Britannia Industries Ltd
NSE:BRITANNIA
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Britannia Industries Ltd
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Good day, ladies and gentlemen, and welcome to the Britannia Industries Limited Q4 FY '17-'18 Earnings Conference. [Operator Instructions] Please note that this conference is being recorded.I now hand the conference over to Mr. Piyush Bhandari, Investor Relations team. Thank you and over to you, sir.
Thanks, Margaret. Hello everyone, this is Piyush from the Investor Relations team in Bangalore. I welcome you all to the Britannia earnings call to discuss the Q4 FY '17-18 financial results.Joining us today on this earnings call is our Managing Director, Mr. Varun Berry; CFO, Mr. N. Venkataraman; VP Sales, Mr. Gunjan Shah; VP Marketing, Mr. Ali Harris; GM Procurement, Mr. Manoj Balgi; Vice President Dairy Business, Mr. Venkat Shankar; and Vice President, [ Adjacency Bakery ], Mr. Jayant Kapre.We will start the call with remarks on performance by Mr. Varun Berry. Subsequently, we will open up the call for questions.Before I pass it on to Mr. Varun Berry I would like to remind you that anything which we say that refers to our outlook for the future is a forward-looking statement which must be read in conjunction with the risks and uncertainties that the company could face in the form of general economic conditions, commodities and currency fluctuations, competitive product and pricing pressures, industrial relations and regulatory developments.I would now like to pass it on to Mr. Varun Berry for his comments.
Hello everybody. Good afternoon. So let me just move to the presentation. So if you get to Page 3. It started off to be a fairly tough year for us. But in the end, I think we've gotten to a stage where we feel that the momentum is again back in the categories that we operate in. Again a bit of repetition, but something that we are really proud of is the consistency of our results and that really keeps the entire team fairly motivated.So if you go to Page 5 you will see that from '12-'13 onwards our CAGR on top line has been 11% and our CAGR as far as the profit after tax is concerned has been 31%. And that's consistently been showing up every year. So very happy with the way things are turning out.And just from a -- there is something that which most of you might not be aware of, the fact is that in March of this year we've completed 100 years as a corporate. While as a business it's longer but this company, which is Britannia Industries, came into being exactly 100 years back. And as we celebrate 100 years we've reached a few milestones. Total income of INR 10,000-plus crores, profit before tax of INR 1,500 crores and profit after tax of INR 1,000 crores. So a lot of zeros out there, so feels good about that. We are looking forward to celebrating 100 years towards August and all of you will certainly be a part of that celebration.Now moving on to the next page which talks about the execution parameters that we've been focusing on. And truly what we've achieved is result of the execution focus that the team has. So premiumization and innovation as we stated earlier as well is certainly one of the key parameters as far as we are concerned. And this I think has been working very well for us. But let me tell you this year, the financial year that we are in is going to be a benchmark year for us as far as innovation and premiumization is concerned because the pipeline is the widest compared to any other year that we've had in the past. So watch out for this space.Second is distribution footprint. We've made great progress on distribution. And frankly, this was the first year where every month we gained numeric distribution versus the previous month. So month on month on month we kept gaining numeric distribution. And also our direct distribution. So we're getting close to about 19 lakh direct outlets that we get to.Cost leadership, it's become a part of our DNA to make sure that we keep our costs low and keep finding opportunities to reduce costs. And also leveraging our fixed cost we certainly want our fixed cost to grow at a lower rate than our top line.Just going to the 5 that I'd outlined. So delightful innovations clearly we've recently launched the Milk Bikis Good Morning which is doing quite well. We've also launched the NutriChoice oats and chocolate and almond which is also doing very well. In the cracker area, we've launched 50-50 Jera which initially is giving us very good results. And we are revamping our value Tiger Cookie portfolio which also in the first 3 months of launch is looking good.The second is on distribution. I've already spoken about direct distribution getting close to 19 lakh outlets. Rural continues to be high double digits and it's growing month-on-month for us. This is giving us very good dividends and also fulfilling a weakness that we had as far as our portfolio was concerned, as far as our geographical spread was concerned. We certainly have rural now moving closer to urban distribution and share. We still have a distance to cover. We're still only about 75% of what our share and distribution is in urban areas. So we still have a distance to cover, but at least the gap is not widening but narrowing.The weak state growths again looking good. Rajasthan continues to grow at 27%. MP at 15%. UP has tracked up from the 9-odd percent to 15%. And Gujarat continues to grow at 16%.Even in the other smaller states, we've seen very good growth. So Uttaranchal is growing at almost 30%. Haryana is growing at 17%, 18%. Bihar over 20% and so on and so forth.So the entire Hindi belt is growing