Mrs Bectors Food Specialities: Can it beat the industry?

[BejgamNishanth]

Mrs Bectors Food Specialities Limited is one of the leading companies in the premium and mid premium biscuits segment in North India and a leading premium bakery player in India.The Company is the sole preferred supplier to some of the Largest QSR Franchises, Cloud Kitchens and Multiplexes in India The Company has a diversified product portfolio of 480 SKUs and constant focus on new launches. The Company has a strong multi channel distribution network PAN India. The Company is expanding
through modern trade and e commerce. The Company is a leading biscuits exporter to 64 countries across 6 continents.

Mrs Bectors Food Specialties Ltd (BFS; CMP: Rs 280; Market Capitalization: Rs 1,655 Cr. crore)

Highlights

-North Indian player in the premium biscuits and bakery market with 4.5 percent market share
-Higher capacity utilization to support margins
-Higher gross margins as compared to peers due to 100 percent in-house manufacturing

The company is engaged in manufacturing and selling biscuits and bakery products. While the biscuit category is sold under the brand name of “Cremica”, for bakery products, the company uses the brand “English oven”. Bectors Foods specializes in the premium and mid-premium category and caters principally to the market of north India. In the biscuit market it commands 4.5 percent (in FY20) market share while in the branded bread segment, it is 5 percent.

Higher capacity utilization to support volume growth

From 2017 till September 2020, Bectors has invested nearly Rs 260 crore in setting up facilities for manufacturing biscuits and bakery products. As on September 2020, capacity utilization stood at around 72 percent, which leaves room for increasing production. New capacity is likely to come on-stream at the Rajpura facility from April 2022.

Bectors is also likely to invest Rs 100 crore from internal accruals to set up another plant in Dhar, Madhya Pradesh, which will come on-stream from April 2024. The company plans to target newer markets and more retail touch points along with higher presence in the modern trade segment. Higher capacity utilization will eventually add to volumes growth and result in benefits of higher operating leverage.

As is apparent from the table given below, Bectors can still target nearly 4 lakh newer outlets which its nearest competitor is currently targeting.

Source: DRHP

Export market to support growth and de-risk business

In the first half of FY21, export of biscuits grew by 39 percent, a much improved performance compared to previous years. Bectors currently exports to nearly 64 countries and in recent times has started exporting to developed markets like Europe, US, Australia and others. After facing some issues with receivables in African countries, Bectors has started focusing on developed countries. With higher export revenues, Bectors is in a position to de-risk its business model, in case of a severe downturn in domestic consumption, especially in the premium category.

Total market size of mid-premium and premium biscuits is Rs 321 billion, which has grown at a CAGR of 12.2 percent in the past five years. The category has grown much faster than the mass category. The market for mid-premium and premium biscuits is expected to grow to Rs 504 billion by FY2025 at a CAGR of 9.5 percent, according to Technopack, which is faster than the overall branded biscuit market growth of 9.2 percent.

North India accounts for 25 percent of the total mid-premium and premium biscuit market. In FY2020, Parle, Britannia and ITC had a combined market share of 57 percent in the premium and mid-premium biscuits market of north India , with Bectors’ share at 4.5 percent. expect Bectors to improve its market share thanks to its higher product offering and capacity utilization along with expansion in retail touch points.

Close to 17percent of Bectors’ sale goes to institutions including the QSR (quick service restaurant) segment, and we expect this segment to add to growth as QSR as a category is expected to do well.

In FY20, Bectors had provided Rs 7 crore as bad and doubtful debts due to the elongated receivable cycle in the African region. Without this provision, margin would have been 13 percent. Because of the company’s relatively newer facility, and lower capacity utilization, return on equity is much lower compared to larger peers.

From recent Q2FY22 results,
Highlights
- Top-line growth moderates on high base; margins affected by higher raw material prices
-Company to increase manufacturing capacity, enhance distribution reach
-To further increase price, control costs; retains FY22 margin guidance
-Well placed to outperform industry. Valuations at discount to peers
-Advise investors to add the stock

September 2021 quarter performance
The top-line growth of BFS slowed down marginally to 8 percent year on year (YoY) in the September 2021 quarter from about 12 percent in Q1FY22. The biscuit segment (accounting for about 60 percent revenues) declined by 3 percent in the September 2021 quarter, owing to a high base in Q2FY21.

BFS’ gross margins fell about 300 bps on a YoY basis, driven mainly by the steep increase in palm oil prices as well as packaging costs. The EBITDA margins fell by about 240 bps. Net profit declined at a higher rate of 23 percent YoY, as BFS had a one-time gain of Rs 5.5 crore in Q2FY21, owing to entry tax provision reversal.

From recent Q3FY22 results,

Management commentary from recent concall -

1. Company bought new land in Mumbai for future expansion endeavor
2. Outlook is positive, provides 14% sustainable margins
3. Capacity utilization is 75-80% part of FY22
4. Increase in prices about to kick in for this month.
5. Rajpura capacity extension is inline
6. New capex expected inline for the next financial year in NaviMumbai.

