Britannia Industries Limited (BRITANNIA) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Britannia Industries Limited Q1 FY '27 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ayush Agarwal from Investor Relations. Thank you, and over to you, Mr. Agarwal.

Good morning, everyone. This is Ayush from the Investor Relations team. I welcome you all to the Britannia earnings call to discuss the financial results of quarter 1 for financial year 2026-'27. Joining us today on this earnings call is our Managing Director and CEO, Mr. Rakshit Hargave; Executive Director and CFO, Mr. N. Venkataraman; Chief Marketing Officer, Mr. Puneet Das; Chief Manufacturing and Procurement Officer, Mr. Manoj Balgi; Vice President, Marketing, Mr. Siddharth Gupta; and Vice President, Corporate Finance, Mr. Ramamurthy Jayaraman. The analyst deck is uploaded on our website. Before I pass it on to Mr. Rakshit Hargave, I would like to draw your attention to the safe harbor statement in the presentation. Over to Mr. Hargave with remarks on the performance.

Thank you, Ayush, and good morning to everybody. So it gives us great pleasure to engage with you to discuss our Q1 results. So you have the presentation, which is uploaded. So I will go through that one by one. And then subsequently, we have a chance to interact through Q&A. So if we go to the main business overview, you will see that on a performance scorecard basis, our revenue from operations at a consol level in the first quarter were about INR 4,964 crores, which on an annual basis gave us a growth of 9.5%. It's also important to note that actually at a stand-alone basis, we grew at 10%. PAT was at about 11.9% of revenue and the 12-month growth on PAT was 13.6%. We shared our strategic priorities last time, and they continue to remain so. So just to reiterate the 5 pillars that we have put, you can see that we continue to drive efficiencies in sales, distribution and supply chain. We are working on all channels. Also, our investments in elevating brand experience has gone up. We also talked about innovation being a core to Britannia and developing our adjacencies business and also working on our future platforms on which we talked about, also the future platforms, which we will be working on our health side. We also talked about how we have created enterprising teams to work on the concept of winning in many Indias. I am very happy to state that many of those projects are already underway, and you should also be seeing output of those projects in a short period of time as they keep continuing. And obviously, as a responsible corporate citizen working in a sustainable manner, sustainability will always remain part of our strategy. If we take a look at the next slide, which shows how have our various channels grown. So you will see that the green channel, which is general trade in the last 3 quarters and noticeably in the quarter which has gone by, is now indexed at a rate which is about 1.5x of what we had grown in the whole of last year. So that shows that there is a demand buildup in general trade, which is very good because general trade, we are very strong in general trade and general trade is by far the largest channel for us. Also at the same time, when you see the orange line, you will see that the other channels, which are obviously more recent and more nimble, continue to grow faster and at an overall level are nearly at 2.5x of GT. Within that, e-commerce continues to grow very dynamically with very strong double-digit growth. And it's also because it is being driven in that manner. So we are very happy with the way e-commerce is developing, and we are very positive about that contributing even more as we go. We are also categorizing our general trade business. The way we are looking at it, we have separated our key states. Now the key states that we are talking about is a block of states, which are very important for us, both from a revenue point of view and profitability point of view. And obviously, their contribution towards our overall GT business is quite overweighted. Very happy to say that our key states are also showing good growth. You can see that the inflection of the green line shows that these states are on the upswing. And Also, the other states, which are relatively smaller compared to them, more nimble, are growing even faster. So other states are about 1.3 of key states. So the overall GT business, which, as we also talked about in the last 2 quarters for certain reasons was under a bit of pressure, has recovered out of that, and we can see good momentum. Actually, the