at a faster pace than some of the other territories that we have. And this is our weakness as far as share in distribution is concerned.Third is about cost leadership and cost efficiency programs that we run. As I had spoken last time as well we aimed for the sky and we did reach very close to that. So in '17-'18 our total cost efficiency was 4.5x what it was in '13-'14. And that was about INR 225 crores. And this year we are looking at exceeding that and going much beyond that from a cost efficiency standpoint.Also, our journey on technologically superior factories continues. We've got 2 greenfields which have been commercialized. So we've got a second factory in Guwahati which has been commercialized and now is producing product for us. And the second one is in the SEZ which is in Mundra which has also been commercialized. And again, it's a state-of-the-art factory which will give us great efficiencies and great cost savings from our supply to the international business.And as we do this we continue to dream and our dream really is to take Britannia to be a total foods company. And I do think that dream is very, very powerful, because there is no other brand like Britannia which can own a lot of spaces within macro-snacking and within foods.So we are actively working on new categories and geographies. Croissant is underway, the project is underway. We are putting up the manufacturing facility in Ranjangaon. We should be ready by October with the launch in November.Our diary milk collection scale up is happening as we speak. We will start to put the project together for milk processing again at Ranjangaon. So that's something again which we think is a fairly large move from our side.There are other categories within macro-snacking where we would like to either strengthen our position or to enter as a strong player. So we are looking at -- you will see some very, very exciting cake innovations. We've got some technologies which are going to give us extremely differentiated products as far as cake is concerned. Also towards the end of the year some very exciting rusk products. But the trick will be to move beyond that to other macro-snacking categories. I can't divulge too much at this time till we've finalized our projects. But again I would say that we are very excited with what we have in the pipeline.The new geography agenda, the fourth country of operations is going to be Nepal. And as we speak we are looking at other countries as well, in and around India as well as in Middle East and Africa where we can start up our operations starting in 2020.So that's where we are at. And as we think of this dream of becoming a total foods company we do think that we need the right people in the right place to help us build these businesses. So recognizing the realities on the ground is very, very critical. And what are the realities on the ground. So there is a very interesting BCG report which I read and I just want to quote from that, so what it says is that it says large brands are losing share to small and extra-small brands, right. Scale distribution, big media, big brands is not the only differentiator or is not the only ingredient for success. Obviously e-commerce is disrupting all of that and more. Precision marketing is very important and it costs less. A manufacturing push is good but it's important to have consumer advocacy rather than just relying on manufacturing push. And it also says that scale is not sufficient, you need to have customer -- consumer centricity, you need to make sure that you have consumer engagement models, you embrace complexity and you become agile as a team and as a organization, right.So I think it's very, very important for us to recognize that, right. We in a large company always think of how can we at one shot run a line for 5 days and just keep producing one product which will give us the kind of efficiencies that we want. But I think we have to really start to do a little bit of introspection. And even if life is creating a little bit of complexity for us I think it's important for us to take that forward. In that view what we are trying to do is that we are trying to build strategic business units within our business. So overall business there will be strategic business units. So while we have the scale of a large company we would like to have the thinking of a startup within these smaller businesses, right.So with that spirit what we have done is that, if you go to the next slide which is Slide 17, which talks about the organization structure. So what we've done is we've created these business units, and as you'll see on the right-hand side of this slide, there are 3 business units that you see. So there is VP International, so international is one business unit for us. Dairy which is going to be the largest investment that we make as a business is the other business unit. And we have recruited a very, very able leader to run that business for us. The gentleman's name is Venkat Shankar, he is here with me.He has worked in many FMCG companies and he has also done private equity work for almost 9 to 10 years of his life. So he brings a long experience and a very diverse experience to the table. So we are looking forward to his contributions. And we've got, I think the last time I have spoken about Jayanth who handles bread, cake, rusk and the Britchip which is the croissant business. Under Jayanth we have also got leaders who will run each one of these subcategories. And each one of those leaders are also highly empowered and will be running these businesses with the agility and the mindset of a smaller company.So I think I'm actually quite