Britannia looks to milk more value from dairy biz after lacklustre phase

Dairy business, which constitutes 5% of the Rs 6,000 crore revenues of the company, reported a sharp drop in the net profit close to Rs 11 cr for FY14

Britannia Industries, India's largest publicly held food company, is looking to derive more value from its dairy business in the coming quarters, after it reported rather tepid numbers during the last financial year.  The dairy business, which constitutes a small five per cent of the Rs 6,000 crore revenues of the company, reported a sharp drop in the net profit close to Rs 11 crore for FY14 as against a net profit of as much as Rs 35 crore during FY13. The company has said this fall was due to hike in milk prices.

Milk prices registered a significant increase during the last financial year, impacted by increased cattle feed costs at a domestic level as well as external economic and regulatory factors. While liquid milk consumption continues to drive the industry, there has been a significant shift in the dynamics of the value added segment of dairy with access to milk, portfolio strategies and increasing investments determining the right to succeed.

MILKY WAY

• Britannia’s dairy business constitutes a small 5% of the Rs 6,000 cr revenues of the company, reported a sharp drop in the net profit close to Rs 11 crore for FY14 as against a net profit of as much as Rs 35 crore during FY13
• The company says while milk inflation has adversely impacted margins, the key emphasis going forward will be on upgrading product organoleptics to give the consumer a value for money proposition
• Britannia would look for opportunities to reduce recipe cost by infusing new technology and optimise structural cost savings across the value chain, while extracting benefits from an integrated sales and distribution system and diversified sourcing

Britannia operates in dairy segment with a few select product categories spanning cheese, butter, milk, curd and few value added products such as fortified and flavoured milk, ghee and others in the Indian sub-continent which remains the largest milk producing and consuming market in the world.  The company, in a note to its shareholders, said while milk inflation has adversely impacted margins, the key emphasis going forward will be on upgrading product organoleptics to give the consumer a value for money proposition. Britannia had started a “Organoleptic8” Programme during last financial year in order to give more weightage to the consumers sensorial appreciation and the company is banking on this differentiation to deliver new experiences across the portfolio.

Britannia further added it would also look for opportunities to reduce recipe cost by infusing new technology and optimise structural cost savings across the value chain, while extracting benefits from an integrated sales and distribution system and diversified sourcing.

The company maintained that the consumer and retail trends continue to be favourable with infrastructure improvements in metros, emergence of modern format retail trade and consumer propensity to experiment with food and willingness to upgrade to safe, nutritious and indulgent packaged food. The value added dairy industry in the coming years is expected to witness increased competitive play and significant investments with an emphasis on offering the consumer superior and differentiated products.

"Consumers are not focused on price point but are looking for a strong value proposition in products. The capacity to invest in new technology and the ability to leverage technical know-how of dairy will drive ability to create value,\" the company said.

Raising a red flag, Britannia said entry of new players, both domestic and international, seeking a share of the growing industry and willing to invest for the long-term is a key threat. Compounding this is the aspect of co-operatives who are strengthening their position with control over milk subsidising value added portfolios.