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Informist, Tuesday, Nov. 12, 2024

 

--Britannia: Looking at launching protein bars and healthy snacks 
--CONTEXT: Comments by Britannia's mgmt in post-earnings analyst concall 
--Britannia: Expect some impact on sales volumes in next 6-9 months 
--Britannia: May raise prices for some pdts due to raw material inflation 
--Britannia: Will increase prices of select products by 4-5% in Oct-Mar 
--Britannia:Due to price hike, aim is to maintain, not raise margins Oct-Mar 

 

By Avishek Rakshit and Akshay V. Johnson

 

KOLKATA/MUMBAI – Britannia Industries Ltd. will increase prices across its entire portfolio by 4-5% in the coming two months to cover rising raw material costs and maintain margins, Vice Chairman and Managing Director, Varun Berry said Tuesday. The company had raised prices of some of its products in Jul-Sept. 

 

Berry said the price increase would first be carried out for those product packs where the company has not increased prices for some time, and be extended to cover the full product portfolio. Such price increases are likely to be completed by January.

 

"There will be 4-5% price increase in the next two quarters (Oct-Mar). We will do it strategically in SKUs (stock keeping units) where we haven't taken a price (hike) for some time. But if we have to take a 4-5% (price increase) on our entire portfolio, it tends to hit the large SKUs and large brands. We are in the process of doing that," Berry told sector analysts in a conference call after the company's financial results for the September quarter.

 

In the fast moving consumer goods industry, stock keeping units refer to a wide range of product packs that are different in terms of price, packaging, and other features. 

 

Such price increases are most likely to be reflected in reduction of grammage in product packs, rather than a monetary increase in prices. Consumer goods companies often resort to such a price rise to maintain their hold on key demand-driving packs that are priced at INR 5, INR 10, and INR 20. These packs are sold the most in terms of unit volume and, therefore, companies often tend to maintain these price points by reducing the quantity of the product in these packs. 

 

Berry said that the quantum of the incoming price increase would be enough to cover for inflation in key raw materials such as wheat, palm oil, and cocoa, and it would help Britannia maintain its margins in Oct-Mar, though the margins may not see a rise. The company reported an operating margin of 15.5% for Jul-Sept despite a fall in profits.

 

"There will be some impact on volumes, but it is a short-term thing," Berry said.

 

Over the past several quarters, Britannia has been focussing on increasing its market share and growing its topline, which it feels will help improve the company's financial position and performance in the long run. At the same time, Britannia has been strategically sourcing its raw materials to keep a check on cost volatility. 

 

Berry said that the cost of flour for Britannia increased 7% on year and 5% sequentially, and palm oil prices increased 3% on year and 2% sequentially. The cost of sugar increased 9% on year and 1% on quarter. However, it was cocoa that saw the highest increase in costs – Britannia's costs for cocoa procurement shot up 70% on year and 30% on quarter. 

 

The inflation in raw materials resulted in a 12.9% on-year surge in Britannia's raw material costs at INR 25.8 billion during Jul-Sept. Employee benefit expenses surged 45.3% on year to INR 2.3 billion. This is despite the company shutting one of its oldest plants in the country and offering some of its employees a one-time voluntary retirement scheme, costing Britannia INR 185.1 million in the June quarter. Britannia explained that the rise in employee benefit expenses was due to the phantom stocks option. As the company's share prices surged during the quarter, so did its employee benefit expenses. 

 

At a time when the company is facing a steep rise in costs and sales being impacted due to muted demand conditions, especially in urban locations, Britannia plans to launch protein bars and venture into the healthy snacking space. Some major foods companies in the country have already forayed into this segment to diversify their product range.

 

"These are the areas which we are seriously looking into," Berry said.

 

According to Britannia, urban demand, particularly in the metros, has been negatively impacted by a nominal increase of 3.4% in people's earnings in the last 12 months, and house rentals have been on the rise. On the other hand, Berry said consumption demand in rural India grew in high single digit during Jul-Sept. Metros and other cities account for the major share of sales in the fast-moving consumer goods industry. At 1201 IST, shares of Britannia were down 5.3% at INR 5148.50 on the National Stock Exchange.  End

 

Edited by Avishek Dutta

 

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