It was made clear that Britannia is the Kohinoor in the Wadia crown. There is no doubt in that. There is also no doubt that the valuation is cheap when something like Zomato came with an IPO at more than 50 times sales.
It was clear that Britannia had excess cash which was being deployed in ICDs on which they were earning fair interest. They had also invested in other unrelated entities like Bajaj Finance and it seemed that they were looking for other avenues for parking surplus cash. However the ICD in airline business and the shoddy way the other group businesses were being run had me worried and I was not an investor at that point.
On studying Britannia more closely I found that it was having both high sales turnover and improving profit margin which should settle in the 20s like other FMCGs. And this business resembled Sees candy which can grow even with capital mis allocation or less additional capital, even though it’s competitive advantage is not bullet proof. The promoter is shrewd and professional management is good. Hence invested recently with 10% weight and I have only 10 companies in my portfolio.
Losses in the aviation business and Bombay Dyeing has only proven the failure of family management. Just like Britannia, the management should be handed over to Professionals. And as advised by Ben Graham in the intelligent investor, the owner should only set the compensation of the Chief executive and decide on deployment of profits.
Measures like these will increase the confidence of the market and result in substantial increase in the share price of Britannia, the jewel in the Wadia crown.
I did some groundwork to check the competitive advantage of Britannia biscuits. Found out that it’s poor. The above screenshot as you can see is sold at 60% off because is due for expiry in December. Supermarket manager said Britannia sales not like before. Hard to push of shelves. Local manufactured cheap biscuits from Tiffany(allana group) & mcvitis premium biscuits are moving.
Supermarket is well known in highly populated area.
Disclosure: invested. Offloaded 50% stake in the recent run up post covid
Thats good observation, few points to consider, if you have more details would be helpful -
When did Britannia begin its Dubai operations?
When was first time you saw Britannia biscuit in this store?
Do you see Britannia biscuits or any other category in any other retail store in Dubai? What kind of distribution are they following…targeting mom n pop stores or bigger retail chains etc.
Is such offers/big discounts available in all stores wherever Britannia exists?
Has this discount been always there in this store or only at time of Clearance of stocks?
Above are just pointers to begin with, let alone to take any buy/sell decision. FMCG is a very long term game. Britannia is more than 100 year old brand in India and hence its significant monopoly…it cannot be the same everywhere globally…An investment in Britannia is primarily for its Indian presence and not Dubai or any other international market where it may have ventured. It can anytime wind up those loss making or not so profit making units…
Also, such challenges in Old/new markets is common for many brands…it is how in due course the company tackles it that must be monitored…
Lastly, India is a market where there maybe a general perception (which is soon changing with Gen X) that discounted products are sub standard…whereas in some international markets like US for example, discounts/clearance can be found in even the most luxurious (obviously baring few) brands. If you are lucky, you can get a brand new 100$ shoe in just 1$ on a clearance sale. Such sales there, do not reduce the brand value at all, instead they delight a consumer and make him just feel lucky!
Disc: Invested & Biased. Not a buy/sell decision. Views for academic purposes and I can be wrong in my assessments
Saurabh Mukherjea of Marcellus has commented on such high quality , dominant consumer franchises (I think he spoke in context of Nestle but can be equally applicable for Britannia) that they use inflation to increase price but slightly less than its competitors who have a higher cost structure.
Consistently done it creates an enduring moat for these companies where they get more marketshare from competitors on top of the sectoral growth.
@ 58:30 in concall an analyst asks the same thing to VB and he replies the same in affermative. However he talks of Larger Players vs Smaller player.
In the context of two large efficient and dominant franchises this edge will be available to both.
However an Industry structure of FMCG naturally allows for multiple large players to coexist unlike some sectors which are winner takes all.
This may not be always true specially when your competition is with the likes of ITC, which can survive for years without passing the cost increase. They are already competing aggressively and some segments in biscuits like choco fills are doing extremely good
Leading food company Britannia Industries has revamped its largest selling biscuit brand Good Day and as part of that, revealed its new identity.
Besides, Britannia is also expanding the product portfolio of its most-penetrated brand Good Day by adding three more variants in the premium segment, said its Managing Director Varun Berry.
Britannia will launch Good Day Harmony and two other variants in the premium segment, which is growing fast after the pandemic.
‘‘Within 15 days, we will launch a variety Good Day Harmony, which will be much larger cookies with four types of nuts. Then, we are looking at two more varieties coming through in the next three months,’’ Berry told PTI.
