Rating Rationale

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 about 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. Over fiscals 2014 to 2019, the direct reach has doubled to 21 lakh outlets. It also has plans to enter new food categories and launched products such as Whole wheat vita marie gold, Good-day Cashew almond, renovation of 50-50 & tiger creams, Swiss Rolls and Layer cakes, Cream wafers and flavoured milk shakes. The new products are targeted to contribute 4.5'5% of overall revenue (includes products launched over the last 24 months). The company intends to become a global foods company and has set up strategic business units for adjacent bakery, dairy and international business. Britannia has also set up greenfield unit in Nepal which is operational now. Further, company has commissioned additional line for cakes and biscuits at Ranjangaon.

* Healthy financial risk profile:
Britannia's financial risk profile is marked by a healthy capital structure, strong debt protection metrics, and high financial flexibility. Steady cash flow and accretion to net worth resulted in improvement in Britannia's capital structure (gearing of 0.04 times as on March 31, 2019 and expected at under 0.33 times at March 31, 2020, post issue of bonus debentures and NCDs) and other credit metrics. Capex is estimated at Rs.300-500 crores annually, which will be funded through prudent mix of debt and internal cash accruals.

Weaknesses
* Exposure to intense competition in the FMCG industry: Intense competition has reduced the ability of players to pass on any 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 wheat, sugar and 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 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 surpluses of over Rs.2,600 crore which are expected to be maintained at these levels, and minimally utilized bank limits. Further cash generation is healthy at ~ Rs.900-1,100 crore annually. Cash equivalents are largely invested in bonds, government bills and inter-corporate deposits. The company has an exposure to group companies of Rs 500 crore as on March 31, 2019 and is likely to limit exposure to Rs 500 crore. Repayments on bonus debentures and NCDs, which will come up after three years, are expected to be met from cash surpluses and internal cash accruals.