Britannia: Good days once again

THE COMPASS

Lower input prices should help the company post better margins.

With prices of agri products expected to ease somewhat, especially those of wheat, milk and vegetable oil, the Rs 2,585 crore Britannia’s margins may just bounce back. High input costs have been hurting the biscuit maker’s operating margin for some time now — in the September 2008 quarter, it fell 240 basis points, while for the first half of 2008-09, the margin was lower by 90 basis points at 8.2 per cent. That’s despite Britannia having upped prices almost across the entire range of products.

The good news is that the company has managed to hold on to market share — currently at 33-34 per cent in value terms — despite the entry of big players such as ITC and strong competition from incumbents such as Parle and Priya Gold. In volume terms though, Parle is believed to be the market leader. Britannia manages to sell a relatively high share of premium products such as Good-Day and Bourbon and this segment is understood to be selling well –analysts estimate the growth to have been about 20 per cent last year.

That apart, brands such as Tiger — in the mass segment — too have been clocking strong volumes. Britannia hopes to leverage existing brand equity to succeed in the health segment; it is exploring this space through the Nutrichoice brand and has also launched three variants.

In the six months to September 2008, Britannia’s net sales rose 24 per cent to Rs 1,532 crore, driven by both better volumes and price increases, though the net profit improved by just 11 per cent to Rs 94 crore. The company had reported a net profit of Rs 191 crore in 2007-08. Like most of its peers in the FMCG sector, Britannia has outperformed the market and at the current price of Rs 1,226 trades just under 14 times 2008-09 estimated earnings.