GST effect: Britannia ‘up-stocks’ to cut disruptions in trade channels

Biscuits major Britannia Industries had taken a concerted effort to reduce disruptions because of GST roll-out.

Anticipating such disruptions, the company had “up-stocked” its trade channels so that destocking at later dates takes a lesser toll, the company MD, Varun Berry told BusinessLine in an interview.

Interestingly, the move comes at a time when the FMCG major has been severely hit with destocking and disruptions in trade channels.

“The trick really is in balancing. Sometimes when there is a hit in one line in the profit and loss account, you balance it out in another line…..We anticipated that there will be disruptions and so we prepared accordingly,” Berry said.

In fact, the biscuit major has beaten market estimates and reported a near flat net profit year-on-year.

The net profit remained at about ₹209 crore for Q1 FY18 (April to June) – a less than one per cent decline over Q1FY17.

According to Berry, the company made sure that “there was no destocking” and that they “stuffed the channels” before the actual roll out happened.

Upstocking was done by 20 per cent. This means that a trade channel which typically stocked seven-eight days of offerings, were keeping 10-days’ stock during this time.

“The last 10-15 days, before the actual roll-out of the GST, were really bad. But before that we stuffed up,” he said.

The MD also maintained that the company extended hand-holding facilities to trade partners and also extended lines of credit by at least 50 per cent.

The other big benefit, Berry said, was Britannia’s reliance on direct distribution over the wholesale channels. Of the 47-lakh outlets it caters, over a third (about 34 per cent) is catered to directly.

“Our dependence on wholesale is limited,” he said.

Market sources, meanwhile, indicate that trade channel disruptions for FMCG firms are expected to linger on to Q2 (July-Sept). They claim, June and July to be the two worst-hit months.

Berry, while, not giving a future outlook on Q2 earnings pointed out that normalcy was expected to return “by Q3 (Oct-Dec) beginning”.

“Total impact (of GST) should be wiped out by Q3 beginning when things should start to be normal,” he said.

While Britannia had brought down prices of select items to pass on the GST benefit, the probability of an upward price revision has not been ruled out by Berry.

“Immediately, we may not hike prices. But there can be a 2-3 per cent upward revision, across categories, in H2 (Oct-March) of the fiscal,” he said. The hike will primarily be to factor in any cost-push.