Britannia Industries Limited (BRITANNIA) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to Britannia Industries Limited Analyst Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ayush Agarwal, Investor Relations from Britannia. Thank you, and over to you, sir.

Thank you, Danish. Good morning, everyone. Mr. Ayush from the Investor Relations team. I welcome you all to the Britannia earnings call to discuss the financial results of Q2 for financial year 252. Joining us today on this earnings call is our Executive Vice Chairman, Managing Director and CEO; Mr. Varun Berry, Executive Director and CFO; Mr. N. Venkataraman; chief Commercial Officer, Sales and Replenishment; Mr. Vipin Kataria; Chief Manufacturing and Procurement Officer; Mr. Manoj Balgi; General Manager, Marketing; Mr. Siddharth Gupta; and General Manager, Corporate Finance; Mr. Ramamurthy Jayaraman. The analyst deck is uploaded on our website. Before I pass it on to Mr. Varun Berry, I would like to draw your attention to the safe harbor statement in the presentation. Over to Mr. Berry with remarks on the performance.

Good morning, everyone. I've kept it really tight so that we have enough time for all your questions. So getting -- jumping into the presentation, getting to the business overview slide, the quarter has been a growth of 4.1% on the top line and 23.1% on the bottom line. Next slide is about the GST rate rationalization, the GST 2.0, which was a very welcome move by the government. So 85% of our business underwent a change in GST rates with effect from 22nd September 2025, which did cause a little bit of destocking, et cetera, but it was temporary. This is important step. And I think this is going to make that change for the entire food industry as we move forward. All those things have been sort of sorted out, and we are now back on a very smooth sale. Next slide is about market share. The market share, we've got a sustained healthy gap versus organized national players. There's a slight loss for the large players to multiple local regional competitors. So there are -- as the profit pool of the industry becomes larger, there are very small players and regional players coming into this industry. As a result of that, what we've done is we've created a healthy interaction and very separate businesses for all our channels. However, certain of the national players have also started to double down on modern trade and look at the route of discounts to make up for the sales loss that they are seeing in regions. So it's a situation that we are resisting from, and we seem to be coasting along quite well. The next slide is about the commodity price trends. The commodities are looking reasonable, I would say. So if you were to look at flour versus the previous quarter, we are up 2% in price versus last year, same quarter, we are up 6%. So all these are numbers which are within a range. So palm oil sequentially is down versus last year, of course, it's up because that's when the uptick happened. And similarly, sugar, 1% sequentially, 3% versus last year. Cocoa as well, 5% sequentially, 9% versus last year. Laminates as well 2% and 1% milk, slight inflation, but that's the seasonal inflation that happens with the festival season. So all within control, getting to our strategic priorities. If you look at our consumer campaigns, we have some very exciting products under the Pure Magic brand now. We've got Choco ads. We've got Choco stars. We've got the Choco lush, which has always been there and Choco Frames, which has got the Harry Potter theme around it. So very exciting products, and we had a campaign around that. We've also got the NutriChoice 100% Millet cookies, where it's doing quite well. It's got 100% miles, no meta, no palm oil and no added sugar. That product is doing quite well. We've relaunched our Tiger glucose under the Tiger due glucose with the recipe change. that's doing really well for us. We've got the Chunky range with coconut and chocolate chip. And the campaign on Golmal and 50-50 with Ravish Shashtri continues. On the adjacency business, again, Croissant & Rusk have been doing really well. The growths are high double digits and continue to be so. Wafers again is the fifth consecutive quarter of healthy double-digit growth augmented by additional capacity that we are putting up in our plant in North. Our international business, Africa business continues to do well. We have a JV in Kenya, which is shaping up quite well. In Cake, the Brownie product is doing well. We have seen a change after our relaunch. However, we need to meet our own expectations on an overall level on cake. Cheese, we've seen very healthy growth in e-commerce, also general trade, and we've started to see sequential market share gains, which is the positive thing as far as size is concerned. Moving on to the next slide, which is on ESG. Our renewable energy has gone up by 13% to almost 45%. We've had a reduction in the water consumption in most of our plants. The women factory workforce has gone up to 45% by 1%. It's a small number, but significant because that's something that we are working on to make sure that we get this up over a period of time. And our Britannia Nutrition Foundation, beneficiaries are up by 22% to almost 300,000. We've also got a certain recognition with the Golden Peacock Award as well as our scores on the S&P Global, which have gone up to 60%. So we are happy with the progress. We are doubling up and making sure that we get this at a faster clip as we move forward. Our medium-term business outlook. I think we are now very clear that we've got the kind of profitability that we've always desired -- now it's got to be about volume-led growth, which is going to happen through region, consumer-centric products and distribution and also making sure that we are price competitive in each of the regions with the key players so that we continue to dominate the regions that we operate in. We are going to invest behind our key core brands as we've been doing. There was during the inflationary period. There was a little bit of a setback on the investments, but now we are very clear we're going to double down and make sure that the extremely salient brands that we have, we nurture them as we go forward. So we are looking at product restages for certain brands. Obviously, media and consumer awareness interventions to strengthen the leadership that we enjoy in these brands. And also sustained margins, enabled by cost-saving initiatives and commodity situation, as I said, looks pretty good, and we hope that, that continues. Getting to the financial results, revenue trends, as I said, this quarter, we had disruption in the third month of the quarter because of the GST implementation. And I would say we probably lost about 2%, 2.5% on the top line, but that's fine. I think this is the lull before the storm. Now we are looking forward to very aggressive top line growth as we move forward. The bottom line, the key financial lines are looking very good. As I said, net sales grew by 4.1%. Operating profit grew by 23%. Profit before tax grew by EUR 24 million and profit after tax grew by 23% as well. At the bottom of that table, you can see the various KPIs that we track. Profit from operations is up to 18.3%. Profit before tax is up to 18.6% and profit after tax is up to 13.8%. So that is all from me. Over to you guys for your questions.

