Britannia Industries Limited

Ratings reaffirmed at 'CRISIL AAA/Stable/CRISIL A1+'

 

Rating Action

Total Bank Loan Facilities Rated	Rs.3000 Crore
Long Term Rating	CRISIL AAA/Stable (Reaffirmed)

 

Rs.698.52 Crore Non Convertible Debentures	Withdrawn (CRISIL AAA/Stable)
Rs.301.48 Crore Non Convertible Debentures	CRISIL AAA/Stable (Reaffirmed)
Rs.1279 Crore Commercial Paper	CRISIL A1+ (Reaffirmed)

Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings.

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 Limited (Britannia).

 

CRISIL Ratings has withdrawn its rating on the non-convertible debentures of Rs 698.52 (see 'Annexure - Details of Rating Withdrawn' for details) on confirmation from the debenture trustee that these bonds have been fully redeemed. The rating withdrawal is in line with the policy of CRISIL Ratings.

 

The ratings continue to reflect the leading position of Britannia in the biscuits segment, strong operating efficiency and comfortable financial risk profile. These strengths are partially offset by exposure to intense competition in the fast-moving consumer goods (FMCG) sector and susceptibility to volatility in raw material prices.

 

Britannia’s operating performance is expected to be healthy in in fiscal 2025 supported by improved volume growth, continued traction from new product launches and expansion in its distribution network. In fiscal 2024, revenue grew (on year) 3% to Rs 16,777 crore led by healthy growth in the non-biscuit segments of rusk, cheese and cakes segments. For the first quarter of fiscal 2025 ending June-24, revenue grew by 5% to Rs. 4250 crores vis-à-vis the first quarter of the previous fiscal. The operating margins has improved to 19% in fiscal 2024 (17.4% in fiscal 2023) because of moderation in raw material prices and improved cost efficiencies. Fluctuations in input cost will remain a key monitorable.

 

Financial risk profile of the company while healthy, has improved further in fiscal 2024, with timely debt repayments and healthy accretion to reserves not withstanding high dividend payouts leading to strong debt protection metrics. The company has announced a dividend of ~Rs. 1770 crores for FY24, in lines with the levels in FY23. Despite the payout, liquidity remains strong with cash and cash equivalents, including investments stood at ~Rs. 1,365 crores as of September 04, 2024, excluding inter-corporate deposits (ICDs) of Rs 185 crores. These ICDs are extended to The Bombay Burmah Trading Corporation Ltd (BBTCL; ultimate holding company of Britannia). As of March 2024, Long-term debt stood at ~Rs 905 crore, lower than ~Rs 1,552 crore as on March 31, 2023. The long-term debt funds the ongoing capital expenditure (capex). The reduction in debt has resulted in gearing reducing to 0.5 times as of March 2024 as compared to 0.9 times in March 2023. Consistently high dividend payout has restricted growth of net worth. However, despite the payout, Crisil adjusted net worth as of March 2024 stood at Rs. 3,825 crores driven by healthy net cash accruals of Rs. 700 crores for FY24. 

 

Britannia continues to remain unaffected by the operational issues in its group company vis. Go Airlines Pvt Ltd (GAPL) which has filed for insolvency. On the other hand, the Bombay Dyeing and Manufacturing Company Ltd has managed to repay all its debt, including ICDs from Britannia, from proceeds of sale of land.

 

Britannia has no significant direct exposure towards group companies except ICDs to BBTCL of Rs 260 crore as on March 31, 2024 (Rs. 375 Crs as on March 31, 2023). Although there may not be any material increase in the direct exposure of Britannia to these entities over the medium term, it will remain a key monitorable. Going forward, pledge of any shareholding of Britannia by the direct and indirect holding companies for raising loans to financially support any other Wadia group companies will remain a key monitorable.

Analytical Approach

CRISIL Ratings has combined the business and financial risk profiles of Britannia and its subsidiaries, given their operational and financial linkages.

 

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:

• 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 9% over the five fiscals through 2024. 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 28.2 lakh outlets as of June 2024 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 its portfolio.

 

• 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 19% in fiscal 2024, improving from 17.4% in fiscal 2023 and strong return on capital employed ratio of 50.6% 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 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 in the range of 18-19%, led by better distribution reach, product launches and premiumisation.

