Britannia Industries, a leading player in the FMCG sector, has expressed apprehensions about evident indications of a slowdown in the rural economy. During its earnings conference call, the company revealed that its product portfolio is currently more focused on urban markets, with urban sales being approximately 1.3 times higher than rural sales.
This past Wednesday, the company reported a 19% year-on-year (YoY) increase in its consolidated net profit for the quarter ending in September, reaching INR 588 crore, exceeding the projections of analysts.
“We delivered a good performance in a challenging environment on the back of 2 years of high inflation. Our potential in rural areas continues to remain high and, hence, expansion in rural distribution continued despite reported rural slowdown,” said Varun Berry, Vice Chairman & Managing Director of Britannia Industries.
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Britannia has implemented price reductions for certain pivotal brands and stock-keeping units (SKUs), resulting in a noticeable market share rebound. Despite the reported rural economic slowdown, Britannia has maintained its expansion in rural distribution. However, the persisting conflicts in the Middle East and Russia have contributed to ongoing volatility in global commodity prices.
“As a market leader, the onus is on us to increase prices,” said the company. Britannia will correct the pricing once commodity prices soften.
“We are being watchful of the situation and its impact on our business. Our strategy will remain focused on driving market share while sustaining profitability,” Berry said.
Britannia, which also sells cakes and breads, posted a 1.2% increase in its revenue from operations, reaching INR 4,433 crore ($532.6 million). Nevertheless, this figure fell short of analysts’ estimates of INR 4,543 crore, as per LSEG data. Notably, the FMCG major’s operating margin also witnessed a significant rise of 343 basis points, reaching 19.68%.
“As the commodity started to soften this quarter, we have seen pricing activity by competition in certain categories,” said Managing Director Varun Berry, adding that Britannia cut prices in some of its key brands to increase its market share.
Analysts have noted that the recovery in rural demand for packaged foods during the quarter fell short of expectations, primarily due to elevated food prices. However, they anticipate an upswing in demand in the current quarter, driven by a delayed festive season.
