Rating Rationale
August 28, 2020 | Mumbai
Britannia Industries Limited
Rated amount enhanced
 
Rating Action
Total Bank Loan Facilities Rated Rs.1000 Crore
Long Term Rating CRISIL AAA/Stable (Reaffirmed)
Short Term Rating CRISIL A1+ (Reaffirmed)
 
Rs.500 Crore Non Convertible Debentures CRISIL AAA/Stable (Reaffirmed)
Rs.720 Crore Non Convertible Debentures CRISIL AAA/Stable (Reaffirmed)
Rs.1279 Crore Commercial Paper (Enhanced From Rs.800 Crore)  CRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL 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 company's leading position in the biscuits' segment, strong operating efficiency, and its strong financial risk profile. These strengths are partially offset by susceptibility of profitability to fluctuations in raw material prices and intense competition in the biscuit industry.
 
CRISIL expects, Britannia's operating performance to improve in fiscal 2021 with healthy double digit revenue growth and operating margins of 16-17%. Revenues have registered a compounded annual growth rate of 8% over the five fiscals through March 2020. In the first quarter of fiscal 2021, operating performance was strong with revenue growth of 27% year-over-year and operating margins of 21%. The strong performance in the quarter was mainly because the company was able to resume its operations earlier than its peers. Focus on premium products, cost optimisation measures and benign raw material prices led to higher operating profitability.
 
The financial risk profile is expected to remain strong driven by healthy net cash accruals and strong debt protection metrics. Britannia has so far in fiscal 2021, paid dividends of nearly Rs 2,840 crore and also approved bonus debentures amounting to nearly Rs 1,000 crore (repayable after three years, but subject to approval from National Company Law Tribunal), which is expected to moderate cash accruals and networth while increasing debt level in the fiscal. This is expected to increase gearing to 1.3 times in fiscal 2021 from 0.4 times in fiscal 2020 and against our earlier expectations of gearing of under 0.5 times. However company has strong liquidity in the form cash and investments amounting to over Rs 2,600 crore as on August 2020, which is expected to support overall liquidity. Over the medium term, the company is expected to generate net cash accruals of Rs 550-800 crore and modest capital expenditure (capex) of Rs 300-400 crore per year. The company has exposure of about Rs 820 crore in the form of inter-corporate deposits towards group companies [The Bombay Burmah Trading Corporation Limited, (Ultimate holding company of Britannia Industries Limited) & Bombay Dyeing & Manufacturing Company Limited], which is not expected to materially increase from the current levels in the near term.

Analytical Approach

For arriving at its ratings, CRISIL has combined the business and financial risk profiles of Britannia and its subsidiaries because of the operational and financial linkages between all these companies.

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:
* Established market position in India's fast-moving consumer goods (FMCG) industry: Britannia is one of the leading players in the Indian biscuit industry, with a market share of over a third in value terms. The company has a diversified portfolio of biscuits across all seven categories: glucose, marie, cookies, crackers, cream, milk, and health. Also, it has strong brands across its product portfolio including Good Day, Tiger, Marie, Nutrichoice and Milk Bikis. The strong market position is supported by a wide distribution network in both rural and urban areas. Its direct reach improved from 7.3 lakh outlets in fiscal 2014 to 21.5 lakh outlets in the first quarter of fiscal 2021. The company also has plans to enter in new food categories and has recently launched new products such as cream wafers, baked salted snacks, milk shakes, lassis and croissants. The company intends to become a global foods company and has set up strategic business units for adjacent bakery, dairy and international business.
 
* Strong financial risk profile:
Britannia's financial risk profile is marked by a healthy capital structure, debt protection metrics, and financial flexibility. Steady cash flow and accretion to net worth resulted in improvement in Britannia's capital structure in fiscal 2020, with gearing of 0.4 time. However, payment of large dividend in fiscal 2021 and issue of bonus debenture during the fiscal is expected to moderate gearing to 1.3 times. Over the medium term, healthy accruals of Rs 550-800 crore is expected to support financial risk profile, with gearing improving to under 1 time. Capex is estimated at Rs.300-400 crores annually, which will be funded through internal cash accruals. CRISIL believes that large dividend payout in fiscal 2021 is an exception and the dividend payments will moderate over the medium term. Higher than expected dividend payout resulting in weakening of networth will be a monitorable.
 
Weaknesses:
* Exposure to intense competition in the FMCG industry:
Intense competition has reduced the ability of players to pass on increase in raw material prices. While Britannia has fairly been able to maintain its competitive position and pricing in the industry, CRISIL believes that competitive intensity will continue to be high with new product launches from the players especially in the premium segment.
 