happy with the team that we have today, the quality of the team, the thinking as well as execution capability of the team is of a very, very different order, so very proud of that.Now moving on to the next slide which shows where are we going to put up the facilities that we are talking about. So Ranjangaon is going to be a food park for us. It's a very large facility. It's a 150 acres facility that we are putting up which is going to have biscuit, cake, rusk, croissant, dairy and some -- some of the other products that we want to do. All of these in one facility. And we are looking at also putting up the backward integrated facilities in Ranjangaon which will mean, milk collection, flour mill and warehousing and raw material storage which will be technologically superior to what anyone else does or even what we do in our factories.So now with that moving on to the results. So if you would look at the results for Q4, we've grown 13% in revenue terms and you will also see from the gradient that it's been a journey forward for the last 4 years which we are very proud of. As we speak about this, the inflation has been under control, so it has not been a year of high inflation, in fact our overall inflation for the year was about 3% and that too because of few commodities while there is a deflationary trend in flour, sugar and milk. But there was inflationary trend in RPO where the tax went up from some 7.6% odd to 48% and because of that there was inflationary trend as far as palm oil was concerned. There was also other facts, there was inflationary trend, so we saw that in butter, also we saw it in our packaging material. So there were some inflationary trends and some deflationary trends which got the overall inflation to be at about 3%.Moving on to our bottom line performance, our bottom line performance has been fairly good. Our accelerated cost efficiencies programs have given us a fair contribution to what we have achieved and we have also leveraged our fixed cost. So getting to the graph, which is on Page 24, you will see that we are now for the last 2 quarters we are at a operating profit of about 14%. Getting to the financials, net sales growth of 13%, which is page 26 by the way. So net sales grew to 13%, profit from operations up 29%, profit before tax up 29% and profit after tax up 25%. And we have also, we have identified some idle assets which we've had accelerated depreciation in this quarter of about INR 10 crores and we have built some reserves for our centenary year which is approximately INR 14 crores which will help us in our bonuses and other rewards that will have to be provided for the centenary area.So with that if you were to look at the overall results and the progression which is at the bottom of the chart you will see that the progression all from profit from operations, from profit before tax and profit after tax has been fairly good. And just a note at the bottom, profits have been restated from '15-'16 onwards to make that -- make the numbers comparable.So that's all from me. We can now open the session for questions and answers.
[Operator Instructions] The first question from the line of Abneesh Roy from Edelweiss.
My first question is on promotions and offers. Sir, when I see your delightful innovation in Q4, out of the 4 products 3 have extremely high level of promotions, offer, 33% off, 25% free grammages. Also, your 22 bps gross margin seems slightly lower than in our expectation because milk, sugar, wheat prices have been soft, there is inflation in palm oil et cetera, so just take us through have the offers in general in the industry gone up or is it a drive largely from you?
See there are -- the offers basically are from time to time, it's not like we run offers all the time. So I don't think there is any intensity as far as offers is concerned, but you have got to remember one thing, Abneesh, that when the commodity prices are stable people do tend to promote products a lot more than when they are not stable, but I would not say that its anything beyond the ordinary.
Sir, my second question is on the cheese business, you have a great brand there, but based on whatever market share data has come, it seems you have lost 300 bps market share, and Amul seems to have gained 700 bps volume market share. Now will the new factory in Ranjangaon help resolve this? Because I think that has been the key issue, because outsourcing.
Yes, so if you were to look at the premium versus Amul, we have a very high premium versus Amul. So we rate currently at between 27% to 30% premium as far as cheese is concerned versus Amul products. And that I think will get sufficiently resolved as we start to produce our own products because right now there are many heads to share the profit, so I think that will certainly resolve the issue, but that we are still 2 years away from that. So we will have to look at what are the interim ways of making sure that our shares keeps moving in the right direction as far as dairy is concerned.
Sir, one clarification there. In the slide, you have mentioned commercial production to start in Q1, and then you are saying it will take 2 years, why such a gap?
No, we haven't said commercial production. No, that is not dairy, Abneesh, that is not dairy that we are talking about. We are talking about the first commercial production to start would be cake, then after that followed by biscuits. Dairy is only going to start about 2 years later because the lead time to get the processing facilities ready for dairy is fairly long.
[Operator Instructions] We'll move to our next question which is from the line of Sameer Gupta from IndiaInfoline.
