ET Intelligence Group: Britannia Industries, one of the last major fast-moving goods (FMCG) companies in India to announce September-quarter results, posted numbers that were below expectations. While its volumes grew by 8% year-on-year, revenue increased by 4.5% to ₹4,566 crore. The company's net profit declined by 9.6% YoY to ₹531 crore, impacted by high input costs as well as lower realisations.During the quarter, raw material costs for the company were up by 7.8% from a year ago, driven by high inflation in the cost of wheat, palm oil, cocoa and sugar. The input cost as a proportion of revenue rose to 59.8% of sales compared with 57.9% a year ago. This directly impacted profitability, as the operating profit margin dropped by 280 basis points (bps) to 15.5%.115234594According to the management, metro cities contribute 30% to the company's total FMCG business, and these have seen the maximum slowdown. This is likely to result in some short-term impact on volumes.Britannia has initiated selective price increases to pass on the input cost inflation. A price increase of 4-5% is likely to be implemented in the next two quarters. It is also identifying new levers for cost optimisation across the value chain. Besides biscuits, Britannia's other business segments of bakery (cake, rusk and wafers), dairy and international markets are growing sustainably and profitably.In India, the rural FMCG market continues to grow ahead of the urban. Britannia has increased its direct reach to 2.85 million outlets. Revenue growth in its focus states of Madhya Pradesh, Rajasthan, Uttar Pradesh and Gujarat outperformed the rest of India. The company is redefining its distribution strategy to optimise range distribution and improve outlet servicing with pilots across 25 cities covering more than 50,000 outlets, showing encouraging results.The management commentary in the post-earnings call, however, failed to assuage the Street's disappointment over the September-quarter performance, leading to Britannia's shares closing 7.3% lower on Tuesday. The Britannia stock had become part of the Nifty50 index in 2019. In the last five years, the scrip has underperformed the benchmark Sensex, as it gained 58% in contrast to the 101% gain posted by the index.Incidentally, discretionary food consumption is a function of disposable income in the hands of the consumer. With urban middle-class incomes seeing a nominal increase, it is likely to adversely impact discretionary food consumption. Besides, the emergence of healthier options across new-age channels poses a growing threat to mainstream food companies.Companies like Britannia need to go beyond taking the conventional measures of investing in brands, increasing distribution networks, premiumising the portfolio and cost-cutting to create sustainable value for its customers and investors.