demand environment in the last few months has actually quite held up. And we are also making sure that we do the right thing. And we are also happy that the demand is there, and it seems to be there at least for the moment. At the same time, in terms of developing our brands, we have tried to be very topical. And while we have activated across multiple platforms, I'm just sharing 2 interesting visuals. As you know, Marie Gold is a classic brand from Britannia. It is always consumed with tea. And you can see on the left side, a front page ad, which came out in the TOI, which shows that while you have different teas across India, there is one national binding element, which is Marie Gold. And I think Marie Gold is very important to Britannia is the absolute perfect choice for anybody who has one of tea. Similarly, on the right-hand side, you will see how NutriChoice is being built into an overall platform for healthy snacking and healthy biscuits. So continuous sustained focus on creating good propositions and sharpening these propositions for our brands will keep continuing. At the same time, we have brands which also engage with the Gen Z and younger consumers, and we're just sharing one example of Little Hearts, which is also growing very fast and how we celebrated Mother's Day with Little Hearts. And every -- actually, every employee got a printed bag with their own mother's photo. And I think it really drives that. Also, how we push Britannia cake, which is again back on a strong growth momentum using the same Mother's Day campaign. Also, our newer innovations, the younger brands, Croissant, the business that we have developed into a very good business, both from a consumer engagement and profitability. You can see the Treat Triple Choco Croissant And the Dubai Kunafa Croissant, very recent launches already growing at more than 30% Also, if you take a look at our other adjacency businesses, the Brownie Fudge It Cake doing brilliantly. We've also launched Bourbon Roll. We've launched the Rusk on the side, which is Butter Toastea and then Sattvam Ghee, which we launched about last year and also our slice business from the Bel JV Laughing Cow. So the dairy portfolio also grew in double digits, while our adjacency business of cake, rusk and wafers delivered strong double-digit growth led by portfolio innovation. You will see a small map of our international business. This is where our businesses are concentrated. Also, we also have business across ANZ, et cetera, which are not depicted there. You will see that -- the international business had a mixed teaming. So there were pressures in the Middle East. There were challenges that we have in markets like Saudi, which are being dealt with. And North America, which is a very large market, certain headwinds. But at the same time, we are very positive that our markets in Africa, led by Kenya are doing very well. So I think overall, the rest of international and our Middle East business has been a mixed bag, but we can see that sequentially also they are improving. Now it also depends on how the geopolitical situation develops on which we don't really have a point of view. But we are prepared to be able to navigate that also having seen that now for the last 4 months, how to manage it. Again, some interesting visuals. We know that Milk Bikis is the largest biscuit brand in Tamil Nadu. And obviously, Tamil Nadu also happens to be our biggest state. So I think we have a very interesting consumer idea of Thirukkural where the Kurals, the one Kural letter is printed on every Milk Bikis biscuit. I think it has resonated and touched deeply the heart of people who understand Tamil and Tamil Nadu. And I think we have excellent feedback from social media and also on ground as to how an old legacy brand has actually touched the core essence of Tamil Nadu. And I think great work by the team done there. Similarly, you can see that our activations on Rusk and outdoors that we have done in Tamil Nadu. So a lot of focus being put on our biggest state to drive that in a much more healthy manner, and it is also showing very good early results. And like I said, this is just one element of many India. And like Tamil Nadu, we have identified 6 key states and other places where we are focusing both on the consumer and on competition in terms of how to win. ESG, I will share a few facts. building a sustainable profitable business, increasing the participation of women in the factory workforce. I'm very happy to state that we have certain factories where the vast majority, literally 90% plus of the