Britannia CEO, Sunil Kumar Alagh, speaks to BT on the road ahead for Britannia.

There have been some apprehensions about Britannia's growth now that it has hived off its dairy business into a joint venture...

Let me put this in perspective. It is not as if we have given up the business. All we have done is to transfer it to a joint venture with Fonterra of New Zealand. Britannia continues to hold a 49 per cent stake in the business. Both partners bring value to the table-Fonterra in the form of technology, and Britannia in the form of its brand and its understanding of the market.

But that means the onus of Britannia's growth is back to the bakery business.

We are on our way to reach our stated goal of making every third Indian a Britannia customer. Our products are available in a million outlets and we address the entire spectrum of the bakery market. And when the country's leading consumer products companies, like HLL, have shown paltry or negative growth, Britannia has grown by 9 per cent.

Doesn't the unorganised sector make life difficult in the biscuits business?

Shifting consumers from the unorganised sector by offering greater value is our biggest challenge. Our aim is to grow above market rates. And I am not worried about competition; it is healthy.

What about new launches? We keep hearing about a Britannia foray into water?

We'll launch a variant every quarter, but we won't launch new brands unless we feel the market justifies this. Building brands is a costly affair. As far as mineral water is concerned, we aren't contemplating an entry now.

THE RELUCTANT MULTINATIONAL
Despite its presence in categories similar to Britannia's, Danone is loath to launch its products through the company.

A WHITE MYSTERY

The announcement, on March 26, 2002, that Britannia would transfer its fast-growth dairy business to a joint venture with New Zealand's Fonterra (the new company is called Britannia New Zealand Foods Private Ltd), took most analysts by surprise. Says Satish Turlapati, analyst with Motilal Oswal: "Given the fact that diary business was growing at such a fast pace, the move to divest was surprising." One reason was the business' importance to Britannia. The company, however, believes the deal is a win-win one. "The venture will have access to Fonterra's r&d strengths," a Britannia release says. "The combined strengths of Britannia and Fonterra will constitute a formidable force in meeting consumer needs."

And Britannia CEO Alagh emphasises that the transfer of the dairy business to a JV will ensure that it gets "the requisite attention". Analysts like Turlapati and Milind Karmarkar, Head of Research, Dalal & Broacha, believe that the deal reflects Britannia's pique at Danone's reluctance to launch its dairy range in India through the company (See The Reluctant Multinational). Alagh denies this. "There is no pique. Danone continues to support Britannia in India." Still, the deal isn't a bad one. Fonterra, a NZ $4 billion (Rs 19,580 crore) co-operative, will help Britannia launch more products, improve quality and cut costs.

The dairy business may have been Britannia's star, but Britannia New Zealand Foods Private Ltd won't find the going easy. Amul, Mother Dairy, and Nestle constitute a formidable opposition. Its CEO Pawan Malik, though, is unfazed. "Five years back, when we entered the dairy segment Amul had a 85 per cent share of the cheese market; today it has 45, and we have 38.'' He expects the company to become the country's pre-eminent dairy player. "With Fonterra's technology and both the Britannia and Milkman brands, we believe we can make a significant impact on the market".

The competition is watching warily but doesn't believe there is cause for alarm, yet. Amul has a large portfolio and a pan-Indian strategy. And Nestle has managed to put an efficient supply chain-the backbone of a successful dairy business-in place. Nestle is backing its Milkmaid by cross-promoting the product with its other dairy offerings. In whiteners, Amulya from Amul will be formidable. Alagh is unfazed: "With the help of Fonterra and with an established brand like Milkman, we are confident of achieving success in this segment as well." We'll wait this one out.

Amul: It has forged alliances with co-operatives across the country to launch its dairy range. Its portfolio ranges from standardised milk and cheese to yoghurt and ice cream. It will be Britannia New Zealand Foods' main rival.

Nestle: Nestle and Danone compete in certain categories globally. In India, the company has unveiled an ambitious dairy strategy and seems to have got its supply chain--the most critical part of the business--right.

Mother Dairy: Largely restricted to Delhi, its strategy is akin to Amul's although its product portfolio is much smaller. Still, its presence makes the market that much tougher for Britannia.

NOTHING WRONG WITH THESE NUMBERS
Britannia's financials look impressive. The question is, can they stay that way?

Any fast moving consumer goods (FMCG) company that managed to increase its topline by 9 per cent in 2001-02 can hold its head high. Britannia did, to Rs 1,451 crore, but that could well been because of a business that it has since spun off as a joint venture, dairy. The creation of the joint venture will actually improve the look of Britannia's balance sheet: the dairy business wasn't making profits, and its sale has resulted in a one-time gain of Rs 120.5 crore. But its sale raises questions about the company's ability to keep the topline ticking. "The company had already established its brand (in the dairy business)," says Satish Turlapati of Motilal Oswal Securities. "But the revenues from the dairy business won't be reflected in Britannia's numbers in the future (because it now has a 49 per cent stake in the joint venture)."

At least in the short term, Britannia can improve its profitability by focusing on its operations, much like HLL has done. "Compared to its peers like HLL and Nestle, Britannia can improve its margins significantly," says Milind Karmakar, the Head of Research at Dalal and Broacha. "There is further room for improving capital efficiencies".

Eventually, though, it will have to focus on growing the topline, and that won't be easy.

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