Business Standard: August 08, 2017
Kolkata: In the past 98 years of its history, biscuits major Britannia Industries Ltd (BIL) is coming up with its largest plant ever in Ranjangaon in Maharashtra where investment of Rs. 1,000 crore over a 2-year period will be made which will make the company less dependent on outsourced manufacturing of its products.
"We have already acquired 96 acres for this project and have applied to the government for another 48 acres", the company's managing director, Varun Berry said here after BIL's annual general meeting (AGM).
To be completed in the next 1-2 years in phases, the 0.12 million tonne (mt) annual capacity plant will initially have six production lines of biscuits, and one line each for cakes and croissants. At a later date, other product lines like rusks, flour mill and dairy products may be incorporated.
Commissioning of this project, the largest ever in the company's history, will increase BIL's annual production capacity to 1.22 mt which will help it reduce outsourcing.
During the course of the AGM, the company's chairman, Nusli N. Wadia, while responding to a shareholder's query said that out of the total production in the company, 45 per cent is outsourced and he plans to bring it down to 35 per cent in the short-term. Berry later confirmed that the comment was related to the commissioning of this new greenfield venture.
Berry reasoned that the nearby catchment area for this integrated food park, which includes Pune and Ahmednagar in Maharashtra produces the highest quantity of cow's milk in the country which can be easily fed to this Ranjangaon plant. BIL plans to manufacture 85 per cent of the total dairy produce from this plant once it is commissioned.
The company will also be undertaking a feasibility study for manufacturing specialised kind of flour which it requires for the upcoming cream-filled croissants range of products. Recently, it has entered into a joint venture agreement with Chipita S.A., a Greek company, for the manufacture and sale of ready-to-eat croissants.
"Every year, we will target to launch one new product and enter one new geography. The ambition is to become a total foods company", Berry said adding that he plans to set-up a Rs. 55 crore plant in Nepal in the current year to cater to that market.
Additionally, the company is also in the process of commissioning a greenfield plant each in Assam and the Mundra Special Economic Zone. The latter will cater exclusively to its export market.
This year, the company has lined up a Rs. 400 crore capital expenditure plan and has upped it's cost saving plan from the current Rs. 140 crore per annum to Rs. 250 crore this year.
Price increase likely
Berry maintained that the immediate effects of the Goods and Services Tax (GST) was neutral for the company and thus it didn't increase prices. However, in the coming days, the average price in the BIL portfolio is likely to shoot up by 2-3 per cent.
"We had increased our product prices in the year before the GST implementation and thus didn't need to increase it further. However, a 2-3 per cent price increase is likely", he said.
Under the new tax regime, biscuits attract a 18 per cent tax, packaged bread is taxed at 17 per cent while the tax rate for cheese is 12 per cent and for rusks, it is five per cent.
"Wherever price benefits needed to be done, we have done that", he added.
To face the changeover, the company had started corrections in the distribution channels in the preceding months of GST implementation like increasing the credit period to its sales channels, restocking of products in 4.7 million outlets and other measures which helped it maintain an operating profit in the first quarter of the current fiscal year. However, like any other FMCG company, BIL is planning to increase the share of direct distribution by adding 40,000 outlets thi year. Currently, direct distribution accounts for 16 per cent.
Berry added that the company is considering consolidating its cream biscuits business this year which has a 35 per cent market share. In the past the company had consolidated other brands to merge with the 50:50 brand of salty biscuits.
"The plan is to have one large brand in each of the five categories", the company's vice president of marketing, Ali H. Shere said.
Tax benefit erosion marginally hits Q1 bottomline
BIL posted a six per cent growth in its topline at Rs. 2301 crore for the quarter ended June 31, 2017 although its net profit dipped marginally by 1.4 per cent at Rs. 216 crore.
In the corresponding months of the last fiscal year, BIL posted a Rs. 2162 crore net earning and a profit of Rs. 219 crore.
Berry reasoned that the dip in profit was the result of erosion of tax benefits to the company as it was able to sail through the undercurrents created in the consumer market on account of the switchover of the tax regime.
On the BSE, The BIL scrip peaked by 4.96 per cent to close at Rs. 4107.35 apiece reaching a peak of Rs. 4214.50 per share at 12:18 P.M.
Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.