HLL and ITC’s entry into
biscuits will affect Parle and Britannia
After testing the waters with niche offerings in untapped
segments of the biscuit market, heavyweights Hindustan Lever and ITC have now forayed into
the mass biscuit market. While ITC has launched its glucose brand, Sunfeast, HLL has
decided to differentiate its product, Modern ‘Energy’ Biscuits, by using wheat
and soya as ingredients. Importantly, both ITC’s and HLL’s new offerings are
priced at Rs 4 for a 100 gram pack, the same level as Parle G and Britannia’s
‘Tiger’ glucose biscuits.
Given HLL’s and ITC’s massive distribution reach,
this new development would clearly have a significant impact on the market shares of both
Parle and Britannia. In case the taste of the new products do not go down very well with
consumers, the already established players may get some breathing space, but it will be
only a matter of time before that gets corrected and the pressure will soon be back on.
Structurally, the entry of players such as HLL and ITC in the mass biscuit market is bound
to affect the dominance of Britannia in the biscuits market. What’s more, competition
from regional players such as Surya Foods, known for its ‘Priya Gold’ range of
biscuits, has also increased. It certainly doesn’t help that the company has just had
a change in leadership.
Further, since the company has hived-off its dairy
division, overall growth rates would clearly be lower than what investors have been used
to for a while. As far as profitability goes, much depends on the company’s ability
to further reduce costs, unless there is a further reduction in excise rates. Given the
increase in competition, taking price hikes may still be some time away. In such a
scenario, Britannia’s long-term growth rate would turn out to be much lower than
earlier estimates. It’s no wonder then that the stock has underperformed the market
and peers in the FMCG sector by a huge margin during the current rally. The stock still
gets a discounting of around 14 times FY04 earnings, which, considering that growth rates
will drop, gives the feeling that the stock’s underperformance will continue.