This is Percy Panthaki here. Sir, this quarter as the results are coming most of the FMCG companies are calling out a revival in FMCG demand. So just wanted to have your take on it, I mean in this quarter numbers also of few of the companies have been on top line higher than estimate, so it does look like there is a sudden change in the demand environment, so are you seeing anything of that sort?
Well, we've seen 2 quarters of double-digit volume growth. It's always good to have that kind of volume growths because, as I have always been saying India deserves as a country with the kind of GDP growths that we are seeing it deserves to see much better growth, so I am hoping that it continues and the revival does happen. And this being a election year, hopefully it will sort of continue for at least a year and then with a stable government things should be moving on at the same pace.
Secondly just a couple of accounting questions I wanted to ask. One is your employee cost on a Y-o-Y basis is up quite a lot, over 30% in the standalone. So what is the reason for that? And secondly, if I look at your console minus standalone accounts, the sales has declined actually for this quarter on a Y-o-Y basis, but the margins have inched up sharply, so just wanted to understand for both these things, story behind the numbers.
So on employee cost, we had reported the last quarter also, there is a INR 17 crore of provision that we have made on the pension settlement. That is a one-off that happened the last quarter. Similarly --
But I am talking about Q4.
Q4.
This quarter. This quarter on a Y-o-Y basis, so Q4 this year versus Q4 last year on a standalone basis your employee cost is up quite sharply, and even versus the last quarter sequentially it is up quite a lot.
So basically what we have done is we've -- because this is our centenary year, as I was mentioning in my presentation as well, we have built about INR 14 crore as celebration/bonus for our centenary year in this quarter. What was your second question?
So if I just do your console P&L minus your standalone P&L, the sales is down, but the margins are up very sharply, so both on sales and margins what is the story behind the numbers?
The subsidiaries are essentially the international entities and dairy business, right. So far as international is concerned the growths have been better, right, as compared to what it was in the first 3 quarters, and the margins are always better there. In addition, we have also taken some price increase actions in -- for the international subsidiary. That is one. The second is the focus in dairy has been on value-added products and for -- in which the margins are better, coupled with milk prices being low.
So basically as far as dairy is concerned -- because we prioritized on cheese -- while cheese is up double digits some of the other commoditized categories are down. So if you were to look at overall volume or revenue, that's below what it was last year. However at the same time the margins are -- because cheese is now growing while the other commoditized segments are not growing, so the margins are dramatically up versus last year, so that's the reason for what you are asking.
And could you please allow me one question on dairy please?
Okay, go ahead.
So see, sir, just wanted to understand the thought process and philosophy behind going into the backend of dairy, you are an FMCG company, you are not going to sell pouch milk, you are going to sell value-added products, you just use milk as an input, why do you want to get into this completely different business of procuring milk and putting up plants et cetera, why don't you concentrate on branding and let the procurement and manufacturing be done by a third party, because you are able to command serious brand premium and if you just lose out on 2% to 3% cost benefit by not doing your own manufacturing or procurement you will more than make up that in your branding initiative, so just wanted to understand the thought process, behind this entire initiative.
The thought process is that we want this to be a fully integrated dairy operation. So you got to remember that we consume a lot of dairy for our biscuit business, so the total quantum of dairy that we consume is about 300 core and 350 crore, right. And basically what we consume are byproducts of what we would produce if we were making cheese in our factory, right, so whey product is output out of cheese, even SMP has to be the milk balancing tool that we have in the factory, even ghee is something that comes out of milk processing because of the fat that you generate. So basically it just makes the entire thing end-to-end consolidated operation. And frankly, that gives us a great amount of leverage from a pricing standpoint because if you have a co-packer -- I am not saying that we are going to walk out of co-packers, right. So we will certainly have -- still have co-packers. So if you were to look at biscuits 20 years back we used to have zero in-house production or very little in-house production. From there we went to 30%, now we've gone to 50%. So similarly the journey here is also going to be similar. But one is going to be a fully integrated operation. Two, we're going to use the right technologies and make sure that it's more efficient than anyone else in the country. Three, we are going to create a portfolio of product which are certainly superior, but also from a format standpoint are exciting for the Indian consumer and hence create these categories within India. So we have very ambitious plans. And dairy, as you know, is a very, very large category with very, very positive connotations as far as health is concerned. So we would certainly want to be a large player in this category.
[Operator Instructions] The next question is from Arnab Mitra from Credit Suisse.
