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Monday, 14 December 2020
CM RATING 45/100

Mrs Bectors Food Specialities

Strong biscuit player in North

Diversified presence in various categories and armed with strong brand and capacity, the company can see traction with increased market penetration

Mrs Bectors Food Specialities (MBFS), promoted by Anoop Bector, is engaged in the business of manufacturing and marketing biscuits and bakery products. The company is one of the leading companies in the premium and mid-premium biscuits segment and the premium bakery segment in North India.

The company markets its biscuits such as cookies, creams, crackers, digestives and glucose under its flagship brand ‘Mrs. Bector’s Cremica’. The company’s bakery business manufactures and sells breads, buns, pizza bases and cakes to retail customers under the brand ‘English Oven’. In bakery business, the company caters to premium segment in Delhi NCR, Mumbai and Bengaluru. Apart from retails sales, the bakery business is also the largest supplier of buns in India to reputed Quick Service Restaurants (QSR) chains. The company manufactures and sell a variety of bakery and frozen products such as buns, kulchas, pizzas, and cakes to QSR customers with pan India presence such as Burger King India, Connaught Plaza Restaurants, Hardcastle Restaurants and Yum! Restaurants (India), cloud kitchens such as Rebel Foods, multiplexes such as PVR, as well as certain hotels, restaurants and cafés. The company also manufacture ‘Oreo’ biscuits and ‘Chocobakes’ cookies on contract basis for Mondelez India Foods.

The company has a diversified product portfolio in both biscuits and bakery products. The company manufactures and sells biscuits, primarily in the premium and mid-premium segments including a wide variety of cookies, creams, crackers, and digestives. In the recent past, the company have launched new products such as ‘Trufills’, ‘Premium Sugar and Classic Crackers’, ‘Pista Almond Cookies’, ‘Choco Chip Cookies’, ‘Honey Oatmeal Cookies’. Its biscuits product portfolio consists 384 SKUs and its retail bakery business has 118 SKUs in H1FY21.

The company has six manufacturing facilities, three each for biscuits and bakery products. The three manufacturing facilities for biscuits are located at Phillaur and Rajpura (Punjab), Tahliwal (Himachal Pradesh) and that for bakery product are at Greater Noida (Uttar Pradesh), Khopoli (Maharashtra) and Bengaluru (Karnataka). The aggregate capacities of all its 3 plants for biscuits as end of March 31, 2020 was 75,200 tonnes per annum (tpa)(up from 65,400 tpaend of FY 2018) and that of bakery products are 84 million packs/annum (up from 59 million tpa end of FY 2018).

The company has a strong presence in North India which it intends to leverage to expand presence in the other regions of India. Currently the company supply its products to retail consumers in 26 states within India, as well as to reputed institutional customers with pan-India presence through its extensive distribution network. Its biscuits division has widespread network of 196 super stockist and 748 distributors supplying through 458000 retail outlets spread across 23 states in India. The ‘English Oven’ retail bakery business has 191 distributors and a retail outlet presence of 14000 retail stores. The company also exports biscuits to 64 countries across six continents during the Financial Year ended March 31, 2020. The company is also one of the largest suppliers of biscuits to Canteen Stores Department of Government of India supplying in 33 locations across India and it’s an approved and listed supplier for Indian Railways having strong presence across Railway Station Canteens and their stores in North India.

Objects of the offer: The Offer comprises Fresh Issue (value of upto Rs 40.54 crore) and offer for sale (aggregating upto Rs 500 crore). The proceeds from issue of fresh shares are proposed to be utilised for financing the project cost towards expansion of the Rajpura manufacturing facility by established a new production line for biscuits. The cost of Rajpura plant expansion is Rs 40.54 crore.

Post issue, the shareholding of selling share holders on expanded equity (on upper price band) stands at 8.05% for Linus, 0.08% for Mabel, 8.22% for GW Crown and 0.07% for GW Confectionery down from 22.88%, 2.41%, 19.48% and 1.92% respectively.  

Strength

Proven ability to build a successful new brand (i.e., ‘English Oven’) that command 5% market share in the Branded Breads segment in India. ‘English Oven’, a home grown brand of the company, is one of the largest selling brand in the premium bakery segment in Delhi NCR, Mumbai and Bengaluru as well as one of the fastest growing.

‘Mrs. Bector’s Cremica’ is one of the leading biscuit brands in the premium and mid-premium segment in Punjab, Himachal Pradesh, Jammu and Kashmir and Ladakh. The company as on FY 2020 had 4.5% share of the premium and mid-premium biscuits market in North India. The company also had 12% share of the total exports of biscuits from India in CY 2019.

