| Britannia Industries Limited | ||||||||
| Ratings reaffirmed at 'CRISIL AAA/Stable/CRISIL A1+'; rated amount enhanced for Bank Debt | ||||||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||||||
| 1 crore = 10 million | ||||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL AAA/Stable/CRISIL A1+’ ratings on the bank facilities and debt instruments of Britannia Industries Limited (Britannia).
The ratings continue to reflect the leading position of the company in the biscuits segment, its strong operating efficiency and comfortable financial risk profile. These strengths are partially offset by susceptibility of profitability to intense competition and fluctuation in raw material prices.
Operating performance in fiscal 2023 will be supported by continued traction from new product launches and expansion in distribution network, both ensuring healthy revenue growth and sustenance of operating margin. In fiscal 2022, the company reported sales growth of 7.6%. Operating margin moderated to 15.6%, from 19% in fiscal 2021, due to high input prices and rampant inflation. Despite rise in price of the key raw material, performance was steady, driven by price hikes, internal cost efficiency programmes, growth in market share and focus on geographical expansion.
The financial risk profile should remain robust, aided by healthy net cash accrual and strong debt protection metrics. Britannia has, in fiscal 2022, declared final dividends of Rs 1,794 crore, while maintaining strong liquidity. Issuance of fresh bonus NCDs worth Rs 698.5 crore led to an increase in gearing to 1.01 times as on March 31, 2022, from 0.6 time a year before. However, cash and investments of Rs 2,482 crore excluding inter-corporate deposits as of May 2022, should support overall liquidity. The company is expected to generate cash accrual (net of dividend) of over Rs 500 crore and incur capital expenditure (capex) of Rs 800-1000 crore in FY 22-23. The group inter-corporate deposits of Rs 740 crore are with The Bombay Burmah Trading Corporation Ltd (ultimate holding company of Britannia) and Bombay Dyeing & Manufacturing Company Ltd. |
Analytical Approach For arriving at its ratings, CRISIL Ratings has combined the business and financial risk profiles of Britannia and its subsidiaries, given the operational and financial linkages between these entities.
Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths:
Britannia is a leading player in the Indian biscuit industry, with a market share of over a third in value terms. Revenue has registered a compounded annual growth rate of 8% over the five fiscals through March 2022. The company has a diversified portfolio of biscuits across all seven categories: glucose, Marie, cookies, crackers, cream, milk and health and strong brands including Good Day, Tiger, Marie, Nutrichoice and Milk Bikis. Market position is further supported by a wide distribution network in both rural and urban areas. Direct reach of the company has grown substantially to 24.9 lakh outlets in fiscal 2022, from 7.3 lakh outlets in fiscal 2014. The company also plans to enter new categories and has recently launched several new products such as Good Day Harmony and Chocochip (premium offering), 50-50 Golmaal, Jeera Marie, Swiss Rolls and Layer cakes, milk shakes, lassi, Treat Wafer Stix, Coffee Cracker etc. The company envisions to become a global foods company for which the company has set up strategic business units for adjacent businesses, bakery, dairy and international business.
The financial risk profile is marked by a healthy capital structure, strong debt protection metrics, and financial flexibility. Though steady cash flow and net cash accrual support gearing, it has moderated to 1.01 times as on March 31, 2022, due to the large dividend payments and issue of bonus debentures over fiscals 2021 and 2022. Expected net cash accrual of Rs 500-800 crore should keep gearing under 1 time. Estimated capex of Rs 800-1,000 crore per fiscal will be funded through internal cash accrual and external debt. Dividend payments are likely to moderate over the medium term, in line with other FMCG players. However, any substantial payout remains a key monitorable.
Weaknesses:
Intense competition has reduced the scope for FMCG players to pass on any hike in raw material prices to end-users. While Britannia has fairly retained its competitive position and pricing, CRISIL Ratings believes that competitive intensity will remain high with fresh product launches from players, especially in the premium segment.
Prices of key raw materials such as wheat, sugar, milk and refined palm oil depend on geo-climatic conditions, international prices and the domestic demand-supply situation. In fiscal 2022, overall commodity inflation was high with year-on-year inflation on flour at 1%, sugar (7%), refined palm oil (26%), cashew nuts (25%), and that on laminates and corrugated boxes at 20% and 21%, respectively. The management has rolled out absolute price hikes and grammage cuts to offset cost inflation. Continued focus on cost efficiencies and price leadership will help the company mitigate the impact of volatility in raw material prices on the operating margin. However, the ability to pass on the increased cost, while maintaining market share, is a key rating sensitivity factor. |
Liquidity: Superior The company is likely to maintain its cash surplus (around Rs 1,019 crore as on March 31, 2022), backed by internal accrual. Exposure of about Rs 740 crore towards group entities as on the same date, may not increase materially in the near term. Bonus debentures amounting to Rs 721 crore are redeemable in fiscal 2023, and will be covered through the cash surpluses, internal accrual and debt. Hence, CRISIL Ratings believes that Britannia will maintain superior liquidity for business requirements, covering its working capital and capex. |
Outlook: Stable CRISIL Ratings believes Britannia will maintain its strong market position in the biscuit industry, backed by strong brands and an established distribution network. |
Rating Sensitivity factors Downward factors
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About the Company Established in 1892, Britannia is one of the largest players in the Indian biscuit industry. Over the years, the company has expanded its product offerings significantly, by adding newer products such as dairy items, cakes and rusk. It has expanded overseas by acquiring Strategic Foods International LLC in the United Arab Emirates (UAE) and Al Sallan Food Industries Co SAOG in Oman. These two companies are regional players in the biscuit and cookies segment in the Middle East. The Mumbai-based Wadia group held more than 50% stake in Britannia as on March 31, 2022. |
Key Financial Indicators (Consolidated)
CRISIL Ratings adjusted |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
#Yet to be issued @Interchangeable with bank guarantees, working capital demand loan, overdraft and/or cash credit facility |
Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||
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This Annexure has been updated on 06-Jul-22 in line with the lender-wise facility details as on 07-Sept-21 received from the rated entity.
@Interchangeable with bank guarantees, working capital demand loan, overdraft and/or cash credit facility
Criteria Details
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