Battle-scarred Britannia on expansion spree

Even as the two equal partners in biscuit maker Britannia, the Wadia family of Bombay Dyeing and French dairy foods company Groupe Danone, battle each other in a Singapore court, the company has decided to embark on an expansion to fortify its leadership in the domestic market.

Britannia, which holds over 38 per cent of the market in value terms, is investing Rs 130 crore (Rs 1.3 billion) to increase its capacity, 433,000 tonnes of biscuit last year, by 20,000 tonnes.

"We will be able to complete the investment programme in the next six months," said Durgesh Mehta, Britannia's chief financial officer.

The move is designed to wrest market leadership in volume terms as well, a position now held by rival Parle. It gains significance also because of the recent inroads made by Kolkata-based ITC, which has been leveraging its retail muscle to push its Sunfeast brands of biscuits.

The Wadias and Danone hold 50 per cent equity each in Associated Biscuits International, which holds a controlling stake in Britannia. The partners have been bickering for about a year over the Tiger brand and other intellectual property.

The company has been growing at 27 per cent a year, compared to the industry growth rate of 20 per cent, according to a study by the research outfit AC Nielsen.  The domestic biscuit market is estimated to be worth Rs 5,000 crore (Rs 50 billion).

At present, 90 per cent of Britannia's annual revenue of Rs 2,200 crore (Rs 22 billion) comes from biscuits. It has earmarked Rs 4,000 crore (Rs 40 billion) for developing new products in the year to March 2008.

The investments will be funded through internal cash reserves of Rs 16,000 crore (Rs 160 billion). With the current capacity expansion falling in place, the company expects to generate profit from the increase in production almost immediately.

Mehta said the new capacities would be added on the basis of a region's tax structure and the company's strength there. Britannia has factories in Uttaranchal, Kolkata and Chennai.

The factory in Uttaranchal enjoys tax exemptions that will end in 2010.

The capacities in each factory will be expanded keeping in view the long-term trends in input prices and the ultimate delivered cost. Over the last year, input prices have surged 15 to 20 per cent, say said industry experts.

The margins of the company have received a blow from the rising costs. Along with cutting costs by efficient use of commodities, the company is looking to introduce more value-added  products.

Richa Arora, Britannia's general manager, marketing and innovation, said, "The company caters to a wide cross-section of consumers and has products that satisfy different needs of the consumers."

While we have Tiger catering to mass market we also have indulgent products like Treat that operates in the premium end of the market. With Pure Magic we have raised the bar significantly and positioned the product right at the top-end of the market."