For a long time, quality biscuits meant you needed to have Britannia Good Day biscuits on your table. Today there are umpteen choices. Britannia has still held on to its leadership position in the ₹35,000 crore domestic biscuit market with a market share of 35 per cent market. Here are two of the biggest growth drivers that will drive Britannia revenues:
Premiumisation. While Britannia was looking away, Indians started demanding premium choices. This saw the rise of the premium biscuits segment in the country. To cater to this growing demand, companies like Parle that had earlier focussed only the low-end of the market and new entrants like ITC rushed in. New competition swiftly took market share away from the market leader. Britannia has now corrected its strategy and now offers products in this category as well. The premium segment is attractive for another reason. Though low-volume compared to the mass-market category, gross margins are 2.5x higher.
Shift to higher growth segments. Britannia has also changed its product-mix towards higher growth products. In FY08 for instance, breads and rusks constituted seven per cent of total revenues. In FY14, their share was up to 12 per cent. Britannia is also selling more cakes today than it did five years ago. Addition of the promising health segment can help further.
Risks. One of the biggest threats to Britannia is from the rise of ITC in the biscuits segment. Within a short span of 12 years, ITC has gone from zero to become the third largest biscuit manufacturer in the country with a market share of 15 per cent. No other biscuit manufacturer in the country has seen this level of success in such a short time. ITC could prove to be the biggest threat to both of its two bigger rivals, Britannia and Parle. Then there are other risks like raw material price inflation, monsoons, the growth of premium segment, etc.
Outlook and Valuation. The biscuit market in India is essentially a three-player war zone. These three players effectively control 80 per cent of the market. The battle between Britannia, Parle and ITC will continue to play out in the years ahead. Britannia appears to have corrected its strategy in time. The stock trades at 1.2x its three-year PEG ratio. Buy.
This article was originally published on January 06, 2015.
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