[Operator Instructions] The first question comes from the line of Abneesh Roy from Nuvama Capital.

Three questions. So Varun, firstly, your statement that it is lull before storm and a very aggressive top line growth. Is it based on the 10% to 13% grammage addition which will happen in the LUP and that's a very large portion of the biscuits portfolio, or is it based on the compliance levels improving in the local players because 500-plus flares at 5% GST rate, the risk reward of not being compliant is not favorable. So you see market share gains for you from the local parts because of the GST rate and compliance, which is the bigger reason.

It's, I think, the latter. Obviously, there will be gains because of the grammage that we are increasing. But I think the market share gains because of this are going to be definitely moving towards the organized players. You're absolutely right about what you said. So this is going to give us an upper hand as far as the growths are concerned and shares are concerned.

One or 2 follow-ups here. You mentioned on the Tiger relaunch, Tiger do, et cetera. So to fight against the local sales, GST is definitely going to help you. But now do you need a more flanking price war or kind of a product? I know Tiger is that only. But Tiger relaunch, I wanted to understand the thought and on your statement that in modern trade, some of the national sales are getting a bit more aggressive until now, you haven't seen much of an impact. But if you could elaborate why there is not much of impact, I wanted to understand.

So as far as Tiger is concerned, we were a me too, right, from competitor standpoint. There were a glucose and so are we. So we thought that it's important to have a reason why for our brand. And we thought through on what was important for the consumers in small towns and villages. And this came out to be a proposition which could really help us get established in these rural areas and small towns. And it's actually lived up to its expectations because the initial reaction has been extremely positive. So that's one. And you're right. It is the brand, which is the cheapest form of food, as I keep saying. So if -- we are not looking at becoming a 50% share, we are a single-digit share in this -- we would like to just creep up share rather than double or triple share in this. And we would like to be all pervasive and available everywhere. So that is our objective. What was your second question? About modern trade, yes. So modern trade, see what really matters is your brand, and I think we've got very strong brands. So these are all flying tactics, as I call them, when you lose something, you want to gain something and what you want to gain if there's an easy way to do it, you want to do it that way. So that's the tactic that some of the national players followed, and we resisted from that. We have reacted to them on a case-to-case basis. We've not reacted to everything. And we've continued to do that. And it's not really impacted us because we've been very wherever we've thought that it's important for us, we've reacted. Wherever we thought that it was not going to give any additional leverage to us in the long term, we've not reacted. So I think we're going to continue with that strategy as we go forward.

