Britannia – the largest manufacturer of bakery products in India dominates the branded (organised) biscuits segment with a 38% (value-terms) market share. It is also a dominant player in the organised bread and cakes segment. Currently, Britannia is focusing on expanding its business to dairy products like cheese, butter, flavored milk and dairy whiteners. Group Danone, France (the largest food processing company in the world) owns a 22% stake in Britannia.
The margins in its key business of bakery products have never been very high, but to counter this Britannia over the last few years has shown traces of being an innovative marketer. In order to expand its market it has redone its whole image to target the ‘health and nourishment’ conscious Indian consumer. As a result of this, the company has been able to record a 17.5% CAGR (compounded annual growth rate) in its turnover over the last three years. Profits have grown at a CAGR of 33% during the same period. The operating margins of the company therefore, improved from 5.6% in FY98 to 7.3% in FY00.
Britannia’s 1QFY01 results were also heartening. Higher bakery and dairy product sales powered Britannia's topline by 16% y-o-y to Rs 3.3 bn. The quarter saw biscuits volumes grow by 15% led by its new launches Vita MarieGold and Nutrichoice Good Morning. The company managed to improve its operating margins to 7.9% in 1QFY01 (7% in 1QFY00). The growth in margins would have been even better, but for the hike in excise duty rate of biscuits and cakes from 8% to 16%.
But clouds are beginning to form over Britannia’s ‘Good days’. Hindustan Lever Limited (HLL) has bought over the government owned Modern Bakery. This is a sure sign that this marketing behemoth will enter the bakery segment in a big way. Another competitor, Parle has also geared up and has entered the market with a slew of new products. All this may be bad news for Britannia from one angle. On the other side, increased competition from HLL and Parle could lead to market expansion benefiting the organised bakery segment as a whole.
Currently, the organised biscuit segment accounts for only 1/3rd of the Rs 80 bn total biscuits market. So there is huge scope for improvement there. But all marketing skills of Britannia will be put to test if the company wants to capture a huge chunk of the unorganized market.
Britannia quotes at a P/E multiple of 34 times its 1QFY01 annualised earnings at the current market price of Rs 639. At its 52 weak peak the stock traded at a P/e multiple of over 60 times.
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