First question was on the input cost. You said that there's about a 3% blended average increase. Just wanted to understand this reduction in milk and sugar which has happened which seems quite sharp, has it started fully reflecting in your consumption prices, or that full reflection will happen going ahead? And in that context do you see this 3% number actually tick up or tick down as you kind of move into FY '19?
So it's seemingly stable right now. It's actually starting to reflect. Last quarter we certainly were reflecting the deflationary trends as far as milk and sugar and flour was concerned. And I think it is looking like it's going to be stable at least for the first 2 quarters of this year. So I see no big change as far as commodity is concerned.
And second question on the growth, while your growth has definitely ticked up in the second half I think the 24-month growth that you gave are still below, let's say, the predemonetization levels then you were running in the 20s, mid-20s or so. So as the low base of demon and GST, that period goes away, do you see you being able to go back into those kind of 2-year growths? I mean what I mean to say is that it would require some kind of a pickup from these levels or this level of demand can take it up to those levels?
Well, I am hoping that we will be able to maintain our numbers. So if you were to look at it from Q4 of last year which was a 24-month growth of 12%, went up to 15% to 19%. So we are moving towards the predemon numbers of 22%, 25%, and hopefully even 26% and 30%. So I am pretty hopeful that things will move in right direction from now onwards.
The next question is from the line of Aditya Soman from Goldman Sachs.
First question is again on dairy, can you -- I mean you talked about SMP and whey and would these also be obviously products that you would look at for the dairy -- in your dairy plant?
So we are looking at a drier which will be able to dry whey as well as SMP. So it's a common facility for both. And as you know that you need to have some milk balancing in your dairy facility so that milk balancing will happen through SMP. And we do consume SMP in our biscuit operations. So depending on what is our production cost and what is the market cost, we will certainly be making sure that we produce enough to be able to use it in our biscuit production.
So just a follow-up on that. So this is earlier -- this will basically be for balancing the entire product but you'll have a primary sort of value-added business --
Yes. So see, predominantly the drier facility will be for whey powder, but whatever is the balancing number for milk will be used for SMP.
Secondly, on your accounting, in terms of the -- we've seen the investment go up quite meaningfully on the balance sheet, can you explain what that is?
[Indiscernible] CapEx for the currently year has been INR 375 crores. So that's the investment that has happened in the current year.
And it's basically, bulk of that is in manufacturing facilities and technologically superior and new technology for India kind of lines that we brought in for biscuits as well as for cakes.
But I also meant the investment. So then there's investments in your current investment line that has also shot up quite a lot.
So current investments going up has to do with the treasury investments. The overall treasury investment has moved up almost about INR 750 crore versus the last year.
And so this is largely in liquid -- this would largely be in liquid fund and stuff like that.
Correct, correct.
The next question is from the line of [ Lalitha Chopra ] from JPMorgan.
This is Latika here. The first question was on margins, you mentioned that FY '19 is going to be quite a heavy year on new product launches. Would these products incrementally be gross margin accretive? And also assuming that the brand investments will scale up to support these, would you still expect the overall margins to improve in a considerable manner considering we've seen almost close to 100 basis point kind of improvement in FY '18 in your operating margins?
So Latika, first of all we don't give a outlook. But see, we've got a very clear protocol, so we've got a stage-gate process. We've also got a innovation process which is very clearly spelled out. So if there's a extend product which is extension of a brand we clearly need to have -- we have a clear protocol on how much investment can go into it, what kind of margins do we generate out of it. If it's new to market product, what kind of investment needs to go, what kind of margins should it be there? And all of these have to be accretive to our current products, right. So innovation, there's nothing which is going to be dilutive to our current products. So with that, we do think that we will be able to have enough funds to develop and support these products.
All right. And the second question was on product mix. Could you share how does your biscuit sales stack up now in terms of premium popular and mass segments? And how would you expect this mix to change over next 3 to 5 years? And does this imply that there is an opportunity both at realization improvement and margin improvement going forward, just for the biscuits category?
Yes, so actually if you look at contribution from the value part of the portfolio, it's only dropped. And it's dropped quite a bit. What has been really growing for us is the premium part of the portfolio. And hopefully that trend will continue.
Any numbers you could share, Varun, on what's the share of premium today?
Premium today would be -- what is the premium number?
[Indiscernible] 85% of our businesses --
Speak up. Speak up. So this is Ali, head of marketing.