Strong relationship with institutional clients such as QSR restaurants, cloud kitchens, multiplexes etc. It has 11% market share in semi processed and dough-based offerings to Institutional sales. The company is the sole supplier of burger buns and pan muffins (frozen) to Connaught Plaza Restaurants and have been associated with it since the year 1995. The company is also a preferred supplier of burger buns and pan muffins (fresh) to Hardcastle Restaurants since 2007. It supplies to Rebel Foods since 2015.

Diversified product portfolio of more than 500 stock keeping units (SKUs) [biscuits – 384 SKUs and bakery – 118 SKUs] and constant focus on new launches. Similarly, of the FY 2020 revenue, the biscuits business contributed about 59% of the revenue, with domestic business making up 37% and exports making up 22%. The branded breads & bakery products segment of bakery business accounted for 17% of FY 2020 revenue, with institutional bakery business contributing about 17%. Balance 6% of the revenue came from contract manufacturing.

With focus on premium and mid premium segment as well as 100% in house production, the gross margin of the company in biscuits was in the range of 42-44.4% and for bakery it was about 50% in the last three fiscals. This is higher in comparison to other key branded biscuits companies in the range of 35-39%.

All its manufacturing facilities are strategically located in proximity to its target markets, which minimises freight and logistics related time and expenses.

The company have several quality certifications and accreditations, including certification from the Food Safety System (FSSC 22000), the U.S. Food and Drugs Administration (FDA), British Retail Consortium (BRC) and Sedex Members Ethical Trade Audit (SMETA).

With capacity utilisation of both biscuits and bakery products at 72% as end of March 31, 2020, the company has enough capacity for growth for new products as well as geographical expansion. With retail outlet presence of just 4,58,000 in North India for biscuits and just 14,000 outlets for baked products the company has scope for strong volume growth with increased market penetration and thus better operating leverage.

The Indian biscuits and bakery market that is worth about Rs 450 billion recorded a CAGR of 10% between FY 2015-2020 and expected to show 9%CAGR to Rs 696 billion in FY 2025, driven by favourable demographics and lower per capita biscuit consumption, which is even lower than Srilanka.

Weakness

Operating in an industry that is highly fragmented, with both organised national and regional players as well as unorganised players, and thus highly competitive one.

Pursuant to Brand Separation MoU among promoter i.e., Anoop Bector and his relatives/family members, the company is restricted from using the brand ‘Mrs. Bector’s Cremica’ for any other food business other than its biscuits business.

As the company shares the ‘Mrs. Bector’s Cremica’ with other family members of promoter, the company, pursuant to the Scheme of Amalgamation and Arrangement as well as the Brand Separation MoU, may not be able to control any negative publicity on its products due to any negative publicity on other ‘Cremica’ products that do not form part of its product portfolio.

Health concerns over nutritional values of biscuits and baked products may reduce demand for its products or increase the cost of its products.

Cost of materials including packing material consumed constituted about 53-55% of the sales and any increase in material cost and inability of the company to pass on the same to customers due to competitive marketplace will impact the profitability of the company.

While the business operations and sales to retail customers were not impacted much barring initial three days of lockdown as its products being essential goods, the sales of its products to QSR customers, CSDs and Indian Railway canteens and stores were significantly impacted due to COVID-19 pandemic. Though sales to QSR customers gradually improved with restaurants opening, the sales to IR canteens and stores have not much improved as only special trains are operating.

Cremica Agro Foods (CAFL), one of the Group Companies, in the past has been in violation of listing requirements of an erstwhile recognised stock exchange, OTC Exchange of India. And CAFL, Promoter and one of Non-Executive Directors of the company, have been subject to disciplinary actions by OTCEI in the past.

The company received an enquiry letter from Reserve Bank of India (RBI) on March 2, 2020, seeking certain documents in relation to a stake-sale by Cremica Industries and Bector Foods, which were merged into the company prior to Scheme of Amalgamation and Arrangement, to Kerry Group BV pursuant to their exit from a JV in CY 2012. In this regard, the company has responded to the RBI. Subsequently there have been no further communication from the RBI. Any non-compliances in this regard may affect the business and reputation of the company.

The company does not have any long-term supply agreements with any of its QSR customers and the supply is typically contingent on demand arising on a day-to-day basis, which is subject to fluctuation. Thus, absence of any contractual exclusivity with QSR Customers, there is a threat on its ability to be able to continue to supply its products to these QSR customers in the future. Additionally, any change in preference of supplier by these QSR customers due to any existing peer or entry of any new peer may have a material adverse effect on its business.

