| Britannia Industries Limited | ||||||||
| Ratings Reaffirmed | ||||||||
| Rating Action | ||||||||
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| 1 crore = 10 million | ||||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL AAA/Stable/CRISIL A1+’ ratings on the bank facilities and debt instruments of Britannia Industries Ltd (Britannia).
The ratings continue to reflect the company's leading position in the biscuits segment, strong operating efficiency and healthy financial risk profile. These strengths are partially offset by susceptibility to fluctuations in raw material prices and intense competition in the biscuit industry.
The operating performance of Britannia in fiscal 2022 is likely to be supported by continued traction from product launches, expansion in the distribution network leading to healthy revenue growth and sustained operating margin. In the first quarter of fiscal 2022, revenue was flat (de-growth of 1% year-on-year). The growth was on a high base (27% growth in the first quarter of fiscal 2021). Operating margin was healthy at 18.3% in the first quarter of fiscal 2022 compared with 20.9% in the corresponding quarter of the previous fiscal. Despite increase in commodity prices, operating performance was steady, driven by internal cost efficiency programs, growth in the market share and focus on geographical expansion.
The financial risk profile is expected to remain strong, driven by healthy net cash accrual and strong debt protection metrics. In fiscal 2021, Britannia paid dividends of Rs 2,840 crore and approved bonus debentures amounting to Rs 1,000 crore (repayable after three years), which moderated the cash accrual and networth, while increasing the debt level in the fiscal. This led to increase in gearing to 0.61 time in fiscal 2021 from 0.4 time in fiscal 2020.
However, the company has strong liquidity in the form of cash and investments amounting to Rs 2000 crore as of August 2021. Net cash accrual is expected at more than Rs 500 crore over the medium term, with modest capital expenditure (capex) of Rs 400-600 crore per annum. The company has exposure of about Rs 440 crore in the form of inter-corporate deposits towards group companies [The Bombay Burmah Trading Corporation Ltd (ultimate holding company of Britannia) and Bombay Dyeing & Manufacturing Company Ltd]. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of Britannia and its subsidiaries because of the operational and financial linkages between all these companies.
Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths Healthy market position in the fast-moving consumer goods (FMCG) industry in India Britannia is one of the leading players in the biscuit industry in India, with a market share of over a third in value terms. Revenue registered compounded annual growth rate of 9% over the five fiscals through March 2021. The company has a diversified portfolio of biscuits across all seven categories: glucose, marie, cookies, crackers, cream, milk and health. Also, it has strong brands across its product portfolio, including Good Day, Tiger, Marie, Nutrichoice and Milk Bikis. The strong market position is supported by a wide distribution network in rural and urban areas. Its direct reach improved to 20.8 lakh outlets in the first quarter of fiscal 2022 from 7.3 lakh outlets in fiscal 2014. The company also has plans to enter into new food categories and has recently launched a product, Britannia 50-50 Potazos, and reintroduced Good Day Choco-chip cookies. The company intends to become a global foods company and has set up strategic business units for adjacent bakery, dairy and international business.
Strong financial risk profile The financial risk profile of Britannia is supported by healthy capital structure, debt protection metrics and financial flexibility. Capital structure is healthy on account of steady cash flow and net cash accrual. However, payment of large dividend and issue of bonus debenture in fiscal 2021 have moderated the gearing to 0.6 time. Over the medium term, healthy accrual of more than Rs 500 crore is expected to support the financial risk profile, with gearing under 1 time. Capex is expected at Rs 400-600 crore annually, which is likely to be funded through internal accrual. Large dividend payout in fiscal 2021 is likely an exception, and dividend payments will moderate over the medium term, in line with the other FMCG players in the market. Higher-than-expected dividend payout resulting in weakening of accrual will remain a key monitorable.
Weaknesses Exposure to intense competition in the FMCG industry Intense competition has reduced the ability of players to pass on increase in raw material prices. While Britannia has been able to maintain its competitive position and pricing in the industry, competitive intensity will continue to be high, with product launches from players, especially those in the premium segment.
Susceptibility to fluctuations in raw material prices The prices of key raw materials, such as wheat, sugar, milk and refined palm oil, depend on geo-climatic conditions, international prices and the domestic demand-supply situation. In the first quarter of fiscal 2022, inflation on flour was negative 5%, sugar at negative 2% and milk at 13%, while that on refined palm oil was over 50% compared with the corresponding quarter of the previous fiscal. The management plans to roll out calibrated price hikes to offset the cost inflation. Focus of Britannia on cost efficiency and continued price leadership will help mitigate the impact of volatility in raw material prices on the operating margin. However, ability to pass on increase in raw materials prices to consumers, while maintaining the market share, remains a key rating sensitivity factor. |
Liquidity: Superior Britannia has superior liquidity, supported by cash surplus of ~Rs 2,000 crore as of August 2021, which is expected to be maintained at similar level. The company had exposure of about Rs 440 crore towards group companies as of June 2021. Bonus debentures amounting to Rs 721 crore are redeemable in fiscal 2023 and are expected to be met from cash surplus and internal cash accrual. Britannia will maintain its superior liquidity, covering the working capital and capex requirement. |
Outlook: Stable Britannia will maintain its healthy market position in the biscuit industry, backed by strong brands and a well-established distribution network. |
Rating Sensitivity factors Downward Factors
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About the Company Incorporated in 1892, Britannia is one of the largest players in the biscuit industry in India. Over the years, the company has expanded its product offering significantly by adding products such as dairy items, cakes and rusks. It has expanded overseas by acquiring Strategic Foods International LLC in the United Arab Emirates and Al Sallan Food Industries Co SAOG in Oman. The two companies are regional players in the biscuit and cookies segment in the Middle East. The Mumbai-based Wadia group held a 50.55% stake in Britannia as on June 30, 2021.
For the three months ended June 30, 2021, consolidated revenue from operations stood at Rs 3,403 crore and consolidated profit after tax (PAT) at Rs 387 crore against Rs 3,421 crore and Rs 543 crore, respectively, for the corresponding period of the previous fiscal. |
Key Financial Indicators (consolidated)
CRISIL Ratings-adjusted |
Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
#Yet to be issued |
Annexure - List of Entities Consolidated
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Details of Bank Lenders & Facilities | |||
| Facility | Amount (Rs.Crore) | Name of Lender | Rating |
| Letter of credit & Bank Guarantee | 80 | ICICI Bank Limited | CRISIL A1+ |
| Letter of credit & Bank Guarantee | 70 | HDFC Bank Limited | CRISIL A1+ |
| Proposed Short Term Bank Loan Facility | 100 | Not applicable | CRISIL A1+ |
| Working Capital Demand Loan | 750 | HDFC Bank Limited | CRISIL AAA/Stable |
| This Annexure has been updated on 08-Sept-2021 in line with the lender-wise facility details as on 07-Sept-2021 received from the rated entity | |||
Criteria Details
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