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Britannia – ‘am to pm’ brand

Aug 30, 2000

Britannia Industries Ltd. (BIL) has transformed itself from a mere biscuit making company to a diversified company focussing on high margin businesses like dairy products. The company has also maintained its leadership in its core business (biscuits) through aggressive new launches and re-launches.Recently BIL has taken a lot of initiative to cope up with increasing competition in its reasonably new dairy and bakery business. The company plans to increase the turnover from dairy division to 20% from 10% of its business currently. In this segment it will hit the market with its ready to drink ‘lassi’ by the end of the current month. It has also plans to launch instant coffee and new flavours in the flavoured milk range under its recently floated ‘Milkman’ brand. Further it has plans to enter the bakery segment with the launch of brown bread. Increasing contribution from this high margin business is expected to contribute positively to BIL’s bottomline.

BIL is adopting the right strategy with the biscuit market witnessing stagnant growth rates in value terms. Further the increase in the excise duty has added in slowing the growth rate. As a result any attractive rate of growth is restricted to the low-priced segment.

The company has planned to position the ‘Britannia’ brand as ‘am to pm’ brand. It has the vision of making every third Indian a Britannia consumer. Its recently launched new biscuits like VitaMariGold, Tiger variants, Nutrichoice Junior and Good Morning to confirm this. The brands are doing well as they provide options for different consumption occasions to consumers. The initiatives undertaken by the company will help it to achieve its ambitious aim.

Nevertheless its profit margins are lowest in the industry, which is likely to increase with the higher contribution from dairy business. The company’s cost cutting measures and sustained advertisement to sales ratio is expected to expand its margin in future.

Comparative performance
ParticularsPGHHHLLBritanniaSBCHCadburyNestle
OPM(excl. other income)21.5%12.0%7.5%18.4%14.6%15.2%
NPM 13.7%10.2%4.5%13.2%7.1%6.9%
Advt. as a % to sales7.8%7.1%6.6%5.4%10.2%6.5%

At the current market price of Rs 683, BIL is trading at a P/E ratio of 35 times its first quarter annualised earnings and 26 times its FY01 projected earnings. The company has been consistently increasing its returns in the past three years. The valuations of the company are expected to improve with the increase in margins. Also, the steps taken by the management to ensure topline growth through low cost quality products is likely to stand the company in good stead.

Increasing returns
ParticularsFY98FY99FY00
RONW 23.9%26.5%29.3%
ROA 7.4%8.7%10.0%
ROIC 15.4%17.3%20.5%

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