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Britannia Plans Two More Rounds Of Price Hikes This Fiscal

Britannia Industries plans to raise prices twice till March to beat “unprecedented” inflation.

Britannia biscuits on display in a shop. (Photo: BloombergQuint)
Britannia biscuits on display in a shop. (Photo: BloombergQuint)

Britannia Industries Ltd. will raise prices to beat “unprecedented” inflation in the ongoing and the following quarter.

The maker of Good Day biscuits has taken a 4% hike in the second quarter, the company said in a post-earnings conference call. It will further increase prices by 7.5% and 10% in the third and the fourth quarters, respectively. Two-thirds of the hike will be through grammage reduction, while one-third will be a direct increase in retail price.

“We are seeing demand coming back but commodity inflation was sharp during the year," said Varun Berry, managing director at Britannia Industries. "We have actioned price hikes in a calibrated and gradual way to offset the cost pressure."

The absolute increase in cost for Britannia in the ongoing fiscal FY22 is expected to higher than the cumulative rise in the last six years, according to the company's investor presentation. Britannia has been seeing higher inflation in market prices of palm oil at 54%, milk at 15%, industrial fuel at 35%, and packaging materials at 30%, leading to an overall inflation of 14% in the quarter ended September.

That caused its consolidated gross margin to contract to the lowest in more than eight years at 37.5%. The worst of margin pressures may be over, Berry said, provided the current consumption trend sustains.

Britannia, according to analysts, failed to deliver on the margin front despite price hikes as it isn’t easy for the biscuit maker to pass on inflation.

The reduction in grammage requires a transition of stock-keeping units and that doesn't happen immediately. “Also, it is not easy to take actual price hike of products where Britannia operates in, especially the Rs 5 packs, because of higher competitive intensity,” Abneesh Roy, executive director, institutional equities, at Edelweiss Securities, said. “In the last two years, we have seen Parle’s market share gap with Britannia has shrunk. There are regional players, too, who account for 35% of the biscuit industry.”

Volume growth may remain tepid over the next two quarters, owing to pricing measures. But Roy said Britannia with its pricing power will continue to gain market share in biscuits and expand in cakes, wafers and salty snacks, as regional players strive to navigate the current inflationary challenges in terms of working capital.

Britannia's peers, too, are bearing the brunt of a steep rise in commodity costs.

Emami Ltd. reported a 150-basis-point decline in gross margin over a year earlier despite a 3.5% price hike. Colgate-Palmolive India Ltd.’s margins fell 221 basis points. Marico Ltd., too, a contraction in gross margin.

Price hikes, however, expanded Hindustan Unilever Ltd.’s margin over the preceding three months in July-September. But the maker of Dove soaps warned that an "unprecedented inflation" of its key raw material—palm oil—could weigh on margins in the near-to-medium term.

Margins for Nestle India Ltd. and ITC Ltd. remained stable during the quarter.