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The buoyant Indian IPO market is reaching frenzy levels. Burger King India’s stock closed 130% over its issue price on Monday, and from Tuesday onwards one of its suppliers, Mrs Bectors Food Specialty is tapping the market to raise Rs 540.5 crore in what promises to be another exciting investment opportunity. A play on consumption, Mrs Bectors Food is in the business of manufacturing and marketing a range of biscuits (including cookies, creams, crackers, digestives, and glucose) and bakery products in savory and sweet categories (including breads, buns, pizza bases & cakes) to its retail & institutional clients. All eyes are on this IPO. Read on to know more. 

Mrs Bectors Food Specialty IPO facts

The initial public offer of Mrs Bectors Food Specialty opens on 15th December and closes on 17th December. The total issue size is Rs 540.5 crore, comprising fresh Issue of Rs 40.5 crore and offer for sale of Rs 500 crore. The company will receive gross Rs 40.5 crore only.

There are a total 1.87 crore shares on offer. The IPO price band is Rs 286-288 per share. The minimum lot size is 50 and so the minimum investment based on the upper price band is Rs 14,400.

What is the business

Mrs Bectors Food Specialty (MBFS) is one of the leading companies in the premium, mid-premium biscuits segment and the premium bakery segment in North India. The company manufactures and markets a range of biscuits like cookies, creams, crackers, digestives and glucose under the flagship brand ‘Mrs Bector’s Cremica’. Bakery products are made in savoury & sweet categories and cakes are sold under the brand ‘English Oven’. The company is promoted by Anoop Bector (one of the sons of the iconic Mrs Rajni Bector). Promoter group will hold 51.1% stake post-IPO.

Who does it supply to?

Yes, the company is the largest supplier of buns in India to reputed QSR chains like Burger King India, Connaught Plaza Restaurants (McDonald’s), Hardcastle Restaurants and Yum! Restaurants (Pizza Hut). Do note the supplier company does not have any long term supply agreements with any of the QSR customers. 

However, Mrs. Bectors is the sole supplier of burger buns and pan muffins (frozen) to Connaught Plaza Restaurants Pvt. Ltd. (associated since 1995) and it is a preferred supplier to leading players such as Hardcastle Restaurants, Yum! Restaurants, Rebel Foods and PVR.  

What is unique about the business?

Apart from the company’s brands, there is something different. Do note that leading branded biscuit industry players like Britannia and Parle use a combination of in-house manufacturing and outsourced models to fulfil their demand. Mrs Bectors operates with 100% in-house manufacturing for its product to command higher margins. In-house manufacturing provides better visibility and control on quality assurance and food safety standards and faster product development cycles.

The Indian biscuits & bakery retail market is valued at Rs 45,000 crore and is expected to grow at ~9% CAGR in the next five years. Biscuits & other snacking bakery products like rusks, wafers and tea cakes contribute almost Rs 40,000 crore to the total market. The balance 11% is contributed by breads including loaves, buns, pizza bases that together account for Rs 5,000 crore.

Mrs Bectors’ rivals are Parle, Britannia, ITC, Anmol, Surya and Bonn.

What about operations?

Mrs Bectors Food Specialty’s operations are divided into:

1. Biscuits – domestic (37% of FY20 revenue)
2. Biscuits – exports (22% of FY20 revenue)
3. Branded breads & bakery products (17% of FY20 revenue)
4. Institutional Bakery (17% of FY20 revenue)
5. Others – Contract Manufacturing (6% of FY20 revenue). It manufactures ‘Oreo’ biscuits and ‘Chocobakes’ cookies for Mondelez India Foods Pvt. Ltd. 

What kind of growth has happened

Mrs Bectors Food supplies its products to retail consumers in 26 states in India, besides institutional customers pan-India and to 64 countries across six continents.

The Domestic Biscuit business has grown at a CAGR of 7.5% over FY18-FY20 despite capacity constraints in FY18 and a part of FY19. The company has a strong presence in North India (4.5% of the premium and mid-premium biscuits market in North India in FY20).

It is present at 458k retail outlets across India, which are serviced through an in-house sales team of 250+ personnel. It is also one of the largest suppliers of biscuits to the CSDs, supplying in 33 locations across India.

As per Technopak, MBFS’s market share in the Indian biscuit export market is nearly 12%. Collection period for export business ranges between 50 days and 60 days. 

The Branded Breads business has grown at a CAGR of 29% over FY18-20 with realization improving from Rs 18.50/pack in FY18 to Rs 22.10/pack in 1HFY21. It is the largest selling brand in Delhi NCR, Mumbai and Bengaluru. 

Within the Institutional business, the company has the capacity to produce nearly 1.2 million burger buns/day. It has also started producing value-added products, including garlic breads, calzones etc. Despite a 61% YoY decline in 1HFY21 (sales to QSRs were affected due to Covid-19), the management is very confident about its institutional business given the fact that the QSR market is likely to grow by 22.7% over FY20-FY25.

What about the company’s financial results?

In FY18, Mrs Bectors Food clocked net revenue of Rs 690 crore and in FY20 the number was Rs 762 crore. In the first half of FY21, the 6-month topline was Rs 431 crore, which indicates an annualized figure of Rs 862 crore for entire FY21.

EBITDA margins have improved from 12.4% in FY18 to 16.7% in first half of FY21. Due to focus on high margin/premium products, overall gross margins have increased from 44% in FY18 to 47% in FY20. If not for lost sales in the domestic business, exports business and provision made for exports receivables, the operating margin in FY20 would have been higher than the reported 12%.

Profit after tax of the company has grown from Rs 36 crore in FY18, Rs 39 crore in first half of FY21.

Yes, a quick look at the company’s P&L and revenues shows unsteady growth.

The company’s long-term and short-term borrowings total Rs 101 crore (end of first half of FY21). Cash and bank balances were Rs 47 crore.

Dividend payout ratio has ranged about 15-18% in the last 3 years. Return ratios have fallen over FY18-FY20 due to capex investments.

What will the company do with IPO proceeds?

The company will be able to use IPO funds of Rs 40.5 crore (before expenses). In 2020, the company has proposed expansion of the Rajpura manufacturing facility (utilizing the proceeds of the IPO), which is likely to get commercialized by the end of 2022 and will add 14,000 tons of additional capacity for biscuits. 

Do note the company has already invested Rs 260 crore between FY18 and Sept’2020 to build capacities with superior capabilities.

Does the IPO price offer value?

Mrs Bectors Food stock is valued at 55.5 times FY20 price to earnings & 2.3 times FY20 EV/sales. On a price to earnings metrics, Nestle trades at 86 times FY20 earnings, Britannia trades at 62 times its FY20 earnings and DFM Foods trades at 74 times its FY20 earnings. P/E figures for the peers are computed based on closing market price as on November 27, 2020.

So, on the P/E basis, Mrs Bectors Food IPO is priced lower than its peers. 

Investors considering the IPO have to weigh the positives such as a leading brand of biscuits & bakery products in North India, a leading exporter of biscuits, a strong distribution network with the negatives such as concern that export benefits may end, that there may be an inability to expand manufacturing, that QSR contracts may get terminated and plausible supply/transportation disruptions.

Tags: IPO, Mrs Bectors Food Specialty