Mrs Bectors Food Specialties IPO Review | Should I Subscribe?

Detailed Analysis of Mrs Bectors Food Specialties IPO

Introduction

The Indian IPO Market is on fire. After strong listing of companies like Happiest Minds, Route Mobile, Mazagaon Dock and Gland Pharma, more companies are expected to launch their IPOs in December. Recently Burger King made a strong debut on the bourses and listed at Rs 115, a ~92% per cent premium over the issue price of Rs 60. Following the trend promptly, Mrs. Bectors Food Specialties, one of the leading companies in the premium biscuits and bakery segment are next in line to launch an IPO worth Rs.540.5 Cr. It will open for subscription on December 15 with the price band fixed at Rs.286-288 per share. Let us analyse this IPO in detail in this blog

Mrs Bectors Food Specialties IPO Review

IPO Details

• Mrs. Bectors Food Specialties IPO’s total issue size is Rs.540.5 Cr, out of which only Rs. Rs. 40.5 Cr (i.e. 14.17 Lakh Equity Shares) is fresh issue. The remaining Rs.500 Cr (i.e. 1.74 Cr Equity Shares) is an Offer For Sale by Private Equity Investors, namely – Linus Private Ltd, Mabel Private Ltd, GW Crown Pte Ltd and GW Confectionary Pte Ltd.

• Proceeds of the fresh issue will be utilized for financing the project cost towards the expansion of the Rajpura Manufacturing Facility in Punjab and for establishing a new production line for biscuits.

• The icing on the cake is that the promoters are vending off only 1.45% of their stake and still retain a great deal of skin in the game. While Linus Private Ltd, which have a shareholding of 22.91%, are liquidating a big chunk of shares worth Rs. 245 Cr.
• The details about stake sale and pre IPO shareholding are as below:

• Fun Fact – The company had attempted for an IPO in 2018 and obtained SEBI’s assent, but decided not go for it and deferred the same owing to unfavorable market conditions. Hence, this is their second strive.
• The IPO will be open for subscription from 15^th December’20 to 17^th December’20. Details of the IPO are as given below:

Company Overview

• Incorporated in 1995 , company was founded by Mrs. Rajni Bector.

• One of the leading companies in the premium and mid-premium biscuits segment in North India and also a leading premium bakery player in India.

• Product Portfolio consists of 2 categories of products – Biscuits – under the brand name “Mrs. Bector’s Cremica” and Bakery Products – under the brand name “English Oven”.

• Their current product portfolio is well diversified. The biscuits segment has a total of 384 items and the bakery segment has a total of 118 products.

• They are the sole / preferred supplier to leading QSRs (McDonald’s, KFC, Burger King, Pizza Hut), Multiplexes (PVR), Cloud Kitchens and Connaught Plaza.

• One of the largest selling and fastest growing brand in premium bakery segment in Delhi, NCR, Mumbai & Bengaluru.

Manufacturing facilities

• All the products are manufactured 100% in-house across 6 strategically located manufacturing units in 5 different states – Maharashtra, Karnataka, UP, Himachal Pradesh and Punjab.

• Their chief markets include Delhi, NCR, Mumbai & Bengaluru. The strategically located manufacturing facilities in proximity to target markets minimizes freight & logistics related expenses.

Key Drivers for Sustainable Earnings growth

Financial Performance

Revenue from Operations

• The company has maintained stability in revenues from operations over the last 3 years. Also, their revenues have soared by 18% YoY from Rs. 365 Crore in H1FY20 to Rs. 431 Crore in H1FY21, which is a positive sign.

• The Biscuits segment is responsible for 59% of revenues and the Bakery segment (i.e. Branded Breads and Institutional Bakery Sales) contribute a fine 34%. Others which entails contract manufacturing brings in the residual 7% of revenues.

Profitability Trend

• Mrs. Bectors Food Specialities have had steady EBITDA Margins in the last 3 years. However, H1FY21 has bucked the trend and EBITDA Margin has jumped to 16.8% from 12.2% in FY20. This could be as a result of robust demand during the pandemic and innovative cost measures implemented.

• The company’s PAT has been lackluster, experiencing consistent downfall from FY18 to FY20. However, the tide has turned in H1FY21 as there has been a phenomenal spike in PAT Margins, currently standing at 9% from the previous 4%. However if the company can sustain such high margin is still a concern.

Operating Metrics

• Mrs. Bectors Food Specialities had negative free cash flows to the tune of Rs 71.5 Crore and Rs. 7.6 Crore in FY18 and FY19 respectively. They’ve managed to overcome hurdles, thereby turning a corner with positive free cashflow of Rs.67 Crores in FY20 as well as Rs. 31.5 Crore in H1FY21.

• There has been Capex of around Rs.258.5 Cr over last 3.5 years to build facilities with modern technologies, which has come to fruition. There has been a substantial rise in capacities,15% for the biscuits segment & 42% for the bakery segment.

• Decline in working capital days mainly on the back of rise in capacities & improved efficiencies due to modern production & automated systems

Return Ratios

• The company’s ROCE and ROE figures have been sluggish and in a downward trajectory over the past 3 years.

• Nonetheless, currently both ROCE & ROE numbers are at an inflection point due to sharp rise in profitability driven by strong sales in H1 FY21.

Competitive Strengths

• A leader in Biscuits & Bakery segments with 4.5% market share in premium & mid-premium biscuits market in North India and 5% market share in Branded bread segment in India.

• Well diversified product portfolio with strong geographical reach and solid customer base.

• Major Food Certifications : USFDA, BRC Global Standards, FSSC (Food Safety System Certification)

• Leading Biscuits Exporter to 64 Countries and tie-ups with leading global retailers. Exports contributed 22% of revenues in FY20.

• Modern Production Processes with Automated systems. Company sourced best in class equipment from Denmark, Germany, US and Italy. Invested in Capex of Rs.258.5 Cr during FY18 to H1FY21 to build capacities with superior capabilities .

• Strong Sales & Distribution Network – 4.5 Lakh Retail Outlets, 3,600 Preferred outlets across 23 states in India.

• Rise in Realization due to Focused Geography Strategy:
  • Company has shifted focus to developed and emerging markets such as Asia, Australasia, Europe, MENA region and North America
  • Caters various retailers by introducing a wide range of premium products focusing on generating higher margins

Conclusion : Should I Subscribe?

If investors want to apply for listing gains, they can subscribe to the issue as there is a possibility of listing gains because of high grey market premium currently of ~60%. It seems to be a good bet to ride on the consumption theme. However, from a buy and hold perspective, it is better to watch out if company can sustain the improved performance given in H1FY21 in the future.