Britannia's ICDs set to ruffle investors

Bengaluru FMCG major Britannia Industries' sharp rise in receivables in last financial year, which are predominantly in the form of inter-corporate deposits (ICDs), may ruffle investors.

In a research note, Edelweiss said that rise in absolute amount of inter-corporate deposits is worrying investors though in percentage terms; these deposits to total treasury remained static.

"Britannia's receivables balance from related parties (predominantly inter-corporate deposits) jumped sharply in FY21 (up 31.8 per cent). Although the exposure to Go Airlines has nosedived to negligible levels and has reduced towards Bombay Dyeing, the exposure to Bombay Burmah is visibly higher," Edelweiss said in the note.

Britannia's inter-corporate deposits (ICDs) exposure is about Rs 800 crore, up from about Rs 700 crore in H1 of FY21 and Rs 600 crore in FY20.

"ICDs in Britannia are not a new issue; it has been on radar for many years. The key question this time around for investors is the 'mystery' around the sharp increase in overall exposure despite the reduction of exposure to Go Airlines," the report noted.

In the post-earnings conference call, company's Managing Director Varun Berry has said that group ICDs were extended to Bombay Dyeing and Bombay Burmah, which continued to be in the same range as earlier.

Despite investors' concern, the management of Britannia has always maintained that ICDs fetch a higher interest rate and that repayment (from group companies) has never been an issue.

The brokerage firm, however, remained bullish on the growth prospects of the company. Especially, the market leader in biscuit category's deep distribution network in urban and rural areas put it in a dominating position.

"Britannia is the value leader in the biscuit category. We believe the company's deepening distribution network, particularly in rural and new launches, will hold it in good stead," the report said.

"The company is also plugging gaps in its portfolio—evolving into a total foods company with the launch of wafer biscuits, croissants, and salty snacks among others," it added.

Though there are concerns over the rising input prices globally due to rising inflation, prices of key raw materials like wheat and sugar are likely to remain stable.

The report also noted that forecast of a good monsoon is expected to keep price rise of key inputs under check.

Britannia Industries posted around three per cent year-on-year rise in its consolidated net profit at Rs 360.1 crore for the quarter ended March. The company's consolidated revenueswitnessed an eight per cent on-year rise at Rs 3,038 crore during this period.

Biscuit Giant Says

• Britannia's receivables balance from related parties (predominantly inter-corporate deposits) jumped sharply in FY21
• Exposure to Bombay Burmah is visibly higher
• Britannia has always maintained that ICDs fetch a higher interest rate
• Repayment (from group companies) has never been an issue