India’s biggest biscuit maker Britannia has appetite for acquisitions

Britannia Industries, India’s biggest bread and biscuit maker by market share, has said it is looking for acquisitions as severe commodity inflation bites into consumer goods companies.

Varun Berry, Britain’s managing director, told the Financial Times that now was “probably the right time” for acquisitions, as smaller companies “could be in trouble”. He said Britannia is “in the process of setting up a team which is going to look at acquisition targets”.

However, Berry cautioned that with “valuations are sky-high” in India, Britannia would take its time to find a good value deal: “We’re not adventurous with our money.” The $ 11bn market cap baker has not made a significant acquisition since 2009.

The 128-year-old company, which makes bourbon biscuits to sliced ​​bread, is a barometer for consumption in the world’s second most populous country.

Yet fast-moving consumer goods (FMCG) companies like Britannia are feeling pressure caused by Russia’s invasion of Ukraine, which has dramatically driven up already high commodity prices and could upset Britannia’s expansion plans.

Bengaluru-based Britannia is also “looking at small expansions in Africa,” one of the areas it sells in along with the Middle East, Nepal and others. But asked how Ukraine would affect Britain’s intentions, Berry said that “if the financials do not look attractive then [we] might just delay that ”.

Those inflation woes underscore how the fallout from Russia’s invasion will be felt by people around the world.

Even though Britannia buys wheat in India, Berry said that rising international wheat prices would lead Indian producers to sell abroad where they can get higher prices: “I’m 100 per cent sure that that’s what’s going to happen now because of the situation in the Black Sea. ”

Berry added that soaring crude oil prices, breaking $ 100 per barrel, would increase the cost of edible oils Britannia uses, as the foodstuff gets diverted into fuel.

“Frankly, it’s a very, very tough situation,” Berry said. “We had just about finished our annual plan,” he said, which forecast 4 or 5 per cent commodity inflation in the coming year after 20 per cent last year. “But now, with the Ukraine situation, we have to rework the numbers because [inflation] could be a lot more. ”

People’s purchasing power has not recovered strongly in India, where unemployment is overshadowing headline growth figures which tip India as the world’s fastest growing major economy.

For FMCG companies in India, “there’s no volume growth happening,” said Berry. Where companies are reporting increased revenue, he said, it’s because they are putting up prices.

Berry said he was “sure that in the coming quarters, volume growths are going to go negative” due to price increases: “I do not think people are going to be able to absorb that, and they’ll start consuming less.” Inflation measured by India’s consumer price index was 6 per cent in January, according to official statistics.

Despite price rises, he said Britannia’s volume growth is overall “positive” in both cities and countryside, although the amount of biscuits sold has declined in rural areas, “where there’s clearly a bigger impact of pricing”. Berry said the company had reduced some products’ size rather than increase their price.

Britannia this month reported flat quarter-on-quarter operational revenues for the three months ending December 31, at Rs34bn ($ 460mn).

People usually react to price rises by choosing cheaper brands and cutting out non-essential items like face creams, said Abheek Singhi, who leads the Boston Consulting Group’s Asia consumer practice.

But while “there is going to be a slowdown in consumption by a couple of percentage points. . . the impact is actually going to be on company profitability. ”

The skyrocketing inflation is without precedent in Berry’s career, he said. Previously, “the worst year that I saw was 2008, and it was like a lamb” compared to this.

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