IPO analysis: Mrs Bectors Food Specialities

IPO Rating - Invest with limited exposure

About the issue

Mrs Bectors Food Specialities (Bectors), one of the leading companies in the premium & mid-premium biscuits segment as well as a prominent bakery segment in North India, is entering the primary capital market with its initial public offer (IPO) of equity shares of the face value of Rs 10 each.  The price band has been fixed between Rs 286 and Rs 288 and the minimum bid lot is 50 equity shares, in multiples of 50 equity shares thereafter. The size of the IPO is Rs 540.54 crore, including a fresh issue of Rs 40.54 crore and an offer for sale of Rs 500 crore shares by the existing shareholders. There is an employee reservation up to 18,315 shares at the upper price band and is being offered a discount of Rs 15 per share.

The IPO will open for public subscription on December 15 and would close on December 17.

About the company

Bector's was originally incorporated as ‘Quaker Cremica Foods Private Limited’ on September 15, 1995, and is one of the leading companies in the premium & mid-premium biscuits segment as well as a prominent bakery segment in North India. The company manufactures and markets a range of biscuits such as cookies, creams, crackers, digestives, and glucose under its flagship brand, ‘Mrs Bector's Cremica’. They also manufacture and market bakery products in savoury and sweet categories, which include loaves of bread, buns, pizza bases, and cakes under its brand, ‘English Oven’. The company supplies its products to retail consumers in 26 states within India as well as to reputed institutional customers with a pan-India presence and to 64 countries across 6 continents during FY20. According to Technopak Report, ‘Mrs Bector’s Cremica’ is one of the leading biscuit brands in the premium & mid-premium segment in Punjab, Himachal Pradesh, Jammu & Kashmir, and Ladakh while ‘English Oven’ is one of the largest selling brands in the premium bakery segment in Delhi NCR, Mumbai & Bengaluru. They are the largest supplier of buns in India to reputed QSR chains such as Burger King India Ltd, Connaught Plaza Restaurants Pvt Ltd, Hardcastle Restaurants Pvt Ltd, and Yum! Restaurants (India) Private Limited. 

The company also has a strong distribution network for its bakery products, which is sold under its brand ‘English Oven’ and supplied to its customers for the period between April 1, 2020, and September 30, 2020, through 191 distributors over 14,000 retail outlets situated in Delhi NCR, Mumbai, Pune & Bengaluru under modern trade and general trade channels, direct sales to supermarkets, departmental stores or indirect sales through wholesalers & distributors. They are one of the few bakery companies in India that can handle fresh, chilled, and frozen products and this model enables them to distribute its bakery products across India.

The company’s diversified product portfolio is classified under two key categories - biscuits and bakery products.

Biscuits

The company primarily manufactures premium and mid-premium categories of biscuits including cookies, creams, crackers & digestives. They manufacture glucose biscuits catering to certain domestic as well as export customers. They manufacture ‘Oreo’ biscuits and ‘Chocobakes’ cookies on a contract basis for Mondelez India Foods Private Limited. They also manufacture and supply biscuits to some of its international customers under its brand ‘Mrs Bector's Cremica’ as well as under their private labels.

Bector's is one of the leading biscuit exporters from India. They exported biscuits under its brand as well as under third-party private labels to 64 countries during the financial year ended March 31, 2020, to reputed retail chains, distributors & buying houses.

In FY20 i.e. the period between April 1, 2020, and September 30, 2020, as well as from April 1, 2019, to September 30, 2019, the weighted average realisation from the sale of its biscuits per kilogram has been Rs 84.04, Rs 87.29 and Rs 82.09, respectively.

Bakery

The company primarily manufactures premium category of bread and other bakery products including multigrain bread, sandwich bread, jumbo bread, garlic bread, stuffed bread, panini bread, pav bread, kulchas, pizza base, buns, cakes, muffins, and frozen products for its retail customers branded through ‘English Oven’ and other institutional clients. The product portfolio comprises Indian and western varieties of bakery products. These products are primarily classified under bread, other bakery products, buns & frozen products categories.

In FY20 i.e. the period between April 1, 2020, and September 30, 2020, & from April 1, 2019, to September 30, 2019, branded bread and bakery products per pack sold under the ‘English Oven’ brand has been Rs 19.98, Rs 22.09 and Rs 19.03, respectively.

The weighted average realisation of its biscuits and brand bread along with bakery products has grown at a CAGR of 4.51 per cent and 3.89 per cent, respectively between FY18 and FY20.

Mrs Bectors Food is one of the leading exporters of biscuits from India. Revenue from the export of biscuits accounted for Rs 167.70 crore, Rs  105.62 crore, and Rs 76.09 crore, constituting 22 per cent, 24.51 per cent, and 20.87 per cent of the revenue from operations for FY20,  in the period between April 1, 2020, and September 30, 2020, and from April 1, 2019, to September 30, 2019, respectively, which has grown by 38.82 per cent from September 30, 2019, to September 30, 2020. Its price realisation per kilogram from sales of its biscuits (exports) in this period was Rs  94.29, Rs  87.33, Rs  81.04, Rs 101.63, and Rs  95.31, respectively, which has grown at a CAGR of 7.87 per cent during the financial years between 2018 and 2020. In the financial year 2020, due to various reasons including the political unrest, worsening socio-economic conditions, and foreign currency restrictions in certain African countries, the company reduced exporting its products to these countries, impacting the overall revenue & profitability of the company.

Financials of the company

Over FY18-20, Bectors' revenue/EBITDA/PAT grew at a CAGR of 4.8 per cent, 4.2 per cent, and 8 per cent, respectively.

Valuation and recommendation

At the higher end of the price band of Rs 288, the issue is valued at 21.73 times of its annualised H1FY21 earnings per share of 6.78 and post-issue equity. Compared to other players, it looks attractive as others are trading at a much higher valuation. The market cap to sales (FY20) will come around 2.21 times. This again looks attractive as other listed players except for one, are trading at a higher level. Therefore, we advise our readers to invest with limited exposure.

^Annualised earnings of H1FY21 and based on post-issue equity