Companies

Britannia firms up ₹700 crore capex over the next two years

Our Bureau Kolkata | Updated on July 20, 2020 Published on July 20, 2020

Varun Berry, Managing Director, Britannia Industries

Company plans to expand capacities

Britannia Industries is planning to invest ₹700 crore over the next two years across greenfield facilities and expand capacities at existing ones in Ranjangaon (Maharashtra). The new ones would include one each in Uttar Pradesh, Tamil Nadu, Bihar and Odisha.

According to Varun Berry, Managing Director, Britannia Industries, these new facilities will help the company augment capacities in some of its key markets.

“We are looking at some capex of around ₹700 crore across new facilities in Uttar Pradesh, Tamil Nadu, Bihar and Odisha, while there will be expansion of capacities at Ranjangaon (Maharashtra),” he told reporters during a press conference via video conferencing.

The factories will be owned factories by Britannia and funded by the company itself, from internal funds. They will increase Britannia’s capacity by 10 per cent.

In a normal month, Britannia’s production is about one lakh tonnes a month and presently it has even gone up to 1.15 lakh tonnes a month. Each of the factories will have two or three lines for biscuit making.

Britannia has 16 factories and 30 contract packers.

Tamil Nadu, sources say, is one of the largest States for Britannia. At present, the State is catered mostly through contract manufacturing facilities.

Bihar is also another large consumption State for the biscuit-maker; where it is looking to ramp-up presence.

Uttar Pradesh, once its weakest market, has emerged the second-largest market for the company now. The company saw a 42 per cent growth there, year-on-year, for the April to June period.

Rural markets

According to Berry, Uttar Pradesh is an example of the company’s success story in rural markets and how its Hindi heartland focus is paying off. The company has seen “good growth in all the Hindi-speaking States”.

Rural markets will continue to outpace urban markets in terms of growth, and would remain resilient “this year”. Good monsoon and higher agricultural output would help aid growth.

“Clearly we had never thought rural would go free (from the pandemic). We have definitely seen a better growth in the rural areas. So (in the first few days since lockdown) it was about getting our products there. I think rural will remain resilient this year,” he said.

Berry pointed out that while it is “definitely difficult” to predict how things will pan out for the year, it is very unlikely that high volume growth can be long sustained. Britannia has seen a volume growth of over 21 per cent in Q1FY21, over the year-ago-period.

“Forecast is volumes will slowly taper off. But certainly demand will remain for the next six to nine months,” he said.

Operations

Britannia surpassed street estimates with June quarter revenues (consolidated total income) witnessing a near 27 per cent growth YoY to ₹3,514 crore; and a 118 per cent growth in PAT, YoY, to ₹543 crore.

The company is already producing to full capacity and more premium offerings are being sold. Britannia had bucked the trend and it was not witnessing any consumer downtrading.

“We went by 20:80 rule – where 20 per cent of the SKUs brought on 80 per cent of the revenues – and belted out these offerings,” Berry said.

Edelweiss in a report has mentioned that cost optimisation, especially in ad spends, drove 634 bps YoY expansion in EBITDA margin to 21 per cent, highest-ever. The report said Britannia was agile in quickly restoring its distribution back to pre-lockdown levels and even increasing its rural reach.

Ad spends, however, are expected to increase over the next few quarters, while deflationary trends in raw material prices are expected to continue. Raw material price increase in Q1FY21 was a moderate 3 per cent, Berry said.

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Published on July 20, 2020
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