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In the recent past, Contract manufacturing as a segment has gained investor attention. We now have a new kid on the block.
Mrs. Bectors Foods opens for IPO on Dec 15th. It is into manufacturing of biscuits & bakery products under Mrs. Bector’s ‘Cremica’ and ‘English Oven’ brands. They are also the largest B2B suppliers for all major QSR players.
Should you invest?
The Offer
- Offer value: 540.54 Cr
- Issue size: 1,87,68,749 Equity Shares of Face Value 10/- each.
- Offer for sale: 1,73,61,111 Shares worth 500 Cr
- Fresh issue: 14,07,638 Shares worth 40.54 Cr
- IPO price: Rs 286 – 288/-
- IPO dates: Dec 15th to Dec 17th, 2020
- Retail quota: 35%
- Listing day: Probably on Dec 28th
The offer for sale is by Linus, Mabel GW Crown and GW Confectionery. They invested in the stake in the company in 2015 at an average price of Rs 175/-.
The fresh issue of 40.54 Cr will be used for establishing a new production line for biscuits at Rajpura manufacturing facility.
Industry
India’s packaged food industry is currently valued at 1.6L Cr. In the last 5 years, it had grown at a CAGR of 10.7%. It is expected to clock a CAGR of 10.4% over the next 5 years to reach 2.6L Cr market.
The Indian branded biscuits & bakery retail market is valued at 45,000 Cr. It is dominated by brands like Britannia, Parle and ITC which has 66% market share. Indian branded biscuits market is expected to grow by 9.2% over the next 5 years.
The biscuit market is largely classified into two factors.
- Glucose (Mass segment)
- Non Glucose (Mid & Premium)
Total market size of Mid-premium & Premium is 32,100 Cr. It has grown at a CAGR of 12.2% over the last 5 years. It is expected to reach 50,400 Cr by 2025. Mid & Premium segment is growing faster than overall branded biscuit market.
India exports $180Mn worth of biscuits per annum. It has a market share of 2% of world exports. The key markets has been USA, African countries, Middle East. Parle, Britannia & Bectors are leading exporters of biscuits from India. Britannia & Bectors had a share of ~22% and ~12% respectively in the total exports.
Food Service Market
The size of the food services market in India is at 4.23L Cr and is expected to grow by 9% over the next 5 years. The QSR segment commands a market size of 51,000 Cr as of 2020. It is expected to grow at 9% CAGR over the next 5 years.
Domino’s, McDonald’s, CCD, Subway, Burger King and Pizza Hut together contribute 70% of the chain market. Together they have a market size of 7,700 Cr in value terms.
Burgers & Sandwiches account for 31% of the QSR market, followed by Pizza with 27%. Chicken and Indian ethnic had a market share of 15% each.
The chain market has shown impressive growth in the last 5 years – 18% CAGR. Some of the reasons for this are
- Increased eating out and ordering in behaviour – 60% of Indians eating out are millennials (15-34 age group), companies including Burger King target this market segment.
- Rise of platforms like Zomato and Swiggy – delivery market has increased from $4.7 billion in FY16 to $10.2 billion in FY20, projected to reach $18 billion by 2025.
- Rapid increase in cloud kitchen services across Metros & Cities.
About the Company – Mrs. Bectors Food
Incorporated in 1995, Mrs. Bectors Food is one of the leading manufacturer of premium and mid-premium biscuits. They have a range of categories such as cookies, creams, crackers, digestives and glucose under the flagship brand ‘Mrs. Bector’s Cremica’. They also manufacture and market bakery products like breads, buns, pizza bases and cakes under the brand ‘English Oven’. ‘Cremica’ is a known brand in North India. They have good presence in Punjab, Haryana, Himachal Pradesh, Jammu & Kashmir.
They are the largest supplier of buns to QSR chains like Burger King, Connaught Plaza (McDonald’s East & North India), Hardcastle (McDonald’s West & South India) & Yum! Restaurants (KFC, Pizza Hut, Taco Bell)
The company has 2 main categories in its product portfolio. Biscuits & Bakery products.
Biscuits: This segment contributes around 60% of the revenues. The are into wide variety of cookies, creams, crackers, and digestives. They recently launched new products such as Trufills, Pista Almond Cookies, Honey Oatmeal Cookies etc.
They have 3 biscuit manufacturing facilities in Punjab. 1 each in Himachal Pradesh and Greater Noida. Biscuit products has a network of over 644 distributors, 384 SKUs, 154 super stockists & present in 458,000 retail outlets. The company also supplies biscuits to Canteen Stores Department & Indian Railways. They export to 64 countries & is one of the leading exporter of biscuits from India.
The MRP of the biscuits in domestic market ranges between Rs 3/- to Rs 80/-. Biscuit generates an EBITDA margin of 8.8% for the company.
Biscuit Product Portfolio. Source: DRHP
Bakery products: This segment contribute around 17% of the revenues. They manufactures premium breads like multigrain bread, sandwich bread, pav breads, pizza base, buns, cakes etc under the brand ‘English Oven’. They have 2 dedicated manufacturing facilities in Khopoli & Bengaluru for Bakery products.
The company is one of the largest vendors with a market share of 7% in dough market for all major QSR players.
This segment contribute highest EBIDTA margin of 17.6% for the company. The MRP of the Bakery products in domestic market ranges between Rs 10/- to Rs 120/-.
Bakery Product Portfolio. Source: DRHP
The company was founded by Rajni Bector and promoted by Mr. Anoop Bector. The promoter group owns 52.5% (pre-offer) of the company.
Financials
Revenue has grown at a CAGR of 3.21% in the last 3 years. EBITDA Margins sustained at 12% during the same period. Net Profit had de-grown by -6.01% in the last 3 years. Net margins have contracted by 100 bps to reach 4% in the last 3 years.
Return ratios have come down in the last 3 years. ROE was 14.3% in 2018 came down to 10% in 2020. ROCE was down from 18% to 12.68% as of now.
The company has 103.7 Cr of short term & long term borrowings. Trade receivables stands at 22.5% of the revenue with a working capital cycle of 33 days. The company has a strong balance sheet. It has 0.34 Debt to Equity and holds 56 Cr of Cash & cash equivalents. 
The company is looking to expand more into premium biscuits & bakery segment. They continue to increase the distribution network & acquire new clients for the B2B segment. They are looking to launch new products like frozen buns, rusks, dessert jars and brownies. The company plans to expand their export markets in USA, Australia & Middle East.
View & Valuation
The revenues are not consistent and so are the margins. Because of the B2B nature and low brand pull, the margins continue to remain under pressure.
At the upper band of Rs 288/- per share, the company is quoting at a PE of 55.4 times as of March 2020. We believe the pricing is on a higher side. On normal market conditions, these valuations are commanded by a strong FMCG player and not by a B2B player.
This IPO is to provide exit for the PE funds. It is not for the growth of the company (except 40.54 Cr plant expansion). Hence nothing much is left on the table.
Given the tiny size of the IPO, it may see huge subscriptions. One can apply 1 lot for listing gains. However, the company has to show consistency in earnings to consider for the long term.
Disclaimer: Our analysis is purely about the IPO, and does not consider your specific financial goals and risk profile, please consult an Investment Advisor before taking any action.
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