people on the shop floor are women. Similarly, our nutrition foundation program, the number of contact points. So we reached about 3.97 lakhs in the first quarter of '27, representing 78% of '25, '27. Similarly, the development of electricity in our plants through renewable means has gone up by 16%. And we are trying to exploit it to the maximum limit possible under the respective state laws. If we go to the cost and financials, take a look at the input cost trends. And you will notice the last 2. So we know that laminate prices, which are also dependent on hydrocarbon prices have actually gone up for all companies, and we are no exception. One impact which is more directed towards Britannia is the industrial fuel. So you will see that the inflation on industrial fuel is very steep. And that's also because as a business which does a lot of baking, a large part of baking that we do uses LPG and PNG, and we know that LPG and PNG prices shot through the roof in April and May, although they have come down and normalized a bit, but they still remain to be much above the normal level, which was there in February, and we have to watch that carefully. While we also have biomass, which is used for a certain percentage. And we will obviously strategically going ahead, try and mitigate and play down the risk of LPG and PNG. But for the moment, that is the reality. At the same time, you see flour has kind of held up, although we have to watch very carefully that with the uncertain situation regarding El Nino and rainfall, what happens because that actually impacts the price of flour and wheat in the coming season. But palm oil, we know has shot up and palm oil is at a high price and palm oil is also linked to hydrocarbon price, and that also is something to watch out. Sugar, you can see here in Q1 '27 has gone up. But I think all of you would know that in the last 2 weeks, 2 to 3 weeks, actually sugar has gone up by a further INR 7 a kilo. So sugar is a watch out, and we know that the festive season approaching sugar is also a sensitive topic. So we are watching sugar very carefully. Sugar undeniably is used in a lot of our products. Milk prices are also at a high, although usually milk prices start to come down a bit as the season approaches after August, but we will have to see how milk behaves. So you can see that from an input cost point of view, as you would have also seen in the press release commentary that we gave, we have to be watchful and careful. Our focus on cost efficiency programs where Britannia has been extremely lean continues. So the work on packaging cost optimization, we are trying to remove and reduce waste, both at the manufacturing level and at the produce level. Like I said, how do we work better with alternate fuels so that the impact that we have on the LPG, PNG can be reduced a bit in project which is now. Our buying efficiency continues. We are also trying to implement new models on that to see how can we extract more from what we buy and obviously, maximizing the possible use of renewable energy and also trying to work with authorities to see if we can further expand the renewable energy usage if possible. So all these projects are on, and we anyway take pride in the fact that this is where Britannia has done well in the past and we will absolutely continue focusing in the future. If you see the revenue trends, you will see that there is a trend in the last few quarters where we are now seemingly back again. We know that this growth of 9% in the last 8 quarters or 9 quarters is equal to maybe the previous quarter that we had. And like I said in the press release and our commentary is that we actually exited the quarter in double digits kind of mid-teens number. So we saw that the uptrend was developing and the sales trend was good. At an average level, what you can see is that '25-'26 was better than '24-'25 and Q1 has started on a better note than FY '25-'26. On the key financial lines, as you have already seen, from a net sales point of view, 9.5% growth and operating profit, PBT and PAT have all been ahead of sales at 12.7%, 13.7%, 13.6%. Similarly, on a 5-year trend, you can see that profit from operations at 15.3% is about at an acceptable level and PBT is also at a level which is there also in light of the inflationary situation that we had because of these extraordinary circumstances. And PAT is what it is based on the PBT that we have been able to deliver. Thank you. So that was the short presentation that we had based on the deck, and the team here will be happy to take any questions that you have.

