What is your plan for Britannia?
What we want to do is to create a total foods company. With the kind of brands that we have, I think we have a right to succeed in a lot more categories which are outside our core and that is going to be our credo for the next century. We are not 100 years old, we are 100 years young, we want to make sure that we bring a lot of energy for taking our business to a lot of unknown territories.
These unknown territories could be within bakery or outside bakery but certainly within macro snacks. Also, we are looking at expanding our footprint internationally. It is going to be a very exciting phase. Personally, I am very excited about the entire strategic framework that we have been able to develop at Britannia and we have got a complete buy in from our board as well so we are looking forward to the next century.
Up until now, your focus and expertise has been in biscuits business while non-biscuits share was 20% to 30%. But it is still going to be a little tough. You are going to enter unchartered territories. How do you plan to push the non-biscuits businesses to the consumer? How do you plan to relate the Britannia brand with those products because Britannia means biscuits.
We are thinking in concentric circles. Six years back, we decided that it was not the right time for us to be in so many new categories and so we consolidated. There were some categories that we decided to exit because we wanted to strengthen our biscuit business which was a little unstable at that point.
There is a time for everything. Today we feel we are very solid as far as our base business is concerned so we can be a little bold, a little adventurous. Hence, comes the confidence to get into new territories. If you take aim and want to hit a target you will not hit every bullet into the bulls eye and we understand that every product that we launch is not going to be successful but the concentric circles are going to start with our core.
There is going to be a lot of innovation in the territories that we already operate in with completely new products and formats. Within biscuits, Deuce is a chocolate slab on a biscuit and it is a completely new territory. Similarly, we are going to look at other hybrid biscuit categories.
We have a very basic cake business. So, we are looking at bringing in some very interesting value-added cake products in the next four to five months. Similarly, in rusk, in dairy, we are looking at bringing in some highly value-added products. This is how the concentric circle works, filling up the gaps within the categories that you operate in and then start to move outwards.
If you take bakery as a concentric circle, there are a lot of gaps. We have a joint venture there. We are going to look at fulfilling those gaps within the bakery segment.
Would there be some synergies between your operations?
Obviously. If you are looking at the bakery business, at the same time, you are looking at building a business which is different but where the core is the same and then we move outwards to other categories which are outside of bakery and which could be in the macro snacking category. I cannot discuss what but you will know soon enough.
Can we expect a launch in that category in the next one year or two years?
Yes, for sure.
I was reading one of your interviews where we spoke about brand equity. A brand should have a certain amount of equity. I have to talk about a moat that Britannia has because at the end of the day, biscuits is a bit of a commoditised company and it is only in hardcore innovations where you guys have so far been excelling. If I have to talk about a moat, what would that be?
There are two moats for Britannia; the first moat is the brand itself and in my 30 plus years of experience, within the consumer industry what I have seen is that you can do a lot of stuff but you cannot build brands in a hurry. So, that is our big moat and it is something that no one can match.
The second moat that we have is about being a low-cost operator. I do not think that there is any company which operates with the kind of costs that we operate in. While we make a not so healthy gross margin, we make a very healthy net margin because our fixed costs are reasonably low. Those are the two moats that we think we have completely built around our business and we will continue to strengthen them as we go forward.
I am going to ask you about your Q1 numbers. Your stock has soared to new highs on account of the strong top line. It impressed the street a lot, almost 14-15% odd. , I know you do not give out this number very often in the press but I am take my chances. What are your volumes because that is the key parameter …
No, no, I give volume numbers. Volumes have been pretty good. Domestic volumes have grown by almost 12.5% and overall volumes have grown 12% and this is the third quarter of double digit volume growth. It is looking good. I feel very positive about the way we are moving forward and frankly I have been dreaming about double digit volume growth for a long time and now we have done it three quarters running.
But you do not believe this is on account of a low base?
It is. There is a little bit of that but I think that the momentum should continue to an extent. The last two years have been a little disturbed because of demonetisation and GST implementation. This could be our first year of double digit volume growth. I have got my fingers crossed.
You have not only looked at a brand from the revenues point but also margins and profitability, which brings me to my next question. You said gross margins may not be at the top compared to the industry but EBITDA margins have done very well. Are you seeing support?
The commodity basket has been flat. Versus last year, there has not been too much inflation till now. But now we have started to see the MSPs increasing. So now onwards, there will be slightly larger inflation. We do not get support from raw material prices. If we are growing volumes at 12.5% and if there is hardly any price, there is only a little bit of mix change and rest is all volumes, we do not take the prices up.
When there is inflationary trend, we will be forced to take prices up. So the delta between the volume growth and the revenue growth widens a bit. As we go forward, maybe that delta widens a bit.
But are you confident of maintaining margins, at least the margin expansion trajectory?
We will certainly try our best. We have done it in the past. We have seen inflationary trends in the past as well. We are hopeful that we will be able to do that.
Your dairy business has not picked up the way one would have expected. You have lost a bit of market share in cheese to your peers. How did dairy do in Q1 and how do you think dairy is going to shape up for Britannia?
Dairy is the largest category within foods and that makes it very attractive. Two things that make dairy very attractive – one is the size of the dairy market and second is the health connotations. This is a category that a company like ours cannot avoid.
In last two years, we have grown the value-added business fairly. There is a double-digit growth as far as value-added business is concerned in dairy products. We have trailed off our commoditised businesses like ghee and thats why you cant see a large growth in dairy prodicts.
Currently we are doing a trading model in dairy. We have contract packers who do products for us. We brand them with Britannia brand name and we sell it in the market. In the dairy business, to be profitable you need to own your backend and need to do a lot more innovation than we have done which will come once we get into value added products and do a lot of R&D work, etc, so that is what we are looking forward to.