Details -

Financials

Investors -

stock price is corrected a way higher for the reason increase in raw material prices, however with a promising promotor group, increase in capacity expansion with IPO funds and a promising mega trend theme I could think of reversal in stock price.

Disc: Invested at 350 levels

[Marathondreams]

If you study closely, you will find all value added , high growth products like sauces, ketchups, jams etc are made and sold by related party under “Cremica” brand but still use words “Mrs Bectors” name. Also from the address, it seems to be co-located (may be side by side) which brings in question of sharing resources without proper returns. So I exited as soon as I noticed it post IPO.

Check out the link below

https://www.amazon.in/s?k=cremica&crid=3R90PG9NZH88M&sprefix=cremica%2Caps%2C347&ref=nb_sb_noss

[BejgamNishanth]

@Marathondreams

ketchups

it is true, creamica has multiple product lines and as per my knowledge we can differentiate the product line up via websites -

Home - Cremica

https://www.cremica.in/

and the business that listed in IPO proceedings is only the FOOD specialties and from the initial IPO proceedings to till date management only walk the talk about its biscuit and bakery segment, furthermore provide the guidance only in respective to above. and though the possibility to use the funds that generated from biscuit segment to other segment like jams, ketch up etc we don’t realize this yet from the annual report. and I believe there are many listed companies that does the business in different segments and formed into as parent, child, and list only the child into capital markets.

[sreered]

Yes, and the argument is fair. But there are no related party transactions reported and all new facilities being created using the IPO money are all exclusively for the listed entity. Also the biscuit and bakery sector is fairly large and growing, with premiumization options existing within. Also the QSR industry is expected to boom for the next decade (Bector supplies to almost all the major players like McD, KFC, BurgerKing, Pizzahut etc.). Also the have huge scope for geographic expansion, as they are currently there only in north and small parts of west, and they have a good quality brand. Considering all these and considering that their current market cap is just 1650 crore (with PE at 60% discount to market leader - Britannia), i think there is huge runway for growth both for business and stock

[Rj1994]

I bought around 400,but personally think to book out at current level due to headwinds for 2-3 quarter.Still valuation are not comfortable and their will be margin hit in this quarter.

ITC is in better position for 2-3 quarter.Reason - Hotel industry is recovering,Paper stocks also doing well and still valuation wise cheaper than Bector foods.

There is breakdown on chart ,highly possibility it can go below 250 level.

[BejgamNishanth]

@Rj1994 it is most likely that it hit the headwinds for few quarters due to increase in the raw material ( palm oil ) prices, however it is the reason for stock price bottoming out and we must accumulate more if the prospective is long horizon.

Pros -

1. Co. kicks in 2 price hikes in the recent time
2. New revenue stream added from last quarter
3. New rajpura capacity extension is inline

[AmitContrarian]

Do they had any other expansion before ? Just want to understand how expansion in other geography worked out for them.
If it works then they will be able to grow beyond mumbai.

[Contrabets]

In high inflation there b2b will suffer massively it happens witha all b2b company and specially that are easily replaceable and have no unrivalled characteristic.
Also look how long there Oreo and English oven deal will last as it may affect there top line and bottom line even more.

[rranjan]

I am looking at this for below reasons:

1. QSR are going to expand big in next 4-5 years and Bector is natural beneficiary .

2. Co is in B2b and b2c both segment and its natural that slowly they will get into b2c at larger scale. co is in still growth stage though revenue growth has been slower compare to few A class fmcg

3. available at 1.5 x of mcap/sales at trailing basis. Even discounting b2b fmcg tag , its cheap.

4. in last few days , insider buying has been happening and this gives comfort on valuation.

   next 2-3 q company would be facing headwinds and hence favourable for long term stock pickers.

[Souresh_Pal]

Mrs Bector does advertisement for Cremica brand and the unlisted party also gets benefit of that. It’s like people buy products with name of Maggie because of the brand. Itc has ashirvad brand and on the same name they have launched ghi, milk, spieces etc. So they are sharing the brand advertisement. If the revenue of cremica is very little then it’s fine.
From the annual report of Cremica Agro Foods Ltd the revenue is mere 22 lakh rupee for FY21 comparer to Mrs Bectors 800 cr in FY21. So this is not a problem at all.

[Marathondreams]

Food packaging on amazon shows products are manufactured by " Cremica Food Industries Ltd." . So this company’s turnover need to be checked. It seems they may have multiple companies with name starting “Cremica”. More red flags IMHO.

Disclosure - not interested

[Chandragupta]

Yes, seems to be true. Just looked up at Tofler.

Of this, Cremica Food Industries Ltd has revenue in excess of Rs.100 crore. Others are dummy.

