Britannia Nears Double-Digit Volume Growth, But Hindi Belt Slump Raises Concerns, Says MD

Britannia Industries Ltd. is poised to achieve double-digit volume growth, possibly much ahead of its competitors, aided by price reductions and expanded rural distribution, but the growth in the Hindi heartland continues to be "anaemic", according to Managing Director Varun Berry.

"The rural growth, which has been lagging urban for some time, is starting to come back but we are still not out of the woods completely," he told analysts during a post-earning briefing. "Our focus market performance has not been great. I had expected a much better performance there. The reason for that is that the rural markets are still coming out of that phase where rural was lagging urban. And there's also a little bit of downtrading happening in some of the markets as well, where people are going to the lowest common denominator and the cheapest product in the markets."

The bakery giant's focus states—Uttar Pradesh, Rajasthan, Madhya Pradesh, and Uttarakhand—account for 15% of its overall sales, while these markets contribute 35% to the fast-moving consumer goods sector.

Berry pointed out that Parle Products Pvt., India's biggest biscuit-maker, holds three times the market share of Britannia, which stands at 18%.

"I think this is a phase where we have stagnated a bit, but the opportunity that we've got is a very large headspace between us and the large competitor," he said, adding that the company expects to narrow the gap over the next 3–5 years. However, it will be a "slow and steady" process.

To strengthen its position in these regions, Britannia plans to operate "like a nimble regional player." "If there is something that's required in a certain region in terms of flavour, pricing or recipe, we are ready to do all of that to make sure that we cater to the needs of that region," Berry said.

Despite heightened competition and a fragile demand scenario, Britannia achieved 8% volume growth in the April-June quarter, outpacing its peers. Net sales rose modestly by 4% on account of the significant price decrease taken across categories.

The management highlighted that the company has maintained market share gains, with a notable rebound in rural areas contributing to faster share growth as compared to urban markets. Rural grew 1.25 times more than urban. The company has been expanding its rural footprint as well. It added 30,000 outlets during the April-June period and is now reaching 28.2 lakh locations directly.

On the volume-price equation, Berry said that the company has now achieved double-digit volume growth, which was evident towards the end of the last quarter. But a higher base may prevent revenue from matching previous levels, even if the company implements price hikes in response to the ongoing inflation. He, however, anticipates that in about a quarter, volume will begin to align more closely with revenue growth.

Britannia is facing renewed pressure from rising costs of raw materials such as cocoa, flour and sugar, even as this is somewhat mitigated by a decline in prices for palm oil, laminates, and corrugated boxes. While the current price trend is "manageable", the company may need to take a slight price increase, said Berry, projecting inflation rates of 4-5% in the coming months. These hikes, though, will not resemble the steep hikes experienced in previous years, according to him.