Britannia has posted a good performance in Q3, in-line with expectations. The highlight is the 13 percent volume growth compared to expectations of 9-11 percent. In an interview with CNBC-TV18, Varun Berry, MD of Britannia Industries spoke about the results and his outlook for the company.
The month of November last year, there was demonetisation. We still grew in that quarter by about 6 percent. We were one of the very few companies that grew in that demonetisation quarter, so that did give us a little bit of a benefit, he said.
For the last five years, we have seen low single-digit kind of a growth. I would think that the biscuit category growth should be back close to 9-10 percent kind of a growth, he added.
There is going to be a better category growth as we go forward, said Berry.
Input inflation cost in Q3 was almost zero. My estimate would be anywhere from 3-3.5 percent going forward unless there is a spike on some of the commodities because of the minimum support price (MSP), which gets increased, he further mentioned.
Speaking about margins, he said that he hopes margins to improve going forward.
On new launches and products, he said that coming financial year (FY19) is going to be a very busy year for us. We have got almost about 50 new products coming in. The new category, Chipita product, is going to be launched in October.
Below is the verbatim transcript of the interview.
Latha: You posted double-digit volume growth, how much of this would you attribute to just the favourable base and therefore, can you sustain double-digit volume growth?
A: I think there was a base effect because if you think about it, the month of November last year – there was demonetisation, so there was a base effect but you have to remember that we still grew in that quarter. We were one of the very few companies that grew in that demonetisation quarter. We grew by about 6 percent. So it is not like we are coming out of a very low base. Yes, it was lower than usual. So that did give us a little bit of a benefit.
However, I think clearly, it seems that the volume growth only happens when there is a category which is coming back to its own and for the last five years, we have seen muted low single-digit, kind of growth for the category. We still don’t have the category growth numbers but I would think that the category growth should be back close to at least 9-10 percent kind of a growth.
Latha: Therefore, will this double-digit volume growth sustain?
A: Your guess is as good as mine but I would think certainly there is going to be a better category growth as we go forward.
Anuj: What was the input cost inflation this quarter and what are you working with for the future?
A: The inflation last quarter was almost zero. I do think that there will be some inflation as we get into the next financial year. My estimate would be anywhere from 3-3.5 percent. Unless, there is a spike on some of the commodities because of the MSP, which gets increased but I don’t think that will happen because obviously, the government has two things to handle - one is the farmers’ income and the other thing is inflation. So both go hand in hand.
I would estimate commodity inflation to be about 3.5 percent for next year.
Sonia: Can you give us an outlook on what happens with margins, do they look like they will improve from here because you have also increased your thrust on premium products with your new launches?
A: We are hoping – the hope is always that the margins should improve as we go forward. There are lots of variables out there but if you look at our performance in the last five years, we have been consistent quarter on quarter (QoQ) and we hope to keep it that way.
Latha: How was the growth in the Hindi belt states where you are not traditionally strong?
A: That I would say is a delight because Uttar Pradesh (UP) was one state where the growth was slightly muted. While we were growing faster than the market but they were not up to my expectations and this is a quarter where we have ramped up our UP growth to almost close to 20 percent and that is a very large state. So I feel very good about it. The growths in other states have continued.
In fact, Rajasthan continues to be a top of the charts with over 25 percent kind of growth. Madhya Pradesh (MP) is okay, it is mid-teens kind of growth and Gujarat continues close to about 20 percent growth. So, it is moving in the right direction. All of those states are moving in the right direction. The only difference, which is a positive difference is UP, which has ramped up pretty well.
Sonia: I want to talk about some of your new products especially the joint venture (JV) you signed with Chipita of Greece to produce and sell ready-to-eat croissants in India. When do you see the tailwinds of these new launches kick in, what is the kind of timeline you are looking at?
A: This year, the coming financial year is going to be a very busy year for us. We have got almost about 50 new products coming in and they almost start from the word go. In fact, they will start from this month itself. So one – we have to make sure that we execute properly. The big ones, the Chipita product is going to be launched in October. We have already started to put up the line in Ranjangaon in Pune and we are hoping that October will be a full-fledged launch. So that is going to be a new category launch which we are very excited about.
The dairy project, we have started to collect milk and we are doing the experimentation that is required but dairy has a long gestation period. Once we start to put up a plant and we start to look at new technologies etc, it is going to be some time before we are in the market. So I would say, not the coming financial year but the next financial year is when the dairy products are going to be in the market. But I feel very excited about all that we have in the pipeline and I do think that in the next couple of years, we will be able to change the face of the company.
Latha: You are spending on advertising?
A: Yes, last quarter was a lot more than what we usually spend. Previous to that, the first two quarters of the year because of the goods and services tax (GST) implementation etc, there were lots of constraints so we had under-pegged our spends and we then brought it back with the quarter, which was looking good in terms of overall demand etc and that has given us the desired results in terms of volume growth. So last quarter, we were almost 40 percent more than the previous year’s same quarter. So we will continue to spend, we will make sure that specially the new product launches are supported with the right kind of media and the right vehicle of media as well.
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