Sir, last quick question. Mr. Rakshit Hargave, new CEO. He joined in December. So my key question here is, in terms of obviously great track record, I wanted to understand what will be the key priorities once he joins between your role and his role. What will be the transition, be the any demarcation if I can understand that bit. And any thought process on his -- why he was head of course, they are great credentials, but what was the thought process on hiring in?

So Rakshit's a great guy. I've been interacting with him ever since we hired him, and I think he's the perfect choice. There is going to be nothing as a portfolio between him and me. He's going to handle the entire business, and my job will be to help him wherever he needs any help, right? So I will not be directly handling anything as he joins. My job really is to run him in and make sure that he settles down absolutely well in the rule. So that's my role, and that's what I'm going to fulfill as we go forward.

Our next question comes from the line of Avi Mehta from Macquarie Capital.

Sir, just 2 questions. One, if you could give us a sense on how is the underlying demand environment Basically, how much is the GST impact? And by when does it fully normalize? And the second bit was on the quantum of the employee cost impact because of the RSU? Those are my 2 questions so that I can understand the steady state run rate there.

Yes. No. So see, the RSU impact has been very minimal at this time. that's not an impact at all. Now on the demand scenario, the thing is that what we did when this GST implementation had to happen, which was 22nd. We had about 16, 17 days to implement it. And as you know, 65% of our portfolio is INR 5, INR 10 and we had to pass the benefit to the consumer. So what we did was we mapped up pricing as INR 4.50 and INR 9 for the INR 5 and INR 10 product. Now you know as well as I do that when you get to the market, it will not sell for INR 450 or INR 9. It will sell -- so the consumer benefit from that standpoint has been very, very minimal. Now end of October, about 65% of our portfolio has already got the increased grammages. And by the middle of November, we will have our entire portfolio with the required grammages and the pricing. So that is when you will start to see the impact of that. And as we speak, we are seeing very late impact of this. And we are hoping that as we go forward, this will only become better.

Varun, just to add on, I'm assuming your question was, why is there a drop in employee cost. So that is to do with the provision that was higher in quarter 2 of the last year versus the current year. So the provision last year quarter 2 was about INR 50 crores. This year has been about INR 5 crores. That's the impact of our provision. .

Okay, sir. And that's why I should just to get the steady run rate as we go forward. Got it, sir. Got it. Sir, just one follow-up, if I may. On the demand side, I mean, do you think 1Q was given that 1Q also had a lot of impact the storm debt or the pickup that you essentially alluded to or what has been -- I'm just trying to get a sense of quantum, is that double-digit momentum something that we can hope for? I know it's pushing above a little bit but I would love to hear your comments, if any.

Well, I would certainly think that we should be looking at getting to double digits in due course because there seems to be a very positive sentiment around consumer goods and specialty foods. So I do think this is our moment, and it will definitely bring us the kind of growth that we've been missing for some time.

Our next question comes from the line of Mihir Shah from Nomura.

Sir, firstly, on the volume growth this quarter, I know it has impacted, but what is the range for volume growth essentially for this quarter? I'm trying to understand the pricing that was there for this quarter and the pricing that can get carried forward for the coming quarters as well.

You're asking about the quarter that we are sitting in or...

Second quarter, basically -- essentially understanding what was the see growth in the second quarter? And what is the level of pricing growth can be carried forward or that we will continue to see in the second half of the year? .

See, it's going to be a very different scenario, but the pricing growth was approximately 7% to 8% and now with the GST changes, et cetera, the pricing is very different. We've taken the drops as far as large packs are concerned. And we've taken grammage increases as far as the small packs are concerned. So it's not going to be exactly the same scenario as far as pricing is concerned. Our pricing and -- so our revenue as well as our volume growth are going to be both positive as we go forward. So the pricing impact could be less than what it was.

Understood. Got it. But not a material drop, right?

No.

Okay, good. Secondly, sir, on last quarter, you had highlighted there were certain disruption in the East distributors, Eastern India distributors. Has that normalized? And do you see any issue with the larger or the regional players getting aggressive on that? Do you think that 1 should build in certain caution around the volume growth trajectory because of these things?