So almost 85% of our business is from nonvalue products which are in the core and the premium segment. And as Varun said, that's the segment that has been growing faster than the value segment for us. And that's why we are -- that's how we are premiumizing our portfolio. And that's the trend that we expect to continue.
The next question is from the line of Kunal Jagda from KR Choksey Shares & Securities.
Sir, you just mentioned that you are starting an operation in Nepal, so I just want to know that would be through JV or acquisition or you would be doing independently?
No, we are going ahead independently.
And what was the CapEx for Ranjangaon?
The total CapEx for Ranjangaon and that's a 3-year CapEx will be INR 1,000 crores. In the first year will be around INR 350 crores and then we'll scale up towards INR 1,000 crores and that's something which is our commitment to the Maharashtra government basis which we've got the requisite incentive.
And what will be the utilization level in this facility?
Our utilization levels are always in the 90s, so we will put it in such a way that our utilization gets very quickly ramps up to over 90%.
And what would be the asset turns sir, for this plant?
Asset turns.
What is asset turns?
What would be asset turn for Ranjangaon? Asset turnover.
About 4x, it will be 4x roughly.
The next question is from the line of [indiscernible].
Please could you update us with the level of inter-corporate deposits at the end of the year, please?
Yes, so ICD to the group companies I hope you are referring. For the group company ICD as of March 18 was INR 350 crores versus INR 450 crores the last year March.
And do you have plans to reduce these to 0 in the coming years?
It's been coming down, over the last couple of years it's come down. We have no such plan at the moment but then it's been progressively coming down.
The next question is from the line of [ Devanga Shetty ] from [ Marka Capital ].
Sir, I want to know about croissant business. So what kind of growth you've seen there and what we can expect from that business?
So that's my favorite project by the way. I think it's a project with -- there's a lot of excitement in that project because of 2 or 3 things. One is the product itself is delightful, it's on the go, it's aimed at the young people, it's any time of the day. Again I feel like I'm sort of repeating myself but I think it's a very, very exciting product which is also reasonably filling compared to other macro snack products. And we've seen that anything that is centre-filled in India is a very, very product whether it's a centre-filled biscuit or cake or whatever our experiences have been that center-filled which brings in solid with liquid is very exciting for the Indian palate. So the second thing about that project is that it's not low a CapEx project that we will see a lot of people coming in with investments to put it in there because it's a fairly complex line. It's not a easy product to make. So I think once we get in there we will be able to dominate that space. While there is a Italian company called Bauli which has already launched and is doing reasonably well. But with our scale, with our distribution, with the kind of facilities we have, I think we'll be able to dominate that space. So I am looking, really looking forward to that and I hope that my team will make me proud on that because I generally hope that we will be able to finish up that capacity very quickly and will be putting up more lines for that product as we go forward.
The next question is from the line of Nandan Vartak from Wealth Managers.
So my very small question is about dairy segments. So what would be our distribution reach in dairy segment?
Current distribution reach is a fraction of what it is for biscuits so, Venkat, how many outlets do we get to?
Total [indiscernible] 1 lakh, 1 lakh.
So we get to about 100,000 outlets compared to biscuits which is 5 million outlets, so a long way to go. But we also don't want to spread ourselves thin because we are a very premium player today. But tomorrow with our facilities, with low unit price points, with the right kind of products we would like this distribution to go up dramatically.
The next question is from the line of Prasad Deshmukh from Bank of America.
Two questions. Firstly on Nepal as to would it be possible to put a number to the size of this opportunity, what products you would be pushing at least in the first year and margin profile?
So the margin -- so let me just close out on the margin. So currently we are exporting from India and we make reasonable margins, right. So if you were to look at the margins with local facility they will be accretive to what our margins in India are, right? So that is the first point. Second, from a facility standpoint the investment in the facility is not very large. We're looking at some INR 55 crores of investment from a capital standpoint. And with that we hope to generate INR 60 crores to INR 70 crores for starters and scale that up to almost INR 100 crores, INR 150 crores in the next 3 to 4 years. The kind of products are going to be exactly what we do in India, so it's going to be Good Day, it's going to be all of our regular products.
Second question on your vendor consolidation. I think post GST you had said that the main -- one of the drivers of your efficiency would be vendor consolidation. So has that already started reflecting in numbers or it is yet to happen?
No, we have not done any vendor consolidation. We've done the working, we have found. The transportation happens to be a very key component of supplies by the vendor and with about 70 factories across the country it's important for us to have vendors in the local area. Having said that, there are commodities and products where consolidation has happened.
