Stirring the Soup: Lessons for Value Investors in the Nourishing Growth of Brittania Industries – Bamboo Innovator Weekly Insight

“Bamboo Innovators bend, not break, even in the most terrifying storm that would snap the mighty resisting oak tree. It survives, therefore it conquers.”
BAMBOO LETTER UPDATE | September 21, 2015
Bamboo Innovator Insight (Issue 101)

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Dear Friends,

Stirring the Soup: Lessons for Value Investors in the Nourishing Growth of Brittania Industries

SoupWho stirs the pot is the most important ingredient in the value creation process of a wide-moat compounder.

This is the illuminating insight in the inspiring book Soup: A Recipe to Nourish Your Team and Culture by Jon Gordon. In the business fable, Nancy, the new CEO of Soup Inc, faced declining sales and low employee morale; the company had lost both flavor and heat and nobody likes lukewarm soup. When Nancy chanced upon the little-known Grandma’s Soup House, she learnt the “stirring” lesson to create a winning culture and team. No matter how carefully different chefs follow the same recipe, the final product always varies a little bit because we can’t separate who stirs the pot from what’s in the pot. As “Grandma” says to Nancy, the one who stirs the pot is the one who impacts the flavor of the soup:

“The love and energy we invest into our life and work determines the quality of it. The love we share in raising our children or developing employees or helping a customer impacts the final product. The love, or lack of love, we give ourselves and share with others will determine whether life is sweet or sour. It determines the fabric and texture of our relationships and how others perceive and receive us. When we love our kids, they feel it. When we stir the pot at work with love, our customers and colleagues notice. Just as soup is a reflection of the soup maker, our lives, careers, and businesses are the reflection of the love and energy that we put forth. Your people are not just a creation of your culture but are creating it every day. They must be encouraged, inspired, and empowered to stir the pot as well, and they must be coached so they are good at it.. If they did it together and poured their heart and soul into making great soup, they would accomplish great things.”

Reading the Soup reminded me of the nourishing growth of Brittania Industries (NSI: BRITTANIA, MV $5.46bn), India’s leading biscuit and confectionery maker who had compounded over 400% since the “soup-stirrer” Varun Berry joined in Jan 2013 as COO and took over the CEO/MD leadership baton from veteran Vinita Bali (2006-13) in Apr 2014. Prior to joining Britannia, Berry was the CEO of Pepsico Foods for South Asia.

Britannia is one of India’s oldest FMCG companies which was set up in Kolkata in 1892 with an initial investment of Rs295. The company started its own distribution network in 1975, taking over from Parry’s. Britannia listed in 1978. After being owned by Nabisco for most of the 1980s, Britannia was acquired by Rajan Pillai towards the end of 1989. In 1921, Britannia imported machinery and becomes the first company East of the Suez to use gas ovens. In 1993, the Nusli Wadia group and Danone became joint owners of the company. After a highly acrimonious ownership tussle in the interim, Danone sold its 25.5% holding for $200m to the Nusli Wadia group in 2009 who now controlled over 51% of Britannia. Britannia also subsequently bought out Fonterra, its joint venture partner in its dairy business. Britannia’s market reach spans 3.5m outlets across India, of which 1m outlets are served directly by the company. Britannia’s major five brands are “Good Day” (premium-priced), “Nutrichoice” (premium-priced), “Marie Gold” (mid-priced), “50:50” (mid-priced), “Tiger” (low-priced) and amongst its portfolio of biscuits (74% of sales, #1 with 35% market share in volume and 28% in value terms vs 30% for Parle), bread (9%, #1 with 50% market share), cake (5%), rusk and a range of dairy products (5%) that include cheese (#2 with 20% market share behind unlisted state cooperative Amul), curd, and specially formulated functional beverage with a dairy base.

Before Britannia was a “hot soup”, it has been struggling under the shadows of unlisted leader Parle, Mondelez/ Kraft, Nestle India who have equally strong, if not better, distribution reach in India and have more iconic brands. Giant ITC had also entered the biscuit market in 2006, proving to be a formidable and serious rival in targeting premium products and eating up the market share of leader Parle, garnering a 15% market share. Britannia’s products have largely been “me-too” versions of global brands.

Britannia Industries (NSI: BRITANNIA) vs Nifty Index – Stock Price Performance, 1994-2015 (top) and Jan 2013-2015 (bottom)


According to industry sources, Sunil Alagh was instrumental in strengthening “Brand Brittania”. An expert in marketing, Alagh was focused on investing in brand building and innovation, with his tenure witnessing the launch of Good Day, Tiger, 50:50, Little Hearts and the Treat portfolio. Most of these brands are the key pillars of Brittania’s biscuit portfolio today. Vinita Bali, according to industry sources, was more focused on building operational efficiencies within the company. Bali shifted the emphasis to cost control from building on its investments in branding and gaining in market share. In FY06, Britannia had an approximately 6% point lead over Parle in market share (in value terms). But, Parle had beaten the company in the volumes game with its mass-market glucose biscuit Parle-G. By 2010, the tables had turned with Parle establishing a 6-7% point lead over Britannia in market share in value terms. Under Bali’s tenure, Britannia lost its place as the value market leader in biscuits to Parle. Also, its EBITDA margins contracted from 11.4% in FY04 to 4.3% in FY10, before recovering to 6.8% in FY13 when Varun Berry joined. Britannia achieved 14.3% EBITDA margin in Q1FY16.