No. Actually, as what Abneesh had brought about with the rates dropping to 5%, there would be a positive impact for national players. On the East, we've stabilized to a large extent. I wouldn't say 100% but we are almost 90% there, and things are looking good in the East, and we hope to continue that momentum.

Got it. And lastly, on the margins, [indiscernible] prices have been benign. We believe that the full impact of the softer raw may prices is yet to be seen. So would that be a correct statement to make? And secondly, because you mentioned that you are happy with the margins, what kind of margins are you talking about the current margins that we are seeing on EBITDA level or the gross level? Is that what you're happy with? And the any additional you will be investing in ad spend? Is that how one should think about it?

So there will be a certain amount of investments that we'll make to get our products and brands in certain regions to be competitive. And those will be investments that we are making. Obviously, the brand investments, et cetera, will remain at the level that we think is optimal. So I think we are now on what we are looking at is top line-led volume-led growth to make sure that we cement our dominance in the category.

Our next question comes from the line of Aditya Soman from CLSA. .

So 2 questions. So first, you sort of mentioned sort of increase for and you've also mentioned making sort of investments in the regional competition. In your opening comments, you also indicated that some regional competitors have gained share the margin. So can you throw a little more light on what exactly is happening? Is this a function of them launching differentiated products or it's just a sort of pacing gap? And second, to tie that up, the other comment that you made that you expect to gain market share from some of these smaller players. Again, would this trend be true also of the regional players that you mentioned, which potentially get March?

So this trend will be true of the regional players only. I think Abneesh has made a very telling comment in the beginning Basically, what he said is what exactly what's going to happen. Basically, there are a lot of these host of these small regional players who are at in very small territories, produced product. We don't know their compliance on taxation. When it was 18%, the risk reward was in their favor. But now it's 5%, I don't think it's going to make that much of a difference. So our competitiveness of the players who comply with the rules of the land is now going to be holding us in really good stead to be able to compete with these guys. These guys are not launching differentiated products. They are basically fighting on price. And that's what will become different now. And with our scale, with our efficiencies, et cetera, we will be able to compete much better with them.

Understand. So basically, what you're saying is now that you're more competitive on price because they are what advantage on taxation goes away, you're pushing the envelope also in investments in the brands to be able to compete with them even better or make sure the consumers are aware of that the products are price competitor?

Absolutely, absolutely. .

Our next question comes from the line of Percy Panthaki from IIFL Securities.

2, 3 questions from my side. I can just put them up front. So first is, can you call out the growth for the September quarter adjusted for the GST pipeline disruption Secondly, because of the GST rate cut, there will be some probable reduction in the government incentives because they fund it through the GST refund. So can you call out in crore how much will that incentive fall? And secondly, if you are receiving lesser incentive, are you able to sort of offset that in some other way in terms of how much price reduction or grammage increase you are taking? Or that is just competitively derived and that government incentive will be a loss which will sort of not be recouped? That is the second question. And third question is how do we look at the top line growth? So supposing you have been tracking about 9% to 10% recently. If you're giving 12% extra on 60% of your portfolio, that's 6% to 7% more. So can we say that this 9% top line growth will go to 15%? Is that the right way to look at it? So these are my questions.

So the first question I've already answered. I think we could have grown by 2%, 2.5% more last quarter if the disruptions haven't happened. So that because the last month was we could have grown 6%, 6.5%, 7% more. So that got down and that's why it came down by about 2%, 2.5%. What was your second question? You've got very long...

The government incentive.

So government incentives, yes, I'll let Venkat answer that. Venkat, do you want to answer that?

Yes, yes. I'll do that. Yes. So your first question in fiscal incentive was whether the benefit of reduction in GST rates have been passed on to the consumer as required, yes, we have. And like Varun said, it's been done in 2 forms; price reduction in some packs and grammage increase in other set of packs. The second point that you asked was is there going to be an impact on account of reduction in the tax rate on the fiscal incentives. Yes, there will be impact from FSC on account of this reduction. However, having said that, we have reached out to the state governments already asking them to help us help the companies that have done the investment in those states and to secure the fiscal incentives. At least 3 out of the 5 state governments that we have reached out to have said they will figure out some ways of securing it. So we need to wait and what happened.

