Expect Rs 2K cr revenue from biscuit, cakes biz: Britannia

Britannia reported a steady second quarter earnings with revenue rising 11.8 percent to Rs 2,208 crore and gross margin expanded 300 basis points to 42.6 percent. Speaking to CNBC-TV18, Varun Berrry, MD of Britannia said that the company will focus on developing its biscuit, dairy and rusk business further this year. The company has launched five to six biscuits brands in premium segment this year. Britannia is targeting Rs 2,000 crore revenue from cake and rusk segment and dairy business each, Berry said. The company is also working to expand its export base to 72 countries. Below is the verbatim transcript of Varun Berry’s interview with Nigel D’Souza & Reema Tendulkar on CNBC-TV18.Nigel: Could you tell us how has the category growth been in the last one year. Also x Glucose, how is the category growing?A: The category growth have been single digit. For the last three years we have seen single digit growth and which every time we speak about what is going to happen and we talk about the future we always say that things are going to turn. Unfortunately that turn hasn’t happen but I still feel that the next six months are going to see a turn for the better. Reema: Coming to the company’s own performance what stands out is the kind of margin performance you have clocked in at 14.84 earnings before interest, tax, depreciation and amortization (EBITDA) margins. These are record margins for Britannia. Are you confident that you will be able to sustain your EBITDA margins at these levels?A: Won’t give you a future forecast but obviously our endeavor is going to be that we move in the right direction. We are proud of the margins that we have achieved. Nigel: Sticking with the margins front, the last three years or so your gross margins have expanded by around 800-900 basis points. How much would be due to commodity deflation and how much would be due to your product mix?A: The benign commodities have given us about 250 basis points. Effectively, if the commodities had not been what they are the margins could have been lower but the hypothesis also is that the prices haven’t gone up in the last 24 months. The price and commodity prices always sort of out way each other because there has been no commodity inflation we have also not taken any price increases.Reema: Do you believe all the benefits of benign commodity prices are already reflecting in your margins or do you believe the cost rationalisation, at least partly, is yet to show up in your operational performances?A: For sure so there is a long way to go as far as cost optimisation is concerned. There are lots of areas that we are working on and I have spoken about those in the past that journey continues. Frankly there is so much to do. If you think about it the kind of scale, plants that we are putting up these days we have already put up two plants this year. We are looking at putting up another three very large technologically superior plants next year as well. That is going to give us a lot of benefits as we go forward. Our endeavor to reduce waste, our endeavor to reduce the distance traveled by our biscuits, our endeavor to make sure that we optimise our advertising and sales promotion budgets reduce our trade loads all that continues. Our endeavor to make are overhead tighter so that we are in a position to leverage our overheads as we go forward. All those continue and hopefully those are going to give us benefits as we go forward as well.Nigel: Then your core biscuits segments which gives you more than 70 percent of your revenue that has been doing well but also what about your other subsidiaries – dairy or milk there are being doing quite well in the last few years how exactly is the margins improving their and is there scope for it to improve even more?A: That is a good point. The point is that margin improvements in dairy have been there. However, we are not getting the kind of traction that we expected in terms of growing the business. We are a very small, we have Rs 400 crore which is basically 5 percent of our total business. If we really want this segment to contribute substantially to our overall business then we have to have a better way of taking this business to four or five times of what it is in the next three to four years. We are working on that, we are working on our plans and we will make sure that in the next three to six months we have a clear view on how we are going to take the diary business forward. Cake and Rusk is another business which gives us reasonably good margins. Again, that is the segment that we would like to grow, because we are the market leaders in that segment. Obviously the onus is on us to make sure that we bring in the right product to grow that segment. International business, now the international business for us is hugely margin accretive to our total business. That has been growing very aggressively as well. However, unfortunately it still adds only 6 percent to our topline. So, we you were to look at Asian Paints or a Godrej or a Dabur it is anywhere from 25-50 percent of their total turnover. So, while we can’t go from 6 percent to 50 percent but our endeavor will be to take the international business from 6 percent to 15 percent to 20 percent over the next three to five years.Reema: Coming back to the company’s strategic plan, your long-term agenda is to transform Britannia to total foods company. Right now it is largely know as biscuit makers. Nearly 70 percent I believe of your revenue has come from the biscuit business. Can you tell us say in the next five years how do you see the company? Which would be the various product lines that Britannia would be interested in, would be competing in and what would be the contribution of these various new initiatives?A: If you were to think about it there is a long way to go for us in biscuits alone. We will continue that journey because we certainly are very weak in certain part of biscuits which is the value portfolio. We will create the premiumness in that portfolio and make sure that we keep growing our biscuit portfolio over the period of time. I have already spoken about cake and rusk, we are market leaders we will make that segment count for ourselves. The segments are for us Rs 400 crore each. Cake is Rs 400 crore and rusk is Rs 400 crore. We would certainly want these to be towards Rs 2,000 crore each for our company’s turnover. The dairy strategy I have already spoken about. We are in the process of writing a strategic plan. We are in the process of defining what are the next steps for us as we get into the next financial year and thereafter. So that is going to be an important part. Obviously the international business we export to 72 countries. We would want to be much stronger in those countries. We would like to, if possible look at some countries where we can take some big bets of either starting a businesses, doing joint ventures or starting up with some other party out there. So, there are a lot of things to do within our current portfolio. Beyond that the adjacent categories within foods are the macro snacking categories are pretty large. Salty snacks, chocolates breakfast, ready to eat, ready to cook all of these are large categories. Ready to eat, ready to cook and breakfast are relatively small, but they have the potential to become large categories in the future. We are evaluating how do we get into these categories without changing the codes of how we do business. So, it is a matter of time. In the next six months or so we will be ready with our strategy. I can’t give you more details on that but certainly exploring every possible potential for ourselves.