Key Rating Drivers & Detailed Description

Strengths: 

Established market position in the domestic fast-moving consumer goods (FMCG) industry

Britannia is a leading player in the Indian biscuit industry, with a market share of over a third in value terms. Revenue registered a compound annual growth rate of 10% over the five fiscals through March 2023. The company has a diversified portfolio of biscuits across all seven categories (glucose, Marie, cookies, crackers, cream, milk and health) under strong brands such as Good Day, Tiger, Marie, Nutrichoice and Milk Bikis. Market position is further supported by a wide distribution network, in both rural and urban areas. Direct reach has grown substantially to 26.8 lakh outlets in fiscal 2023 from 7.3 lakh in fiscal 2014. The company also launched several new products recently, such as Milk Bikis Classic in Tamil Nadu and an orange-flavoured croissant. It has also added coconut water under its new brand, Come Alive. Britannia aims to build this brand by adding more healthy products under it.

Healthy operating efficiency

The company has efficient supply chain management, regular cost engineering and a judicious mix of contract-own manufacturing model, thereby ensuring healthy capacity utilisation. This led to a healthy operating margin of 17.4% in fiscal 2023, strong return on capital employed ratio of 50.5% and prudent working capital management over the past few fiscals. A judicious mix of outsourced and in-house facilities has limited dependence on third parties. However, in the last few years, Britannia has increased the proportion of its in-house manufacturing, which has improved proximity to consumption markets and reduced overheads, apart from ensuring product freshness and enhancing shelf life (because of the time saved in transportation). Despite rise in input cost, performance has been steady due to price hikes, internal cost efficiency programmes, growth in the market share and focus on geographical expansion. The margin is likely to remain above 17%, led by better distribution reach, product launches and premiumisation.

Strong financial risk profile

Gearing improved to 0.87 time as on March 31, 2023, from over 1 time earlier due to healthy cash generation, despite total debt increasing to Rs 2,981 crore from Rs. 2,466 crore in fiscal 2022. Interest coverage ratio was healthy at over 16 times in fiscal 2023. Due to high dividend payout, net cash accrual is expected at only Rs 400-700 crore annually over the medium term, which will be used primarily (along with external debt) to fund capex of ~Rs 600 crore.

Britannia has exposure of Rs 710 crore to group companies, of which ICDs worth Rs 375 crore are towards BBTCL and Rs 335 crore towards Bombay Dyeing as of March 2023. CRISIL Ratings does not envisage any material increase in direct exposure to these entities over the medium term, and this will remain a key monitorable.

Weaknesses:

Exposure to intense competition in the FMCG industry

Intense competition has reduced the scope for FMCG players to pass on any hike in raw material prices to end users. Multiple price hikes that Britannia took in fiscal 2023 had to be reversed to maintain market share. Though the company has further strengthened its competitive position and pricing, competition will remain high with fresh product launches from players, especially in the premium segment.

Susceptibility of profitability to fluctuations in raw material prices

Prices of key raw materials such as wheat, sugar, milk, and refined palm oil depend on geoclimatic conditions, international prices and domestic demand-supply situation. In the first half of fiscal 2023, overall commodity inflation was high with year-on-year cumulative inflation of 32% for Britannia’s basket. Cumulative inflation reduced significantly in the second half as prices of refined palm oil (-14%), laminates (-9%) and corrugated boxes (-16%) cooled. The management has also taken sufficient pricing actions in the form of absolute price hikes and grammage cuts to offset cost inflation. Continued focus on cost efficiency and price leadership will help the company mitigate the impact of volatility in input prices on the operating margin. However, the ability to pass on the increased cost, while maintaining market share, is a key rating sensitivity factor.

Key Financial Indicators (Consolidated)

Adjusted by CRISIL Ratings

Quarterly results –

Annexure - List of Entities Consolidated

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