* Susceptibility of profitability to fluctuations in raw material prices:
The 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. CRISIL believes that Britannia's focus on cost efficiencies and continued price leadership will help mitigate the impact of volatility in raw material prices on its operating margins. However Britannia's ability to pass on the increased cost of raw materials to consumers, while maintaining market share, continues to be a key rating sensitivity factor.
Liquidity Superior

Britannia has superior liquidity, supported by cash surplus of over Rs.2,600 crore as on August 2020, which are expected to be maintained at these levels, and minimally utilized bank limits. The company has exposure of about Rs 820 crore towards group companies as on August, 2020 which is not expected to materially increase in the near term. Bonus debentures amounting to Rs 721 crore is redeemable in fiscal 2023, which is expected to be met from cash surpluses and internal cash accruals. CRISIL believes that Britannia will always maintain superior liquidity for business requirements covering working capital and capex.

Outlook: Stable

CRISIL believes Britannia will maintain its strong market position in the biscuit industry over the medium term backed by strong brands and an established distribution network.

Rating Sensitivity factors
Downward factors
* Substantial decline in operating margin, any large debt-funded capex or acquisitions, material increase in dividend pay-out or material increase in exposures to group companies, impacting the liquidity and financial risk profile.
* Sustained gearing of over 1 time
About the Company

Established in 1892, Britannia is one of the largest players in the biscuit industry in India. Over the years, the company has expanded its product offering significantly through adding newer products such as dairy items, cake, and rusk. It has expanded overseas through 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 50.61% stake in Britannia as on June 30, 2020.
 
For the three month period ended June 30, 2020, consolidated profit after tax (PAT) was Rs 543 crore (Rs 249 crore for the corresponding period of previous fiscal) on consolidated revenue from operations of Rs 3,421 crore (Rs 2,700 crore for the corresponding period of the previous fiscal).

Key Financial Indicators - (Consolidated)
  Unit 2020 2019
Revenue from operations Rs cr. 11,606 11,058
Profit After Tax Rs cr. 1,393 1,155
PAT margins % 12.0 10.4
Adjusted Debt/Adjusted Net worth Times 0.36 0.04
Interest coverage (OPBDIT / Interest cost) Times 24.07 191.22
CRISIL adjusted

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments and are included (where applicable) in the Annexure -- Details of Instrument in this Rating Rationale. For more details on the CRISIL complexity levels, please visit www.crisil.com/complexity-levels.
Annexure - Details of Instrument(s)
ISIN Name of Instrument Date of Allotment Coupon rate (%) Maturity Date Issue size (Rs crore) Complexity Level Rating Assigned
with Outlook
NA Bank Guarantee NA NA NA 32 NA CRISIL A1+
NA Letter of Credit@ NA NA NA 99 NA CRISIL A1+
NA Buyers Finance NA NA NA 2.1 NA CRISIL A1+
NA Cash Credit ** NA NA NA 50 NA CRISIL AAA/Stable
NA Overdraft NA NA NA 55 NA CRISIL A1+
NA Working Capital
Demand Loan ^		 NA NA NA 100 NA CRISIL AAA/Stable
NA Proposed Short Term
Bank Loan Facility		 NA NA NA 161.9 NA CRISIL A1+
NA Proposed Long Term
Bank Loan Facility		 NA NA NA 500 NA CRISIL AAA/Stable
NA Commercial
paper		 NA NA 7-365 days 1279 Simple CRISIL A1+
NA Non-convertible
debenture		 Aug-19 8% Aug-22 720 Simple CRISIL AAA/Stable
NA Non-convertible
debenture#		 NA NA NA 500 Simple CRISIL AAA/Stable
@Interchangeable with bank guarantees
**Interchangeable with working capital demand loan and overdraft
^Interchangeable with overdraft or cash credit
# Not yet issued
 
