Mrs Bectors Food IPO review: Play on large opportunity in biscuits, QSR

Healthy growth and sound fundamentals offer comfort

A small player in the Rs 45,000 crore domestic packaged food industry, Mrs Bectors Food is seen gaining from the large opportunity in the biscuits and high-margin bread and institutional buns businesses.

Analysts believe the company is well positioned to scale up its operations and expand its footprint in other parts of the country as the industry is seen growing at a compounded annual growth rate of 9 per cent over the next 5 years. To tap into this growth, the company has invested Rs 260 crore in the last two and a half years towards various greenfield and brownfield expansion projects. Additionally, it looks to utilise the IPO proceeds to finance a new production line for biscuits at its Rajpura manufacturing facility. The company has also planned to set up a greenfield unit in Madhya Pradesh to mark its entry into the central Indian market by 2023-24.

The company’s operations can be broadly divided into two categories – biscuits (Mrs Bectors brand) and bakery (English Oven) products. Biscuits, including exports, are the biggest business for the company and accounted for nearly 64 per cent of its total revenues in 2019-20. “Although the brand is well known in north India, it has just 4.5 per cent market share in key states. Given 11 per cent share in outlets currently, suggest significant room to expand market share by increasing distribution,” said Amnish Aggarwal, Head of Research at Prabhudas Lilladher.

 

The company also exports biscuits to customers in 64 countries. Even though it reported a 3 per cent drop in sales last year, the biscuits segment grew by 9 per cent and earned steady margins. Going forward, the company is confident of expanding its margins in this business aided by improving product mix and focus on developed markets.

Bakery products, which is the fastest growing business for the company, came under pressure owing to the pandemic as sales to large quick service restaurants (QSRs), for which the company is the preferred supplier of buns, got impacted. Subsequently, revenues from institutional bakery business declined 61 per cent year-on-year in the first half of the ongoing fiscal. However, with the QSR market estimated to clock compounded annual growth rate (CAGR) of 23 per cent during FY20-25, the street remains fairly confident over the long term prospects of the segment. Meanwhile, a slew of new product launches and expansion into Tier 1/metro cities is seen driving the company’s retail business.

On the flip side, it will have to compete with formidable players such as Britannia, Parle and ITC, which have the widest reach, deep pockets and a far bigger than Mrs Bectors.

Valuations, although at a discount to its peers, remain fairly elevated, say some experts. At FY20 price to earnings (PE) multiple of 54 times, valuation is at 19 per cent discount to industry leader Britannia. However, Britannia's FY20 revenue is 15 times the revenue of Mrs Bectors, and it earned significantly higher return on equity of 32 per cent (versus Mrs Bectors' 9.3 per cent) last year.

But if the earnings of six months ended September 2020 are annualised, PE of 22x appears comforting.

In this backdrop, investors with some appetite for risk may consider the offer.

Issue details 

Opens on

December 15

Closes on

December 17

Shares on offer

18.9 mln

Price band (Rs/share) 

286-288

Size (Rs cr)

540.54

Source: RHP