Despite its flaws, Brittania is known for its big marketing interventions and programmes. At one point, almost half the Indian cricket team’s players used bats that sported the Britannia logo. Britannia is one of the few brands that continue to have an Indian ethos and flavour.

With Varun Berry stirring the soup at Brittania, the company refocused its energy and Love back into making innovative products and operational improvements were targeted in realizing this Purpose. Brittania has rationalized nearly 100 SKUs (60 in biscuits, 40 in dairy) to drive a sharper focus on a profitable and scalable portfolio. The idea behind this move is to take a longer-term approach across cost lines with a view to making the entire operations more focused and driving manufacturing costs lower. Under Bali, Britannia had a long tail of products although five major brands drive the majority of revenue. Berry brought more focus on key brands and new innovations including premium cookies, capturing 40% of the healthy snack market with its biscuit brand Nutrichoice (with variants such as Oats & Millet based biscuits, sugar-free crackers and diet biscuits). With enhanced nut content and crunchiness in Rs5-pack, rural school kids are observed to be excited by the innovative new Good Day products that they pool money with their friends to pick up larger packs of premium cookies so they can try them. Britannia’s plan is to be present across all villages in India by 2018. Good-Day, which has a 70% share of the premium cookies market, had a new logo resembling a smile and packaging design in Aug 2015, as well as a new ad film that highlights the newness of the cookie brand and urges people to enjoy the small moments in everyday life and to spread optimism and happiness.

A key operational strategy to widen its moat is to…


Read more at the Moat Report Asia:


In the Soup, Nancy, the CEO of Soup Inc, hand out a wooden spoon to every employee and every family member, reminding everyone that to be a great company, they needed everyone in the room to stir the pot. If they did it together and poured their heart and soul into making great soup, they would accomplish amazing things:

“Who stirs the pot is the most ingredient in the soup. Just do your best and stir the pot with love!”

People are hungry for positive change and a fresh sense of purpose and passion. In the story at both the Soup and Brittania, the value investor will find themselves doing well in sensing an important observation: whether the stirrer of the soup pot is able to put the recipe together and bring together the key ingredients to unite, engage, and inspire his or her team and create a culture of engagement and greatness.

Are you able to see the empowered soup-stirrers holding their wooden spoons in Britannia and the wide-moat compounders that you wish to invest in with high conviction?

PS: We also like to share with you an article “Scouring Accounting Footnotes to Prevent Tunneling” which we penned for our local newspaper Business Times Singapore that was published on 19 Aug 2015: PDF article link on SMU website. We are honoured to be able to have the opportunity to make an upcoming presentation on 23 September to the senior management of the regulatory authorities in Singapore about the fact-based forward-looking fraud detection framework.

Warm regards,


The Moat Report Asia

A new monthly issue of The Moat Report Asia is now available!

Access the in-depth idea presentation:

In the month of September, we investigate a listed Asian family business that has persevered for over fifty years since 1962 in this high-electricity-rates emerging country to sell something that seems risky – air-conditioners and refrigerators to consumers and commercial clients. Led by the capable, down-to-earth third generation leader Mr. C who believe in making available to his countrymen products and services that used to be affordable by only the rich as his family and personal SWFF, [Company’s name] is now the #1 market leader in air-conditioner (36.7% market share) and refrigeration (25.6% market share) which are under-penetrated appliances in the country, with household penetration rates at 6% and 35% respectively, amongst the lowest in Asia where its neighbours have at least twice the penetration rate, representing significant untapped market potential.

Amongst the white good appliances that are disrupted by ecommerce, the sale of aircon and refrigerator remain resilient because they require installation and aftermarket service support. [Company’s name] provides unmatched end-to-end solutions from production to distribution to aftersales services network that spreads across the logistically-challenged country. [Company’s name] has over 90% appliance store coverage nationwide and its unrivalled aftersales service business is supported by over 170 accredited installer companies; over 130 accredited service centers; over 2,000 technicians; rapid sales facilitation and service turnaround from over 1,000 merchandisers deployed at the point of sale; and 8 dedicated parts stores; and a centralized in-house call center, distribution, parts availability/support as well as regional field personnel. Its robust logistics network ensure speedy delivery and fast service response.

In terms of business nature, margins and profitability, [Company’s name] is comparable to India’s Voltas (NSI: VOLTAS), India’s #1 aircon company who is an affiliate of the Tata Group with a 20% market share. [Company’s name] has a much higher and more stable market share than Voltas and generates higher ROE at 23.1% as compared to Voltas’ 18.1%. Yet, [Company’s name] trades at a 140% valuation discount in terms of EV/EBIT and EV/EBITDA at 9x as compared with 21x for Voltas. We think [Company’s name] deserves to command a higher valuation premium for its market leadership in an under-penetrated domestic market, its strong portfolio of synergistic businesses, and its visible long run way to reinvest its profits back into the core business to extend its market leadership and widen the moat. The company has a healthy balance sheet with net cash comprising 26% of book equity due to its integrated business model that has enabled the generation of steady, resilient and growing margins, profits and cashflow and the efficient employment of capital with a 23.1% ROE.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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