Annexure - List of entities consolidated
Name of entities Extent of consolidation Rational for consolidation
Britannia Dairy Private Limited Full Strong managerial, operational, and financial linkages
Daily Bread Gourmet Foods (India) Private Limited Full Strong managerial, operational, and financial linkages
Boribunder Finance and Investments Private Limited Full Strong managerial, operational, and financial linkages
Flora Investments Company Private Limited Full Strong managerial, operational, and financial linkages
Gilt Edge Finance and Investments Private Limited Full Strong managerial, operational, and financial linkages
International Bakery Products Limited Full Strong managerial, operational, and financial linkages
J. B. Mangharam Foods Private Limited Full Strong managerial, operational, and financial linkages
Manna Foods Private Limited Full Strong managerial, operational, and financial linkages
Snacko Bisc Private Limited Full Strong managerial, operational, and financial linkages
Vasana Agrex and Herbs Private Limited Full Strong managerial, operational, and financial linkages
Sunrise Biscuit Company Private Limited 99.16% Strong managerial, operational, and financial linkages
Britchip Foods Limited 60.00% Strong managerial, operational, and financial linkages
Ganges Vally Foods Private Limited 98.97% Strong managerial, operational, and financial linkages
Britannia Employees Educational Welfare Association Private Limited Full Strong managerial, operational, and financial linkages
Britannia Employees General Welfare Association Private Limited Full Strong managerial, operational, and financial linkages
Britannia Employees Medical Welfare Association Private Limited Full Strong managerial, operational, and financial linkages
Strategic Food International Co. LLC Full Strong managerial, operational, and financial linkages
Britannia and Associates (Dubai) Private Company Limited Full Strong managerial, operational, and financial linkages
Strategic Brands Holding Company Limited Full Strong managerial, operational, and financial linkages
Britannia and Associates (Mauritius) Private Limited Full Strong managerial, operational, and financial linkages
Britannia Dairy Holdings Private Limited, Mauritius Full Strong managerial, operational, and financial linkages
Britannia Nepal Private Limited Full Strong managerial, operational, and financial linkages
Britannia Bangladesh Private Limited Full Strong managerial, operational, and financial linkages
AL Sallan Food International Co. SAOC 65.46% Strong managerial, operational, and financial linkages
Nalanda Biscuit Company Limited 35% Strong managerial, operational, and financial linkages
Sunandaram Foods Private Limited 26% Strong managerial, operational, and financial linkages
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Commercial Paper  ST  1279.00  CRISIL A1+  31-03-20  CRISIL A1+  12-09-19  CRISIL A1+  07-06-18  CRISIL A1+    --  -- 
            26-02-19  CRISIL A1+  18-04-18  CRISIL A1+       
Non Convertible Debentures  LT  720.00
28-08-20  		CRISIL AAA/Stable  31-03-20  CRISIL AAA/Stable  12-09-19  CRISIL AAA/Stable    --    --  -- 
            26-02-19  CRISIL AAA/Stable           
Short Term Debt  ST                  01-09-17  CRISIL A1+  CRISIL A1+ 
                    16-08-17  CRISIL A1+   
                    14-07-17  CRISIL A1+   
Fund-based Bank Facilities  LT/ST  869.00  CRISIL AAA/Stable/ CRISIL A1+  31-03-20  CRISIL AAA/Stable/ CRISIL A1+  12-09-19  CRISIL AAA/Stable/ CRISIL A1+  07-06-18  CRISIL AAA/Stable/ CRISIL A1+  01-09-17  CRISIL AAA/Stable/ CRISIL A1+  CRISIL AAA/Stable/ CRISIL A1+ 
            26-02-19  CRISIL AAA/Stable/ CRISIL A1+  18-04-18  CRISIL AAA/Stable/ CRISIL A1+  16-08-17  CRISIL AAA/Stable/ CRISIL A1+   
                    14-07-17  CRISIL AAA/Stable/ CRISIL A1+   
Non Fund-based Bank Facilities  LT/ST  131.00  CRISIL A1+  31-03-20  CRISIL A1+  12-09-19  CRISIL A1+  07-06-18  CRISIL A1+  01-09-17  CRISIL A1+  CRISIL A1+ 
            26-02-19  CRISIL A1+  18-04-18  CRISIL A1+  16-08-17  CRISIL A1+   
                    14-07-17  CRISIL A1+   
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Bank Guarantee 32 CRISIL A1+ Bank Guarantee 32 CRISIL A1+
Buyers Finance 2.1 CRISIL A1+ Buyers Finance 2.1 CRISIL A1+
Cash Credit** 50 CRISIL AAA/Stable Cash Credit** 50 CRISIL AAA/Stable
Letter of Credit@ 99 CRISIL A1+ Letter of Credit@ 99 CRISIL A1+
Overdraft 55 CRISIL A1+ Overdraft 55 CRISIL A1+
Proposed Long Term Bank Loan Facility 500 CRISIL AAA/Stable Proposed Long Term Bank Loan Facility 500 CRISIL AAA/Stable
Proposed Short Term Bank Loan Facility 161.9 CRISIL A1+ Proposed Short Term Bank Loan Facility 161.9 CRISIL A1+
Working Capital Demand Loan^ 100 CRISIL AAA/Stable Working Capital Demand Loan^ 100 CRISIL AAA/Stable
Total 1000 -- Total 1000 --
@Interchangeable with bank guarantees
**Interchangeable with working capital demand loan and overdraft
^Interchangeable with overdraft or cash credit
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
Rating Criteria for Fast Moving Consumer Goods Industry
CRISILs Criteria for Consolidation
CRISILs Criteria for rating short term debt

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