 

• Strong financial risk profile

Gearing improved to 0.5 times as of March 2024 as compared to 0.96 time as on September 2023 driven by healthy cash generation and debt repayments as total debt reduced to Rs. 2044 crores as of March 2024 as compared to Rs 2,761 crore as of September 2023 from Rs 2,981 crore in March 2023. Interest coverage ratio was healthy at over 19 times in fiscal 2024 as compared to 16 times in FY23. Due to high dividend payout, net cash accrual is expected to remain Rs 900-1000 crore annually over the medium term, which will be used primarily (along with external debt) to fund the planned capex of ~Rs 500 crore.

 

As on 31st March 2024, Britannia has exposure of Rs 260 crore to its ultimate holding company -- BBTCL -- while the ICDs of Rs 335 crore outstanding as of March 2023 towards Bombay Dyeing have been repaid. Any material increase in direct exposure to these entities is not likely over the medium term and this will continue to 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 saw a reversal in fiscal 2024 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 -- 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 the portfolio of Britannia. 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.

Liquidity: Superior

Cash surplus was estimated at ~Rs 1,365 crore as on September 04, 2024, excluding ICDs of Rs 185 crs to the group company -- BBTCL. Working capital limit of Rs 3,745 crore was utilised at 15-20% for the 12 months through July 2024. Capex spend is expected at Rs 500 crore over the medium term, while long-term debt obligations are likely ~Rs 847 crore in fiscal 2025 including NCDs worth Rs. 698.52 crores redeemed in June 2024. These are expected to be met through a combination of debt and cash accrual as the likely high dividend payout will substantially moderate cash accrual. 

 

ESG profile

The environmental, social and governance (ESG) profile of Britannia supports its strong credit risk profile.

The FMCG sector has a moderate environmental and social impact, driven by its raw material sourcing strategies, waste-intensive process and direct impact on the health and wellbeing of customers.

 

Key ESG highlights

• Britannia is a plastic-waste neutral company, collecting and processing 100% plastic waste it creates across India. The company processed more than 43,000 tonne of plastic waste in fiscal 2024.
• The company is increasing the share of renewable energy in the mix through power purchase agreements with renewable electricity providers and by using biomass at select plants.
• The corporate social responsibility projects it undertakes are focused on promoting health, growth and development of children from lower socio-economic sections of the society. These projects are linked not just to the national agenda but also to the United Nations sustainable development goals.
• Its governance structure is characterised by 67% of the board comprising independent directors and split in chairman and CEO positions. The company has made adequate financial disclosures.

 

There is growing importance of ESG among investors and lenders. The continued commitment of the company to ESG principles will play a key role in enhancing stakeholder confidence.

Outlook: Stable

Britannia will continue to maintain its established market position in the biscuit industry, backed by strong brands and a wide distribution network. The company is also expected to sustain healthy operating profitability and robust financial risk profile, notwithstanding high dividend payout.

Rating sensitivity factors

Downward factors

• Substantial decline in operating margin, impacting cash generation
• Large, debt-funded capital spend or acquisitions affecting debt metrics; for instance, gearing above 1 time on a sustained basis
• Substantial drop in liquid surpluses to fund acquisitions, capex or support group companies; or higher-than-anticipated dividend payout or buyback

About the Company

Established in 1892, Britannia is one of the largest players in the Indian biscuit industry. The company has expanded its offerings significantly by adding new products such as dairy items, cakes and rusk. It has diversified overseas by acquiring Strategic Foods International LLC in the United Arab Emirates and Al Sallan Food Industries Co SAOG in Oman. These two companies are regional players in the biscuit and cookies segment in the Middle East. The Mumbai-based Wadia group held more than 50% stake in Britannia as on June 30, 2023.

Key Financial Indicators

	Unit	2024	2023
Revenue from operations	Rs crore	16,777	16,307
Profit after tax (PAT)	Rs crore	2,134	2,316
PAT margin	%	12.7	14.2
Adjusted debt/adjusted networth	Times	0.53	0.87
Interest coverage (OPBDIT/interest cost)	Times	19.39	16.74

Adjusted by CRISIL Ratings

 

Quarterly results –

	Unit	Q1 FY25	Q1 FY24
Revenue from operations	Rs crore	4,250	4,011
PAT	Rs crore	505	455
PAT margin	%	11.9	11.4

 

Any other information: Not applicable