[Operator Instructions] The first question comes from the line of Mihir Shah with Nomura.

Congrats on a good set of numbers. Firstly, just wanted to understand the comment on the quarter ending with mid-teens growth. I wanted to understand what is driving this shift? Was it the dual pricing issue that is getting addressed? Or is it completely addressed that is aiding this? Or was there a weak base in June or any kind of a quarter-end filling that is driving this? Or it's just genuine volume growth that you are seeing coming back as you had indicated? And can this volume growth sustain? So that's question number one.

Okay. So assuming that you are asking one question, Mihir, let me answer -- you have 3 questions, sub-questions in that. So firstly, I would want to clarify that Britannia is a very disciplined sales system, and we largely do sell-in based on sell-out. So a question like quarter building actually does not arise in our company. So we don't do loading. Secondly, yes, if you recall in the last analyst call, we did indicate that there was a bit of disruption in the rural channels and in wholesale because of the dual pricing, which was reducing. And we saw that the impact of dual pricing was there to a certain extent in April and maybe marginally in the first half of May, but that actually kind of came to an end in the month of June. So your question that what is the reason for June being a double-digit good month, there are 2 answers to it. that yes, the elimination of the dual pricing logically brought back some of the buyers or some of the smaller retailers who were buying on a temporary basis, some other brands. But secondly, we also saw that demand is holding up. So it was a question of organic demand coming from the ground, which was holding up and also for this discrepancy, which was happening because of dual pricing going up. Now whether we are able to hold up, so I'm not going to give any future indication of how we will do, but we see that the demand environment continues to be strong. So we have exited the quarter on a very positive note.

Got it. That is clear, Rakshit. Secondly, I wanted to understand your view on margins, given that you indicated that the RM costs are going up, fuel costs have gone up. Ad spends also, you had indicated that you were stepping it up after you've come in. And when you look at the coming quarters, you are anyway at the higher end of the margin guidance band or the margin band that you've been doing. So specifically, I wanted to understand your view on ad spends how much material step-up that you are indicating -- you are intending to take? Any insights on a percentage growth or a percentage of sales that you can indicate on ad spends that how should we think about that? And how should one think about the pressure on the margins that you're indicating because of the RM and fuel cost?

So let me answer the second part first. So the inflation on LPG was very real and the price inflation in the month of April and May and Venkat can confirm really went up about 2.5x, that has come down. From an index point of view, it is at about 1.5x, but it is still far more than what we had in February. Now how does this play out going ahead? We don't know. Currently, it is at an index of 1.5x. If it remains there, obviously, it is something which is affecting us. At the same time, you can see that the input price of sugar, and we use a substantial amount of sugar and the input price of palm oil has also gone up. Palm oil is at close to INR 140 and the increase in palm oil is also upwards of 20%. So from a commodity inflation, the reality is that it is there to stay, and we have to use that to manufacture. Although I think compared to other manufacturers, our ability to buy and hedge and manage the forward is better. But the fact is this inflation is a reality. But we also know that these are cycles, and this is also accelerated because of events which are beyond anybody's control. So you should not hold it on to the P&L like a permanent phenomenon. So this at some time will definitely correct. On the ad spending, yes, we have upped our spending, but I think that's also because I think last year and the year before on the base, we had kind of reduced our spending. So what we are spending is, I think, the correct amount, which we have now gone back to. I wouldn't want to give a number in terms of percentage of what we are doing. But yes, our spends on brand building are ahead of sales growth, definitely is what I can tell you. And I think what we can already see as a result of better investment in media over the last 7, 8 months is that many of our brand tracking health parameters in terms of recall, most often used brands are showing an uptick. So investing in those is absolutely important. We understand that these are there. And like we said, we are committed to deliver top line growth along with healthy sustainable margins, and that is what we will target to.

Understood. No, I was essentially trying to understand the mitigating factors or price increases that you would take to tide over the RM and fuel cost. So also maybe...

Mihir, let me add. So yes, we did take -- but you see many of our price increases is actually what you call is shrinkflation. So in the INR 5 and INR 10 segment, the consumer -- end consumer price doesn't change, but the content of what we give to them actually goes down. So if you ask me what have we done in the quarter, I think at best, we have been able to mitigate half of the inflation through price increases. The other half, we have not been able to.

[Operator Instructions] Next question comes from the line of Abneesh Roy with Nuvama.

Congrats on very good numbers. My first question is on Slide 11. So Croissant, are you now the #1 in the country because Bauli also is doing quite well. And you had given an earlier number of around INR 100 crores ARR with this 30% kind of growth and overall buoyancy, what would be the ARR currently? And will Croissant margin be margin accretive to the company at the gross margin level?

So Abneesh, I think if you're quoting a number of INR 100 crores ARR, I think you should just double it and it's growing at 30% plus. And the overall margin that we are making in Croissant is kind of equal or slightly accretive to the company margin.

