Rationale

 The continuation of the Negative outlook on the long-term rating of Britannia Industries Limited (BIL or the company) reflects the sustained pressure on BIL’s cash flows and liquidity position on account of sizeable dividend payouts in the last few years. The company had net cash1 of ~Rs. 190 crore as on December 31, 2023. With cash outflow of ~Rs. 1,734 crore towards dividends during April 2023, the company had cash balances and liquid investments of ~Rs. 531 crore and long-term investments of ~Rs. 1,412 crore in non-Group companies as on December 31, 2023. As on March 31, 2024, total liquid investment in non-group companies was at Rs. 2,374 crore. The liquidity levels have considerably depleted over cash balances and liquid investments of ~Rs. 2,000 crore and long-term investments of ~Rs. 1,028 crore on March 31, 2023. Nevertheless, BIL’s liquidity profile remains adequate, supported by its healthy cash accruals and large undrawn working capital lines. The rating continues to factor in BIL’s established market position in the Indian biscuits industry with presence across various product categories and strong brands, which has helped improve its market share steadily over the last few years. The rating also considers BIL’s strong last-mile distribution network of ~2.73 million retail outlets across India as on December 31, 2023, and its focus on diversification and innovation, reflected in its foray into multiple new categories. ICRA also notes its premiumisation efforts, which along with the above factors are expected to support its long-term business prospects. During 9M FY2024, BIL witnessed ~4% YoY revenue growth aided by growth in distribution network and continued marketing and promotional activities; however, growth was subdued due to weak demand from a weak monsoon during CY2023, a higher revenue base in FY2023 and heightened competitive intensity from local players. BIL’s operating profit margin (OPM) improved to 18.7% in 9M FY2024 from 17.4% in FY2023, supported by softening in raw material prices and continued benefit of cost efficiency measures. Going forward, the company is expected to witness healthy revenue growth and range-bound margins aided by improvement in volumes and stability in raw material prices, coupled with cost efficiencies. The volume growth is likely to be supported by price corrections and grammage increases. The company’s debt metrics remain healthy with Total Debt/OPBDITA of 0.7x, Net Debt/OPBDITA of -0.1x as on September 30, 2023, and interest cover of 14.7x in H1 FY2024. ICRA expects the company’s debt metrics to remain healthy, going forward, supported by its healthy accruals and continued low working capital intensity. The rating also considers the intense competition in the domestic fast-moving consumer goods (FMCG) industry characterised by several large and established players across product segments. Further, given the price-sensitive nature of customers, BIL’s margins are exposed to fluctuations in raw material prices. While the raw material inflation remained high during FY2023, commodity prices witnessed softening in 9M FY2024 with wheat and sugar remaining largely stable and refined palm oil, corrugated and laminated boxes, and milk witnessing deflation. This resulted in higher competitive pressure from local players who stepped up marketing efforts and offered lower prices supported by softening in commodity prices.