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Britannia – Catering to the mass market?

Aug 7, 2000

The biscuit market in India is witnessing stagnant growth rate in value terms, with the growth rate coming mainly from the low priced segments. The premium segment in the market has been witnessing lower growth rate due to increasing competition from the international players. Nevertheless, Britannia Industries Ltd. (BIL) is able to maintain the volume growth in the biscuit category growing more than the industry growth rate, through introduction of low priced products. However the realisations of the company is continuously declining in the past five years.

In the past six years while BIL’s sales volume in biscuits category increased at a CAGR of 11%, value grew at a slower pace of 5%. Increasing competition is one of the factors for slower value growth. Further increase in the excise duty from 8% to 16% in the current budget dampened the volume growth. Since in the competitive scenario, it was not possible for the company to pass on the hike in the duty on some of its products, its profitability is likely to have a negative impact to a certain extent. However exemption of excise duty on low priced packets is expected to help the company in strengthening its rural position.

Biscuits (volume): Growing constantly
Years Sales Qty.
(MT)
% Change Per unit
realisation
% Change
FY95 114,039 - 38,960 -
FY96 121,894 6.9% 43,201 10.9%
FY97 136,016 11.6% 47,774 10.6%
FY98 144,213 6.0% 50,259 5.2%
FY99 167,467 16.1% 51,485 2.4%
FY00 192,646 15.0% 50,787 -1.4%

During the FY00, biscuits contributed 84% of BIL’s total revenues, 6% came from bread business, 2% from cakes and the balance from its dairy business. The company has introduced several new products in its dairy business to increase the contribution from dairy products. The dairy business is expected to reduce the company’s over dependence on biscuits business. BIL is also mulling entry into the mineral water market under the brand name ‘Britannia Pure Health’ to diversify its product portfolio.

BIL’s stock is quoting at a P/E multiple of 35 times its 1QFY01 annualised earnings with a market cap to sales ratio of 1.4 times. Given the strength in the biscuit business, which contributes more than 80% of its revenues, the company will be able to generate the returns with its well-known brand.

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