Britannia investors have high hopes from new chief
A factor that may favour the new chief is the prospect of a more benign commodity inflation scenario
Investors reacted cautiously to news of Varun Berry’s ascent to the top job at Britannia Industries Ltd, which was reported by The Economic Times newspaper. The company’s shares fell by 1% on Tuesday. In an earlier reshuffle, announced in end-May, Britannia Industries had said that Berry will take charge of the Indian business while the current managing director Vinita Bali will oversee international operations. This development may have given investors broad hints about the impending change.
The current chief executive had taken charge of the company’s operations in January 2005. Since then, Britannia Industries’ shares have gained 406%, which is impressive by itself, and especially when one considers that the Sensex has gained only 224% in this period. But it has underperformed the S&P BSE FMCG index, which gained 523% in this period.
Since end-May, however, when the earlier reshuffle became public, the Britannia Industries stock gained by 26% against a 4% decline in the S&P BSE FMCG index. Note that end-May had also seen a good set of results from the company, which could also be the reason behind this outperformance. Berry’s expanded role, too, had been viewed with favour by investors, as he is credited with the recent improvements in the firm’s performance.
What expectations would investors have from the new Britannia chief? According to a Mint news report, Berry’s top priorities have been to increase Britannia Industries’ market share, and fix inefficiencies in its sales and distribution network. These are typically what a new chief does: identify problem areas and fix them. These can be implemented quickly, with minimal investment, and show results in relatively less time.
But once the major benefits from these initiatives are realized, then incremental gains tend to diminish. Investors then turn their attention to the next big thing that can boost growth in sales (even as profitability is maintained or improved).
That task is likely to fall upon Britannia’s flagship biscuits business. It could either be changes made to its existing products or even a new sub-category that takes the market by storm. This will not be an easy task, as the biscuits market itself is seeing a slowdown in growth. Competition is stiff in both mass and premium products. A factor that may favour the new chief is the prospect of a more benign commodity inflation scenario than seen in his predecessor’s time.
Britannia Industries could also step up growth in some of its relatively smaller categories such as bakery and dairy products. But these too are very competitive categories and may require significant investments for it to make headway, which in turn could dent its financials in the near term.
Investors will wait to see the direction in which the new chief steers the company, and then assess if the spark seen in Britannia’s performance in recent quarters could continue or not in the forthcoming quarters and years. The share price gain since end-May shows that expectations are running high.
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