30-06-2012, 12:04 PM
Britannia Industries
Britannia-Initiation.pdf (Size: 303.6 KB / Downloads: 82)
Highly commoditized business
With biscuits being a subsistence product for most Indians, an irrational
market leader (Parle) averse to taking price increases despite high food
inflation over the past decade and absence of pricing power even at the
premium end, Britannia’s EBITDA margins seem poised to remain at midsingle
digit levels and net margins at around 3% levels, easily the worst in
the FMCG space. New packaging norms seeking to standardize pack sizes
are expected from June 2012 and will only make matters worse for the
company, badly affecting the industry’s tendency to reduce grammage in
order to make up its limited ability to raise prices in an inflationary
environment.
Sourcing disadvantage compared to peers
Britannia loses out to ITC in sourcing of agri commodities for biscuits and to
Amul in the dairy business. In categories where commodity costs determine
profitability to a large extent (lowest gross margins in the FMCG space),
these handicaps make the company’s earnings vulnerable.
New entrants at the premium end
While we take the positive view that new entrants like Kraft, United Biscuits,
PepsiCo and Danone among others will give a much needed boost to growth
at the premium end of the market, Britannia the incumbent leader in the
non-glucose and Marie category, is likely to lose market share amidst the
onslaught from these players
Loss of market share
Apart from the impact of limited pricing power in an inflationary
environment, the continuing trend of Britannia losing market share from
around 43% in FY04 to 31.5% currently and surrender of leadership
position to Parle in the interim, has had a vicious impact on profitability with
EBITDA margins halving from FY04 levels. We, therefore, do not anticipate a
dramatic recovery anytime soon.
Product portfolio
Britannia is India’s second largest biscuit company (only marginally behind
Parle) with a market share of 31.5%. The Indian market for biscuits, presently
at Rs124bn, is growing at ~15% CAGR in the last five years and with branded
players controlling 91% share. In terms of total volumes, India is the largest
biscuit consuming country in the world. Apart from Parle, the other
competitors in the biscuits space are ITC (Sunfeast), Surya Food & Agro Ltd
(Priya Gold), Mrs Bector (Cremica) and SAJ Food Products (Bisk Farm). While
Parle is dominant in the basic glucose segment, Britannia is the current market
leader in the premium segment.