<b>Beating the Slowdown:</b> Britannia's innovation, enhanced distribution push volumes

Wadia company's strong show on volumes, earnings to continue, say analysts

Steady expansion in rural markets, sustained leadership position in biscuits and strong presence in the mass, premium and super-premium biscuit segments are the key reasons behind Britannia's strong volume growth in recent quarters.

While the company does not share actual volume growth numbers, analysts estimates indicate a marked improvement. Thus, from the weak levels of 2 per cent year-on-year growth in the March 2014 quarter, Britannia's volume growth has improved to about 11 per cent in the December 2015 quarter and this is expected to continue in the March quarter as well.

The company's Ebitda (earnings before interest, tax, depreciation and amortisation) margin, too, has grown from 6.8 per cent in 2012-13 to 11 per cent in 2014-15 driven by operational efficiencies, benign input cost inflation and emphasis on premium products. And credit for this goes to Managing Director Varun Berry, who focused on innovation, expanding distribution, premiumisation and cost rationalisation.

Analysts said the launch of new products was a key reason behind Britannia's higher volume growth. In the past two years, the company has introduced Pure Magic Deuce (blend of chocolate and biscuit), Nutrichoice Heavens, Good Day Chunkies, Pure Magic Chocolush, Tiger Butter Crunch and Britannia Nut n Raisin Romance cake, among others. While the new launches are mostly in the premium segment, the company also revamped its power brands, Bourbon and Good Day.

Its mass brand Tiger will also be re-launched soon. Not surprisingly, Britannia has retained its leadership position in biscuits with a value market share of 33 per cent despite intensifying competition from Parle (Glucose, Hide & Seek) and ITC (Sunfeast).

In the coming quarters, Britannia is likely to do well. The company's expansion in rural India will enable it to garner additional market share and deliver growth. "Britannia's market share in the Hindi belt is just 11 per cent against an all-India value market share of 33 per cent. This region continues to offer opportunity for Britannia to gain market share and distribution," believes Gautam Duggad of Motilal Oswal Securities. Against this backdrop, its revenues are likely to grow 15 per cent in 2016-17 with a robust 20 per cent growth in earnings.

Ebitda margin gains, though, are likely to be moderate at 52 basis points (a basis point is a hundredth of a percentage point) to 14.8 per cent as a large part of cost savings are behind it and input costs, too, have started inching up.

For the March 2016 quarter, Abneesh Roy of Edelweiss Securities expects Britannia to clock healthy volume growth of 10-11 per cent though revenue growth will be lower at 9 per cent to Rs 2,250 crore. Phasing out of excise duty benefits will impact revenue growth during the quarter. The Ebitda  margin is likely to expand 102 basis points to 13.3 per cent on tailwinds in input costs.  

While prices of most of Britannia's inputs have risen in recent months, the company can mitigate some of this pressure through price hikes. Britannia has not hiked prices in the last two years. A higher share of premium biscuits in Britannia's revenues will aid its pricing power and margin.

Going forward, Britannia aims to become a "total foods company" and ramp up its non-biscuits portfolio of cheese, ghee, dairy whitener, cakes, rusk, which together form about a fourth of its revenue.