Sugar prices may hurt Britannia's margins

Britannia Industries Ltd. | Consumer Food | FMCG | BSE: 500825 | NSE: BRITANNIA

01 Sep 2009 Evaluate

Britannia Industries

(BIL) expects the ongoing drought to hurt margins in its foods business. Now, the company has for the first time decided to import raw sugar, a key ingredient in biscuits, in a bid to offset the impact of rising sugar prices. The spike in prices of skimmed milk powder has also squeezed its margins. The sugar user companies are now allowed to keep sugar inventory of just 15 days. However, they are allowed to import raw sugar.

The company expects the drought to affect its foods business, hence it is looking at the possibility of importing raw sugar and using it in combination with domestic sugar. There is a shortage and a scramble for sugar in the domestic market, which is why, it needs to secure our supplies from domestic as well as overseas markets, according to its managing director Vinita Bali, while addressing the AGM.

Sugar output has come down from 26.3 million to 14.7 million tonnes this year. Output in major sugar producing centres such as Brazil and India have been affected and prices have jumped from Rs 17 per kg about a year ago to Rs 32 at present. Similarly, prices of skimmed milk powder has also shot up from Rs 95 to Rs 130 as yields have come down due to drought. This too has affected its margins.

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