Understood. Now coming to the slide where you have given key states versus other states. 2 years back, key states was growing in line with other states and then started underperforming. And now the gap has reduced. What will be your expectation? Will this grow at similar level or even it can grow faster? And on the other channels which you have given, basically e-commerce, quick commerce, et cetera, the earlier number you had given was 6% of the sales comes from e-commerce. And out of that, around 70% is quick commerce. Any update on those numbers?

So Abneesh, I think I will need to give you a small clarification. As I understand, 2 years back, when we used to use the term focus states, these focus states were generally the states which were from the Hindi belt, where Britannia was not the market leader. And hence, there were issues. And hence, there were initiatives which are continuing even today to how to capture share from competition. When I'm using the word key states this time, I'm actually talking about the set of states which are our largest and most profitable. So by and large, the highest in terms of net sales, but a mix also where we sell profitable portfolio. So the context is different. So these 6 states or whatever number of states that we are talking about is the number that I've given on the slide. Okay?

Yes, just a clarification. I'm quoting from that same slide, so it was growing in line in Q1 '25 and then the gap came. And does this include East India also? Because I think that's very large for you. Bihar, et cetera, is very large for you, I think Bengal also. Any update also if you can give on Eastern India, Bengal, et cetera, because I think there was some market share loss there.

No, no. So what I can tell you is that this denomination of key states that we are sharing is, I think, for the first time. We have not shared this denomination because it's a part of our -- so if you see the tip of Q1 '25 in the chart that we have shown for the green states, you will see that the orange state was equal to the green state and now both of them have actually moved ahead. And the green state, which is our key states, has also moved ahead. As far as your question is on Eastern India, Eastern India is doing well for us, and we are growing in double digits. And obviously, Eastern India includes Bengal, which is a very large market for us. You also had this question on e-commerce and Q-commerce. So like I said, Q-com is now literally 80% to 85% of overall e-commerce. And for us, it is growing in very, very healthy double digits. And like I said, the investment and focus with even sharpened portfolios will continue. And you will see more things in the near future.

Next question comes from the line of [ Nitin ] with HDFC Securities.

My first question pertains to the execution team with multiple execution team shifts following your appointment. Are we done with the changes? Or should we expect some further enhancement? Additionally, like could you comment on the Phantom stock accounting impact for this quarter? That's the first question.

So when you said multiple execution team, can you clarify what you mean by that?

So multiple appointments like Subhashis Basu got Chief Business Officer, Dairy...

Okay. So you are talking about the management team?

Yes, yes, management team.

Okay. No. So I think the management team is more or less over. You would have also seen that a gentleman has joined us to head our Strategy and Corporate Development earlier this week. From that point of view, all the changes are done. If there are many -- if there are any other changes which happen, which will happen more in the course of normal business where if somebody is retiring, he will be replaced, et cetera. But otherwise, from a team construct point of view, the team is now complete. You had a question on [indiscernible].

Phantom stock accounting impact for this quarter.

If you can clarify that, maybe...

Phantom-related impact was INR 52 crores last year. So I just wanted to see...

Okay. You're talking about Phantom stock. Well, that's hardly about INR 1 crore is what I'm told by finance.

For the quarter.

For the quarter.

And my second question is Britannia always aspire to be a total food company. So any thoughts around new category introduction, any thoughts around M&A? Also, if you can share your thoughts around -- in the past, we have tried out [indiscernible].

So if you go back to the slide, which talks about our strategic priorities, you will see on the third pillar, we are talking about future platforms. And I think in one of the earlier calls, I had shared that how we will develop a strong platform also for health and wellness and also for -- to leverage the adjacencies that we have. So that obviously remains. There is work at an internal level happening in the company. And the company is extremely committed and serious to expand its portfolio beyond the kind of bakery products that we have today. So you have to wait and watch. The company is committed and internal teams are already working on that.