Only kind of quantification proposing if the state government doesn't accept your fleet, how much can the reduction in the government incentive be in rupees crores roughly?

So that we need to work out currently. But then we are also looking at what else can be optimized to maximize the production in each of these factories. So that will take a little bit of time to do a computation because today, not everything that is required is produced in a particular factory for that state. So that optimization is something that we're working on. Post that, we'll have an idea of what's going to be the impact.

Understood. Yes. And the third question on how do we look at growth going home?

So growth, it doesn't work absolutely mathematically, 9 plus 6% is 15%. We know that. But we are hoping that we get to 9 plus 6%, but we could even get more than that. But as I said, it's going to be all about top line growth. We are going to become extremely competitive wherever it's necessary. We will make sure that we do everything to get our brands in front of the consumers. We are going to work on our overall distribution. We are going to work on channels, e-com, quick com, modern trade. So it's going to be all our effort to make sure that we get our top line growth. And as I said earlier, we hope that we get this back to our double-digit numbers that we used to do a few years ago.

Our next question comes from the line of Latika Chopra from JPMorgan.

Varun, most of my questions are answered, but I have a few clarifications. First one was adjusting for GST, if the revenue growth stood at 6% to 6.5%. This was a moderation from 9% in Q1. What led this? Is it because the category growth was moderating? Or was it due to the market share challenges that you alluded to?

No, it's not about market share challenges, Latika. It was also the timing of Diwali, et cetera. This time, Diwali came a little earlier and certain other festivals in the South, et cetera. So it was just a timing thing. It wasn't anything else. Our momentum was very similar. And we were really hoping to see a very, very good September, but unfortunately, it did get stymied a bit.

All right. The second bit was you mentioned by mid-November, the GST impact will normalize. Does it mean that for the full December quarter, you will not see any negative impact, right? It will get lapped up in the second half of the quarter.

Yes, for sure.

All right. And the last bit on margins, just taking from the previous question, do you see any material risk if because of those state incentives not coming your way in December quarter or March quarter? Or there is no near-term risk on margins on account of that in case your request to state government doesn't play out. If we don't know the quantum in hands, I wanted to check.

So Latika, we'll see, as Venkat said, we will have to do a full analysis on that. What is it that we can mitigate internally. And over a period of time, if there are certain gaps there, then we'll have to see how we mitigate them through future price increases, et cetera. I don't think it's going to be that big. But once we do the analysis, we'll be able to comment on that. However, having said that, as I've said, our focus on competitiveness is going to be very, very clear. And from that standpoint, there might be some changes in the margin structure because I think if we have to get aggressive top line growth, then we might have to look at a slight haircut as far as margins are concerned. So we will have to evaluate that in this quarter. And maybe in the next quarter, we can comment on that.

And just very last bit, given you have a very extensive distribution reach and rural expansion has been one of your strategic focus areas, there have been some sound bites that given the way rains have played out this year, do you sense any risk to do growth trajectory at a very broader level? This is a comment on the FMCG side.

So first, to correct you, Latika, it's not an expensive distribution. In fact, our most profitable channel is our general trade portfolio. For sure, we're going to continue that because that's our big muscle. And it's not impacted it. rural is growing faster than urban even today. Vipin, do you want to comment on that?

Yes. So Latika, you're right, we have got a pretty wide distribution. Even as of today, rural is outstripping urban growth. and we will continue to go deeper and deeper in rural through our direct model because we are changing a lot of this hub and spoke to direct. So therefore, our rural story is looking robust. Rains have not impacted much. I don't think even from, let's say, a per capita level or whatever happened to the crop income should not be impacting us. In a lot of cases, actually weather favors us because the biscuit consumption and some of the other product consumption actually goes up further, right? So I think rural, we have a strong story. And with this entire GST change, affordability and value becoming better. we will grow faster in rural. So it's my previous company, which gets impacted, Latika.

Our next question comes from the line of Kunal Vora from BNP Paribas.

Firstly, on Visit in your experience, how do consumers react when you add or remove it or change grammage in a INR 5 ten-pack. Does it have any meaningful impact on the number of packs?