? Should we look at '19 -- FY '20 as a benchmark or the years before that.
No. So even if you look at '19-'20, '19-'20, the first 6 months, we had very, very solid growth. And in the second 6 months is when we had a little bit of a slowdown. But overall, I think it wasn't a bad year for us. What was the number for the full year?
'19-'20?
So yes, it was a slow year, '19-'20. So I would say that probably, that is a atypical year.
Almost 12%.
'18-'19 was 12%. This year, till now it's 11% volume growth.
14%.
14% revenue growth. So I would say not to the '19-'20 level, but the pre '19-'20 level is what you should be looking at.
We have next question from the line of Mohit Khanna from Future Generali Life Insurance.
I had 2 questions over here. In terms of the Hindi belt, I just wanted to know that how big is the opportunity that you see? I mean, basically asking you the question is that where are we in the game in a 50 over match? And then I'll continue with a follow-up.
So I'll let Gunjan answer that question.
Yes. So we've been talking about this Hindi belt for a long time. And Varun's been updating you all on the progress that we have made. Just to give you a sense of the size, the 4 states that I mentioned, we actually internally measure a few more states, but these are the 4 biggest ones within that. But broadly there, as a category, almost something like 35% of the entire market. 35% to 40%, actually, right, of the entire market. There are a few nuances to this. And -- so one is, first and foremost, that we are relatively very weak. So while we are market leaders overall, we are relatively weak here. So that's why there's a maximum headroom for growth, et cetera. Our indexation of market share is that we started off at 1/3 of our national market share here about 3, 4 years back. And over the years, we have made progress. We are now -- even now, we are at about 1/2 of our national market share, weighted average. There are some states much better, but broadly there. So that means there is enough and more headroom. In a 40% of the country's market, where we're still under-indexed significantly. Does that answer your question?
So basically, just to translate that, let's say, our market share overall was 30% at that time, in the Hindi states, we were 10%, and Hindi states was 35% of the total business. Today, we are, let's say, our market share is still 30%. Our market share in the Hindi state is 15%. So that's basically the thing. Obviously, our overall share has also grown. I'm just simplifying it for you. And with the quick rally, if we want to equalize our share in the Hindi belt with our overall share, one, our overall share will go up dramatically; and second, you can think about how much volume and revenue we'll get out of that 35% of the business. Was that contextual for you?
Yes. That was actually coming in from the point of view. Just wanted to see the runaway ahead, of course. The next question, I would just come down on the cost part. And first, just a number, what is the direct dispatch percentage of the total dispatches that you do? And what is the target that you plan to achieve here?
So -- we used to be pre-COVID…
About 8%.
At 8%.
Our average now is about 22%.
So we've gone from 8% direct dispatches to 22% direct dispatches.
Okay. And just a last thing. In one of the slides you mentioned about an IT project. So now combining both the questions on direct dispatch and IT, what exactly is the IT project all about? And what do you plan to achieve operationally and financially out of it? And this gives you confidence of sustaining your margins at the current level?
So essentially, we are looking at upgrading our current systems, okay? It is in 3 parts. One is the ERP system on which all the company transactions are happening. So that we are upgrading to S/4HANA with a lot more of new modules coming in. In addition, we have a dealer management system, which was put up about 15 years back -- 12 years back or 15 years back, which was almost online. Now we are going with a new online DMS system, so which is Arteria. And the third one that we are trying to do is to do a vendor management system using Ariba. So all our interactions with the various vendors that we have will happen on that platform. So all these 3 now are getting also integrated. So with the upgradation of the basic systems and integration, there's going to be a whole lot of data that's going to be available for the company to use them for business analytics, and for business intelligence going forward. So that's what we are doing currently.
Right. Just -- I mean, I don't think you answered the second leg of this. So financially, is there any target to be achieved by increasing the direct dispatches and IT projects and other cost efficiencies, basically. That's it.
So direct dispatch has an impact on the transportation cost to the company, which has already flown into the P&L of the company that we see. IT, there are some benefits that we are looking at in terms of write-offs coming down, of being able to better manage the stocks, reduce the stock holdings that we have, manage the stocks better and improve conversion of orders into billing. So these are the benefits that we are looking at. So these will flow in as we implement them, and we hope to go live by end of this financial year.
And there will be multiple benefits that we get out of the MIS that we'll be able to generate as well because there'll be very intelligent decisions taken by salespeople backend. So I think there will be multiple factors that will be at play. How much we can get out of it? I think we'll know once we implement it.
We have next question from the line of Alok Shah from AMBIT Capital.
I have 2 questions. One is on the Ranjangaon plant. Can you remind us what is the total CapEx for the Ranjangaon plant? And within that, what would be the allocation to, say, biscuit, dairy and so on? And second would be, in terms of the adjacent categories, would you be building all the adjacent categories organically? Or would it be open for the inorganic acquisition as well?
So till now, we've invested INR 700 crores in Ranjangaon. The total CapEx for which we are getting that ultra-mega project status is INR 1,500 crores, which includes the dairy project as well. So -- and we have -- till when, 2023 to complete that.
2024.
Till 2024, we have to reach INR 1,500 crores, which includes the dairy project. So currently, we've got every possible category there, including biscuit, cake, rusk, croissants, and we are building the dairy plant. So by 2024, with the dairy project completed, we'll have investment of INR 1,500 crores. On which, we'll get an incentive of 110% from the Maharashtra government. So does that answer your first question?
Yes, absolutely.
Okay. And second?
In terms of the adjacent categories, would you be scaling up each and every category organically? Or would it be open for some inorganic acquisitions also?
No, we will certainly be open to inorganic acquisitions also. But unfortunately, the valuations are such that we are very, very conscious about what paybacks we should get. So the project has to be worth our while. Today's valuations, today's start-ups, the kind of money that they are getting, et cetera, is something which we are not used to. So we will watch and see and check if there's a good acquisition target at the right price, we'll be very happy to go for that.
Ladies and gentlemen, due to time constraint, that was the last question. I'd now like to hand the conference over to Ms. Dipti Sudhir for closing comments. Over to you, ma'am.
I thank everyone for spending time with us on this call. We look forward to interacting with you again. Thank you.
Thank you very much, ma'am. Ladies and gentlemen, on behalf of Britannia Industries Limited, that concludes this conference call. Thank you for joining with us, and you may now disconnect your lines.