Next question comes from the line of Binay Shukla from PhillipCapital (India).

[indiscernible] GT channel so what structural changes are being implemented [indiscernible].

Speakers, the disturbance is coming from your line, from the management line. [Operator Instructions] Mr. Shukla, please go ahead.

So question was on GT channel just wanted to understand what structural changes are we implementing in GT channel to offset the competition impact, particularly in linkage between market, which is maybe 15% of the business and the Eastern region, which might get close to 20%. So could you please highlight what exactly we are doing? So I do understand that we are doing the localized marketing with providing the regular support and hiring the right talent for the right market. But other than this, would you like to highlight any other efforts we are taking?

Yes. So let me answer this at 2 levels. So from a sales organization point of view, yes, I think there were certain markets where we needed to add some headcount, which we have done. But apart from that, the structure of distributor -- the distributor who serves what we call is the rural dealer or the sub-stockist, that structure continues. We have also taken an exercise where we are trying to convert some of the sub-distributors into direct distributors because we have certain advantage there. And we have also done that. But fundamentally, I'll tell you where the change has been brought in. The change has been brought in, in terms of the target portfolio, the empowerment that has been given to the regional teams, the focused media spend and the influencer spend and the number of local regional influencers that we are putting, along with product innovation, which is happening specifically for certain clusters of the Indian market. So while the overall skeleton of the GT team and the GT structure is not going to change, but the way they act and behave and the way they are being empowered, helped by marketing and local activation and product portfolio is undergoing a change, which is now causing the impact. So just to go back, if you saw the innovation on the product that we have done for Tamil Nadu on Milk Bikis is a glaring example of how you can pick up an existing product, which does very well and is a legacy brand, but how do you bring it to like a double-digit growth by creating consumer excitement focused on the state of TN. So you will have similar actions coming across different locations where there is better collaboration between sales and marketing to be able to deliver these kind of initiatives.

Okay, just a follow-up. Sir, which states are performing better than your internal expectation and which ones are still lagging behind? Secondly, sir, just wanted to understand that what percentage of the sales from the new launches as a percentage of total sales for biscuit, not excluding the non-biscuit portfolio. Can you please give us a percentage of sales from new launches?

So can you just repeat your first question again and then do the second one separately because I think there was some disturbance on the line.

Yes. So which states are performing better than your internal expectation and which ones are still lagging behind? I believe Bihar will be the performing state, Bihar and West Bengal and [indiscernible].

So I'm not going to get into state-wise details, but we are seeing healthy growth across many, many states. And obviously, there are certain states which are doing extremely well. There are some states which are a bit behind, but there is no state which is behind in the sense that it is not growing. So I think it is for us to help drive the states which have the momentum even faster and how do we start to get healthy growth in states which are growing slowly. Bihar, as you specifically pointed out, is a very strong market for us. And yes, we continue to do well there. In Bihar, we also launched the variant of Marie, which is called Doodh Marie focused on those markets, which has all got a very healthy response. What was your second question?

New launches [indiscernible].

So I'm still not able to place your question in terms of what you want. But if your answer is the composition of sales, that is more or less the same.

Okay. And the last question on the non-biscuit portfolio. So the revenue contribution from the non-biscuit portfolio has remained range bound at around 25%. So is this because the performance of the individual categories tends to be offset by the another category. So I just wanted to understand by when should we expect all the non-biscuit portfolios to deliver healthy and broad-based growth?

So okay, sorry. So you please go to the slide in the business, which talks about other adjacency business. So you will see that cake, rusk and wafers delivered double-digit growth, okay? So that is growing faster than the average. Also in our dairy business also grew at double digits. And our ghee business there, along with cheese slices is doing very well. So if you ask me the question, although the proportion is less, but at an overall level, the non-biscuit portfolio has actually grown in double digits also. Is that clear?

Next question comes from the line of Avi Mehta with Macquarie Capital.