Mrs Bectors Food Specialties IPO - 15.12.2020
Mrs Bectors Food is available at a P/E of 22x on FY21 EPS estimates (annualized), which looks attractive
Biscuits and bakery products maker Mrs Bectors Food Specialties opens its Rs 540-crore maiden public issue for subscription on December 15 with a price band of Rs 286-288 per share.
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Mrs Bectors Food Specialties IPO
The IPO consists of a fresh issue of Rs 40.54 crore and an offer for sale of Rs 500 crore. The company will utilise funds from its fresh issue for expansion of the Rajpura manufacturing facility by establishing a new production line for biscuits.
Given the attractive valuations compared to listed peers, strong improvement in financial parameters, robust growth prospects, brand equity and strong institutional business with likely robust opportunity to grow in retail business, brokerages are positive on Mrs Bectors and advise subscribing the issue for listing gains as well as medium to long-term perspective.
"At the higher price band of Rs 288, the stock is valued at 28x TTM (trailing twelve months) earnings of Rs 10.32, which looks quite attractive considering the brand equity, distribution network, strong fundamentals and robust growth prospects," said LKP Securities which recommended investors to subscribe for this initial public offering of Mrs Bectors Food Specialties.
Mrs Bectors Food is available at a P/E of 22x on FY21 EPS estimates (annualized), which also looks attractive, given its higher profitability compared to similar sized peers.
Considering its future growth prospects in packaged biscuits and QSR segment, the brokerage also recommended a subscribe rating with a long-term perspective.
On the basis of FY21 EPS estimates, Nestle India is available at a P/E of 81x, Britannia Industries 48x, Prataap Snacks 84x and DFM Foods 99x, said Geojit.
Incorporated in 1995, Mrs Bectors Food is one of the leading player in the premium and mid-premium biscuit, and premium bakery segment in North India. The company sells biscuits under the brand name Mrs Bector's Cremica whereas bakery products are manufactured under the brand name of 'English Oven'.
Its biscuits segment contributed 68 percent to total revenue in 1HFY21 and bakery products 20.51 percent in same period.
All of its products are manufactured in-house across 6 strategically located manufacturing units in 5 different cities. It is also one of the largest supplier of buns in India to reputed QSR chains such as Burger King India, Connaught Plaza Restaurants, Yum! Restaurants (India) and Hardcastle Restaurants.
"The company, being one of the leading brands in biscuits and bakery businesses in North India, has established presence in retail and institutional bakery business with modern and automated production process & a focus on quality control. It has a widespread and established sales and distribution network & experienced promoter and management team," said Hem Securities. Therefore, looking after all, the brokerage recommend 'subscribe' to the issue both for short & long-term horizon.
The company has a strong distribution network in India and globally in the general trade and the modern trade segment. Company is also one of the largest suppliers of biscuits to Canteen Stores Department of Government of India (CSD) supplying in 33 locations across India and an approved and listed supplier for Indian Railways having strong presence across Railway Station Canteens and their stores in North India.
The company is one of the leading exporters of biscuits from India and it exported biscuits under company's 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 and buying houses.
"We believe Bectors Food IPO gives investors a unique opportunity to invest in India's fastest growing retail & institutional bakery business. We like Bectors' packaged foods story with a unique integrated business model having uniquely positioned in biscuits export market with approx 12 percent share of the Indian biscuit export market and contribute more than 50 percent by value of biscuit exports. With changing lifestyles and increasing preference for branded and packed foods, Bectors food is well placed to tap the growth in organized retail,"
Bectors IPO can subscribe with medium to long-term perspective as market always rewards a player which has the high visibility and growth potential.
Favourable dividend policy (paid 7.5 percent per year for the last three fiscals) gives investors a additional comforts to go long, the brokerage believes.
Mrs Bectors Food has shown a robust improvement in its financials over the last three years on various parameters such as margins, cash flows, working capital and borrowings, said LKP Securities. The company has improved its EBIDTA margins from 12 percent in FY18 to 17 percent in H1FY21 with overall improvement in the gross margins by 400bps over the same period. PAT margins further witnessed incremental expansion owing to lower finance costs.
The company has turned free cash flow (FCF) positive in H1FY21. The company generated FCF of Rs 31.5 crore in H1FY21 from a negative FCF of Rs 71.5 crore in FY18. On the working capital front as well the company has shown improvement by reducing the overall working capital days from 33 days in FY18 to 25 days in H1FY21. Net Debt of the company has also reduced from around Rs 133 crore in FY18 to Rs 107 crore in H1FY21 bringing down its net debt/ equity ratio to 0.21x.
During FY18-FY20, revenue grew at a CAGR of 5 percent while PAT declined by 8 percent CAGR. Financial performance has started to improve in FY21, reporting PAT of Rs 39 crore on a revenue of Rs 431 crore in H1FY21, up by 284 percent on a YoY basis, on the back of higher demand of biscuits and bakery products during the pandemic.
"With focus on metro cities where premiumization products are on demand, the company is well placed to benefit from the same. Introduction of innovative products, expansion of the distribution network and operational efficiencies would drive the growth ahead. Thus considering the above observations, we assign a subscribe rating for the issue,"
Based on the conservative estimates, the brokerage is forecasting a topline of Rs 970.05 crore in FY23 (a growth of 8.4 percent CAGR over FY20-23), with an EBITDA and PAT margin of 15.2 percent and 7.5 percent, respectively, in FY23 as compared to a respective level of 12.2 percent and 4 percent in FY20.
In the biscuits mark, Mrs Bectors faces competition from various domestic and multinational companies in India including national players such as Britannia Industries, Parle Biscuits, ITC and Anmol Industries, and certain regional players such as Surya Agro Food.
Within the branded bakery market, Mrs Bectors faces competition from Harvest Gold Foods India, Britannia Industries, Modern Food Industries (India) and Bonn Nutrients which currently have larger manufacturing capacity and have larger market presence.
The company invested Rs 258.5 crore between FY18 to September 2020 for capacity expansion which has started to yield results and a new production line for biscuits at Rajpura manufacturing facility expected to improve revenue in the future.
The company plans to increase penetration in select export markets, such as South, Central and North America, the MENA region and Australia. The company introduced new products such as sub breads, pizzas, garlic breads, cheese garlic bun fills, frozen cookies to improve sales.
However, investors should also consider some risks and concerns (which pointed by brokerage houses) before subscribing the issue like no long-term contracts with its QSR customers, unable to enter into new categories under Cremica brand, unfavourable macroeconomic conditions, unfavorable product-mix, delay in the business revival of the QSR sector and competition.
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