Anoop Bector, the Promoter, owns 1.12% of the shareholding in CAFL, one of the Group Companies engaged in the business of selling biscuits, bakery products, confectionary products, chocolates and breakfast product, and 99.76% shareholding in MBCDPL, one of its Group Companies engaged in the business of manufacture and sale of milk, milk powder, milk products, processed milk, ice cream, butter, ghee and other dairy products.

As of September 30, 2020, pending obligations against Export Promotion Capital Goods (EPCG) License was Rs 7.178 crore, which will be adjusted at the time of the consequent exports as per the required timelines. There are no pending obligations under Duty Free Import Authorisation (DFIA) Scheme and Merchandise Exports from India Scheme (MEIS). Any reduction or withdrawal of benefits or its inability to meet any of the conditions prescribed under any of the schemes would adversely affect the business and financial condition of the company.

Considering the location of its plants (all biscuits plants are located in North India; three units of baked products close to just three metro cities of Delhi National Capital Region, Mumbai Metropolitan Region and Bengaluru) and significant high transportation costs associated with distribution of such products to farther destinations or limited shelf life of just 3-4 days for baked products, the company is precluded from a pan-India business network for its products given current manufacturing set-up/arrangement. Thus, major market for biscuit products of the company is 11 states around North India and certain institutional customers on a pan-India basis. So, in case the company attempts to expand its market pan-India it has to make further capital investment or rope in contract manufacturing in proximity to the market it targets.

Valuation

Revenues of the company for the last three fiscal years, i.e., FY 2018-FY 2020 was up by 5% and the PAT was down by 8%. For FY 2020, the revenue was down by 3% to Rs 762.12 crore and with the OPM contract marginally by 10 bps to 12.2%, the operating profit was down by 3% to Rs 92.82 crore. The PBT was down by 23% to Rs 39.14 crore, hit largely by higher interest and depreciation. After accounting for lower share of profit from associate and lower taxation, the PAT was eventually down by 8% to Rs 30.40 crore.  

For H1FY 2021, sales were up by 18% to Rs 430.99 crore and with OPM jumped by 600 bps to 16.7%, the OP jumped up by 85% to Rs 72.14 crore. And eventually the PAT ballooned by 282% to Rs 38.88 crore powered by higher other income and one time write-back of liabilities of Rs 5.543 crore due to reversal of entry tax provision after settlement of case.  

On post issue equity (on the upper price band) of Rs 58.75 crore, the EPS for FY2020 stood at Rs 5.2. And the TTM EPS (for the period ended September 2020)was Rs 9.4, which works out to a PE of 30.6 times. In comparison Britannia Industries quotes at a TTM PE of 50.2 times and Prataap Snacks at a TTM PE of 57 times.

Mrs. Bector Food Specialities: Issue Highlights  

Sector FMCG
Fresh Issue (in Rs. Crore) 40.54
Offer for sale (in Rs. Crore) 500.00
Price band (Rs.)  
Upper 288
Lower 286
Post-issue equity (Rs crore)  
in Upper price band 58.75
in Lower Price Band 58.76
Post-issue promoter (including promoter group) stake (%)  
in Upper price band 51.13
in Lower Price Band 51.13
Minimum Bid (in nos.) 50
Issue Open Date 15-12-2020
Issue Close Date 17-12-2020
Listing BSE, NSE
Rating 45/100

 

Mrs. Bector Food Specialities: Financial Results

  1803 (12) 1903 (12) 2003 (12) 1909 (6) 2009 (6)
Sales 690.64 783.67 762.12 364.62 430.99
OPM (%) 12.4 12.3 12.2 10.7 16.7
OP 85.49 96.08 92.82 38.97 72.14
Other income 1.79 2.36 2.85 1.59 2.02
PBIDT 87.28 98.45 95.67 40.56 74.15
Interest 6.11 12.68 15.04 7.86 5.48
PBDT 81.17 85.77 80.63 32.71 68.68
Depreciation 28.35 35.18 41.49 20.70 22.16
PBT 52.82 50.59 39.14 12.01 46.51
Share of profit from Associates (SoPA) 0.02 0.07 0.04 0.08 0.09
PBT before EO & After SoPA 52.84 50.66 39.18 12.09 46.60
EO Exp 0.00 0.00 0.00 0.00 -5.54
PBT after EO 52.84 50.66 39.18 12.09 52.14
Tax 16.95 17.51 8.78 1.92 13.26
PAT 35.89 33.15 30.40 10.17 38.88
EPS (Rs)** 6.1 5.6 5.2 3.5 11.8
** on post issue equity on Upper price band of Rs 58.75 crore. Face Value: Rs 10
EPS is calculated after excluding EO and relevant tax
# EPS can not be annualised due to seasonality in operations
Figures in Rs crore
Source: Capitaline Corporate database