[sougataG]

Interesting observation by @Tar

[BejgamNishanth]

Stock is witnessing an uptick with gradual increase in revenue and expecting to increase revenue further and better ebida margins in the coming quarters.

[Rahulchadha]

This is a simple case of warring brothers- Anoop and Akshay. Business was split in 2013. Even common investors got shares in both business. A brand agreement was signed which even included a non compete. Anoop and sons got the biscuit and bakery part. They cant use Cremica brand name to manufacture Sauces and condiments which was given to Akshay Bector and Sons. His company is called Cremica Food industries and has a turnover of about Rs 300 cr. Apparently both brothers dont see eye to eye and both companies are not related parties. But yes the brand Cremica can be used in a defines way by both brothers only as agreed in the brand agreement that was signed in 2013 at the time of split.
Disclosure- do not own

[Raj_Praj]

Sharing my 2 cents after reading all the concalls and investor presentations.

Catering to New Geographies -

Growth can come from entering new Areas like South and West and they are slowing moving in that direction.
Growth can also come from Exports, they have set up a subsidiary in the Middle East to cater to the MENA market, the products sold in exports are premium however the payments cycle is 40-50 days longer than the domestic sales so it requires larger working capital cycle

The number of times, the word “premiumization” shows up on the concalls, they are a small volume higher value product company and they will not be able to penetrate the mass market and i think they shouldn’t they should stick to their GAME and become better at it. with the increasing GDP and Per capita, slowly a certain percentage of the population will move towards premium products.

Growth can also come from launching new products, products which make take away market share from an incumbent, or probably introducing international products (Indian version) same taste at a decent price point. so innovation will be key for longer-term growth.

Other avenues of growth is obviously from QSR, QSR is highly likely to have a structural growth story in India, so if they increase their wallet share from QSR companies, that would be great. they couls sell muffins, cookies (customized products) BK Cafe, Costa, Starbucks, MCD are the Customers for such products

Biscuits & bread are fully penetrated products, which means that in order to have blockbuster growth, the company will have to gain market share. the population only grows by say 1/2% so the customer base remains the same with a very slow gradual growth.

Last but not the least, their Marketing costs is 8%, if they are able to bring down this cost, they can probably increase the margins by 2/3%

Other Key Pointers

They have some Export Incentives they get every year, im trying to find out more about it. If this incentive goes away, there will be an impact on the bottomline ( i guess Exports are 12% of the total Revenue)

There has been a Regulation change in the pricing and grammage by the Regulatory Body. Earlier for a 10rs product or higer (im not sure, still trying to find out more) they had to give 120/150 grams. Now they can sell per kilo types and make their own packs.

From next year, new packaging norms for products will declare their prices in...

[BejgamNishanth]

good results from co.

[BejgamNishanth]

Strong numbers posted back to back quarters, and witnessing a good uptick in stock price.

[Lynch]

The coming results for Mrs Bector could be very very good, with a full impact of high EBITDA margins and topline trending even higher on a very low base. But then, what beyond that? Can the company continue to deliver the growth the valuations now build in? I am of the opinion that post upcoming Q4 results in end May, everything is fully priced for the company, and dare I say, seems quite optimistic. My reasons are outlined below:-

1. Is distribution expansion feasible at the same pace? All concalls point towards how this growth is a distribution expansion story driven by distributor automation and sales force enhancement. I agree this could help, but distribution expansion is usually not so easy to carry on year on year. This is because once stock is sold to distributors and put in stores, the harder part is to sell it to consumers. Hence early distributor expansion always plucks the low hanging fruits. From now on, very fast sales growth due to increased distribution seems quite ambitious.

2. If growth was distribution led last year, why did export sales almost rise as much as domestic sales? This makes me think that the company probably greatly benefited from price increases last year and this will not be a growth component this year. Additionally, Mr. Berry from Britannia has already guided in the latest Britannia Q4 results this year that they will look at pricing to address market share. Could pricing actually then tend down for a highly trade competitive product, if the market leader is getting aggressive?

3. At 60X TTM PE, the market is expecting stellar growth ahead for a company with 7-8% NPMs. The expectations are high, and the coming year ahead is on a very high base of both sales and margins. Additionally, price increase in core products looks distant.

4. Charts are still in Stage 2 suggesting that this is a very strong growth story and that is one thing that makes me very weary about my recent exit. The above points through pointed me to a place where I just can’t see how the numbers next year can deliver what is expected.

Disclosure : I was invested for just over a year in family accounts and exited today and hence am biased towards my thesis. I am not a SEBI registered advisor, and this is not investment advice.

[BejgamNishanth]

Thanks for the details; I’ve been following the company for quite some time and attending the calls on a frequent basis. Your points are valid, and valuation is strech a bit in a recent time. I, too, have booked the profits and exited now. However, the company has long-term plans to expand into southern places in India and has land acquisition plans. Accordingly, it is on my watchlist now. I will be happy to add this if the valuation comes down to the 35 level.