The next question is from the line of [ Hemant Aggarwal ] from [ Devansh Traders & Analysts ].
Sir, I have 2 specific queries regarding the results that you have posted in this quarter. Sir, if I look into your results for the quarter your purchase of traded goods have shot up quite significantly, so from a number of INR 301 crore last quarter it has shot up to some [indiscernible] odd crores. So is that attributable to some change in operational model that we're envisaging or what's this attributable to?
Yes, so essentially there has been some change in the method of buying, right? In some places, we use to supply the basic raw material and convert it into finished product, in some places. Post GST some of the product types such as bread it was better to do the other way which is to buy the finished product. Ask them to buy the material and then supply it, that is one. The second is some of the factories also went through this transformation, so it doesn't really matter. I think both lines have to be read together.
Okay. So the question was because of your gross margin, because of that if you add up all the material consumption which will be your CMC rate, cost of material consumed, purchased, stock [Indiscernible] in inventory that could have led to a decline in your gross margin percentage, so if we add up all these other percentages with [ GTO ], it will total out to somewhere around 36.8 versus 37.7 of your last quarter, that is what my concern was.
Which is what Varun explained saying that there was an increase in the rate of [ RPO ], the customs duty on palm oil, went up from about 7.5% mid-quarter September '17 to about 48% in March. So the RPO rates went up significantly. That impacted this 0.7% that you are talking about largely.
That I guess, sir, should have been opted by the softening of the oil rate and flattish trend of maida rate [indiscernible].
No maida rates start coming down from April because the crop season is end March, beginning April. Maida rates if anything will be highest in quarter 4.
Sir, one more query if you could allow me, sir, you have also reported a 50% odd percentage growth in the other income, so if I add up the operating revenues and other income for Britannia it will total to sum INR 71-odd crores for the quarter versus INR 45-odd crores that we reported in the last quarter so what is that attributable to if it's a recognition of fiscal incentives in the commercialization of your new facilities that you have actually entered into.
Yes, you are right. This is recognition of fiscal incentive in the state where they have announced the fiscal incentive under the GST regime which is Karnataka --
So this is Karnataka.
Karnataka, yes. From July we had stopped recognizing fiscal incentives because under the GST regime it was not announced in most of the states, so Karnataka announced in the month of March and therefore for the period from July to March, it's been recognized. But if you look at the year as whole, you will still see that it is lower.
Yes, correct, correct, agreed. I was talking about the 4 q-o-q.
Yes, so states like Bihar, Orissa, et cetera, they have still not announced, and therefore here as a whole you won't see that going up. And so far as other income is concerned it is to do with the --
Treasury.
-- treasury investments and the volume of the treasury investments primarily.
The next question is from the line of Amnish Aggarwal from Prabhudas Lilladher.
Couple of questions from my side. We have been targeting cost efficiency program year-after-year, like last year we had a target of INR 250 crores and we achieved INR 225 crores. Now this year again we are targeting higher amounts from the cost efficiency program. So can you throw some light on that, what could be the quantum of cost efficiency programs in the current year and are there any additional heads under which the cost efficiency programs which will now cover?
No, it continues to be the same heads. The quantum that we are looking at is little more realistic. So we are looking at INR 240 crores and we are fairly confident that we'll get to that number. We have started on the projects few months back. In fact what we do is we start on the projects midway into the previous year and then we work towards accomplishing those in the next year. So that's what we did in the previous financial year and hopefully we'll be able to get to our number this year.
Sir, my second question is again on the input cost inflation. That if I look at the kind of say your -- if I break up your raw material cost and the 4Q numbers which you have given for deflation in 3 commodities and increase in RPO then actually as per my calculation there should have been a deflation of 2% to 3% rather than inflation. So are there other commodities than the 4 mentioned in your presentation where the inflation has been disproportionately high? And given the fact that sugar prices are at a multi-year low even flour is flattish so we in any way going to have some deflation as we move down towards the rest of the FY '19 now?
So the card board boxes, butter I to you, palm oil, cashew nuts, those are the areas which we've seen inflation in and I was also -- when I looked at these numbers I said that if this is what the deflationary trend is then it doesn't look like a 3% inflation. But when you back up the numbers you see that there has been overall inflation of 3% which is primarily driven by RPO but contributed in small quantum by the other areas that I spoke about. And as we go forward hopefully the prices should be flattish but the thing is that we are again now cycling the lower numbers of last year. So there will be a slight amount of inflation as we go forward but it's going to be very, very controllable.
