BRITANNIA - Britannia Industries Ltd. Share Price

Management Outlook and Key Points:

1. Inflation and Pricing Strategy:

• Facing significant commodity inflation (11% YoY), driven by RPO (+43%) and cocoa (+103%). Forward buying mitigated ~2-4% additional inflation.
• Price increases (2% in Q3, 4.5% exit Q4, cumulative 6-6.5% by Q1 FY26) to offset inflation while balancing competitive dynamics. Grammage adjustments in lower-price packs (e.g., INR5 Rusk) support margins without drastic top-line hikes.

2. Cost Efficiency:

• Targeting 2.5% cost savings (of revenue) via procurement, manufacturing, and logistics optimizations. Focus on sustaining margins despite inflationary pressures.

3. Market Share and Distribution:

• Flat market share due to price volatility; expects recovery as pricing stabilizes.
• Expanding direct distribution (28.8 lakh outlets, +3% YoY) and rural reach (31k distributors). Piloting urban retail route-to-market strategies (service frequency optimization, tech upgrades) to enhance efficiency.

4. Growth Drivers (Innovation & Adjacencies):

• Premiumization and innovation in core biscuits (e.g., Harry Potter-themed Choco Frames) and adjacencies: croissants (INR200cr+ run rate), cakes (relaunch), cheese, and drinks (Winkin' Cow Grow).
• E-commerce traction: Adjacencies like croissants (17% e-com contribution), cakes (9%), and dairy (11%) outperforming biscuits (4%).

5. Financial Targets:

• Aim to sustain PAT margins (~13%) via pricing, cost controls, and mix improvements. EBITDA recovery linked to price realization and stabilization in input costs (e.g., wheat seasonality).

6. Capex & ESG:

• Lower capex (INR150-200cr in FY26) post recent capacity expansions. Focus on PLI-linked incentives and operational efficiencies.
• ESG milestones: Plastic neutrality, energy/water stewardship, and award recognitions bolstering brand equity.

Outlook: Cautious optimism with GDP recovery (H2 FY25) expected to boost consumption. Vigilant on commodity trends, competitive actions, and rural demand revival. Prioritizing sustainable market share gains and margin resilience.

Question 1 (Abneesh Roy, Nuvama): What price increases/grammage cuts were implemented in popular (INR5/INR10) vs. larger packs amid 11% commodity inflation? How are local players reacting, and is competition from Amul/Reliance a concern?
Answer: Price hikes of ~2% in Q3 (INR100cr), rising to 4.5% by FY-end, with 6-6.5% cumulative increase by Q1 FY26. Grammage cuts in popular packs avoided; inflation hit local players harder. No immediate threat from new entrants like Amul/Reliance due to brand strength.

Question 2 (Percy Panthaki, IIFL Securities): Why was the planned 5-6% price increase reduced to 4.5% despite higher inflation? Can gross margins recover to 17-18% EBITDA?
Answer: Total price hikes will reach 6-6.5% by Q1 FY26 (2% in Q3, 2.5% in Q4, 1.5% in Q1). EBITDA margins aim to stabilize near current levels with cost efficiencies offsetting inflation.

Question 3 (Mihir Shah, Nomura): How will volume trends and gross margins evolve post-price hikes? Is high-cost inventory affecting margins?
Answer: Volume growth aligns with revenue (~6% YoY). Gross margins to stabilize as forward covers and seasonal wheat supply ease inflation; no significant high-cost inventory drag.

Question 4 (Tejash Shah, Avendus Spark): Why haven't focus states (growing 2x) significantly lifted overall growth? What is their contribution?
Answer: Focus states contribute ~15% of revenue (up from 12-13%), with rural growth driven by distribution expansion. Market share remains low but sustainable execution prioritized over aggressive pricing.

Question 5 (Latika Chopra, JPMorgan): What is the growth and profitability outlook for non-biscuit adjacencies (croissants, cakes)? Any plans for salty snacks?
Answer: Adjacencies like croissants (INR200cr soon) and milkshakes (INR200cr) grow double-digits. Salty snacks remain experimental; national launch delayed until competitive differentiation is assured.

Question 6 (Aditya Soman, CLSA): How does the urban retail distribution revamp impact profitability?
Answer: Urban retail (1.3x profit multiplier) expansion prioritizes high-potential outlets. Costs tied to scaling salesforce but offset by higher profitability from premium urban growth.

Question 7 (Amit Sachdeva, UBS): What is the staff cost outlook after SAR-related volatility?
Answer: Staff costs normalize post-Q3 SAR adjustments. Future growth capped at 0.75x revenue growth to maintain operating leverage.

Question 8 (Harit Kapoor, Investec): How does current pricing strategy differ from FY23's aggressive hikes?
Answer: Measured approach initially due to uncertainty on inflation persistence. Now decisive 6-6.5% hikes as commodity trends (e.g., palm oil duties) stabilize.

Question 9 (Lokesh Gusain, BOB Capital Markets): Are cost-saving targets on track?
Answer: Cost savings exceed targets (2.5% of revenue) and will continue into FY26, aiding margin stability.

Question 10 (Amnish Aggarwal, Prabhudas Lilladher): Will PLI-driven "other income" (INR373cr in 9M) sustain?
Answer: PLI incentives (~INR125cr/quarter) to continue subject to compliance, supporting margins alongside cost efficiencies.