The next question is from the line of Kunal Bhatia from Dalal & Broacha.
Sir, I just had one question in terms of your mentioned the CapEx in the current year was about INR 375 crores, so just wanted to know how much was it for the Ranjangaon plant. And secondly, also wanted to know post the investment in the Ranjangaon plant of INR 1,000 crores what kind of outsource production are we looking at that point in time vis-à-vis, and also if you could give what's the current status.
So the outsourced productions, you got to remember that if we are growing volumes in double digits we require about 100,000 tonnes of excess, extra capacity every year. So the overall outsourced number is not going to go down dramatically. It will be -- the own factories would get to about 60% and outsourced will get to about 40%. The Ranjangaon investment in last year was about INR 170 crores out of the INR 350 crores odd that we [indiscernible] INR 375 crores. So out of INR 375 crores, INR 170 crores was in Ranjangaon.
So we'll take one last question from the line of [ A.Chowkli ] from [ K.R.Chowkli Shares and Securities ].
My question is to Varun and the entire team, so Varun basically I have been big fan of this company. But more importantly your vision here for this company has been fantastic, can you please throw some light on the breakfast segment which we are targeting to grow in future because I really believe that to become the complete food company you need to get into the breakfast segment big time, to display your potential. And my second question is from the HoReCa segment for cheese. We have seen big competition in the hospitality, restaurant and catering for cheese from Go and Amul, especially Go which has a large fair amount of SKU's in this space. I want to understand from this company as to what, how bullish are we and how aggressive are we to put ourselves because I think the B2B segment is showing distinct signs of improvement with the per capita consumption going up. So I would like to have a little sight on that. And a little follow-up question maybe but little later on but, yes, yes, thanks for that, yes.
So breakfast, yes, I do agree with you, I think the breakfast space in India is very large but it's a very, very difficult space to get into because everyone wants to have hot breakfast rather than have cold breakfast. So no one has really been able to come up with a product which meets the requirements of a housewife from a hot breakfast standpoint because housewives want to add value and also want to create their own recipes as far as breakfast is concerned. But I am not saying that we are not looking at it. We certainly will look at it and I think it's going to be, whoever cracks this will get a big bonanza out of this. What we are doing is we are at this point in time putting this as priority 3 because it's not that we are not working on it, we are working on existing categories, we are looking at what are the existing breakfast categories that we can enter and what are the right to succeed that we have in those categories. But I think the big move forward is going to be on creating certain breakfast categories which fulfill the requirements of a Indian housewife. And but from our current portfolio standpoint we are looking at breakfast biscuits. We are looking at some other breakfast snacking categories.I think Chipita is also a potential breakfast product because it certainly can be a breakfast on the go. And we are also looking at other categories within the current breakfast space which we are not currently in to see what are -- what is our right to succeed in that segment. Your second question was on cheese. In the infrastructure that we have today, it's very difficult for us to compete with a manufacturer of cheese as far as the B2B business is concerned. You are absolutely right. It's the fast food companies which are creating the cheese market in India. They are getting people to try out cheese and like it and stay with it. So hence it makes sense to have a B2B component to our cheese business. But as I told you, we have many heads to feed. We've got contract packers with fairly high fixed cost, et cetera. So it's very difficult for us to compete in that segment, and if they do compete the margins are very low. So we used to do it and we've almost come out of it because it was not giving us the requisite margins. But as we start to do our own business at that stage we will look at it very, very seriously as we keep our backend, get our backend into place, then we will start to look at it very seriously.
All right. I think that's fantastic suggestion. And I would really be happy if we can implement it because we are seeing distinct amount of revival in this segment. And considering the backend integration which we are doing, I don't think it will be difficult because if you look at Manchar and Ranjangaon, both these belts are big, big milk producing belts, so.
Absolutely. That's why we chose Ranjangaon as our facility.
Ladies and gentlemen, due to time constraints, that was the last question. I now hand the conference over to Mr. Piyush Bhandari for closing comments.
Thanks, everyone, for spending time with us on the call. We look forward to interacting with you again. Thank you.
Thank you. On behalf of Britannia Industries Limited, that concludes this conference. Thank you for joining us and you may now disconnect your lines.