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Mrs. Bectors Food Specialities Ltd - IPO Review

CA KANJ GOEL 
on 14 December 2020

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Background of the Company

The Company was incorporated in 1995. Mrs. Bectors Food Specialities Ltd is one of the leading companies in the premium bakery segment and premium and mid-premium biscuit segment in North India. The company's product portfolio mainly consists of two categories of products; Biscuits (cookies, creams, crackers, digestive, etc.) and Bakery products (bread, buns, pizza bases, cakes, etc.).

Mrs. Bectors manufactures and sells biscuits under its brand name "Mrs. Bector's Cremica" whereas bakery products are manufactured under the brand name of "English Oven" and offered in the premium market segments such as Delhi NCR, Mumbai, and Bengaluru. As of June 30, 2020, its bakery segment has a total of 96 products and the Biscuits segment has a total of 384 items.

All of its products are manufactured in-house across 6 strategically located manufacturing units in 5 different cities i.e. Maharashtra, Karnataka, UP, Himachal Pradesh, and Punjab. The company has a very strong distribution network of 154 super-stockists and 644 distributors supplying products through 458,000 retail outlets and 3,594 preferred outlets. It sells its products to 23 states in India and also exports its products under its own brand name and third-party private labels to 64 countries all over the world.

Object of the Issue

The offer consists fresh issue of equity shares for a consideration of Rs. 40.5 crores. Proceeds of the same will be used for funding the project cost towards the Rajpura Expansion Project which will enhance the manufacturing capacity of the Company.

Promoters and Directors of the Company: The Company is being promoted by Mr. Anoop Bector and other members of the Bector Family, who are not selling any shares out of their holding their pre and post ipo holding (in number of shares) is going to remain the same.

Mrs. Bectors IPO Review

S.No.

Name of the Shareholder

Pre Offer Number of Shares

Post offer number of Shares

1

Mr. Anoop Bector

1,25,50,800.00

1,25,50,800.00

2

Rashmi Bector

100.00

100.00

3

Ishaan Bector

100.00

100.00

4

Suvir Bector

100.00

100.00

5

Anoop Bector HUF

20,05,970.00

20,05,970.00

6

AB Family Trust

59,55,462.00

59,55,462.00

7

IB Family Trust

47,63,111.00

47,63,111.00

8

SB Family Trust

47,63,111.00

47,63,111.00

Total

3,00,38,754.00

3,00,38,754.00

Key Strengths of the Company:

1. Industry Growth and Overview

Global market biscuit market is estimated to be worth Rs. 7,839.00 billion in 2020 projected to grow at a CAGR of 6% over next five years. It is driven by rising urbanisation, increasing disposable incomes and demand for convenience foods. Consumers prefer to consume biscuits with tea or coffee. New flavours, taste, shapes, health claims and packaging impact consumer preferences.

Image

The Indian biscuit market size is estimated to be Rs. 400.00 billion in 2020 representing ~5% of the global market. Indian market is expected to grow at a CAGR of 9% till 2025 and reach Rs. 620.00 billion. This growth will increase India’s share in the global market to ~6% by 2025.

Image

Per capita biscuit consumption

Per capita biscuit consumption of biscuits in India has increased by 16% over the last five years. However, it is far behind developed economies like US, UK and other developing Asian economies like Japan and Sri Lanka. Though there is huge headroom for growth in India for biscuit market, it is complex market that requires regional customisation.

Per Capita Consumption KG/Year

13.60

10.00

7.20

4.00

2.50

Country

UK

USA

JAPAN

Sri Lanka

India

It is evident from above data that the demand of the products company manufacture is huge and it has bright prospects for the growth in the upcoming future as well globally, the demand of the product in India has brighter prospects as compared to the rest of the world and per Capita consumption of biscuits in India is much lower than the developed countries which makes prospects of the company much stronger.

2. Strong Corporate Customer Base

The Company enjoys a very strong customer base in the QSR segment and supplies buns, breads to the giants of the Industry, every major player in the QSR segment is the customer of the Company. These QSR customers doesn’t change their suppliers quickly because of the quality concerns which assures the Company may continue to derive the growth from the segment. List of major customers is as Under

  1. Burger King
  2. Connaught Plaza Restaurants Private Limited (Mc Donald)
  3. Hardcastle Restaurants Private (Mc Donald)
  4. Yum! Restaurants (India) Private Limited (Operating KFC, PIZZA HUT)

3. Rising per KG proceeds from the Exports

The Company supplies it’s products in more than 60 countries world wide and derive 20%-30% of it’s revenue from operations through exports only. The company has shifted it’s focus from the countries giving lower realisaton for the products to the higher amount paying countries which may increase the gross margin percentage for the sales leading to higher profits. The below table depicts the rising sales realization of per KG for the biscuits:

Particulars

For the Period 1.4.2020 to 30.09.2020

For the Period 1.4.2019 to 30.09.2019

For the Period ended 31.03.2020

For the Period ended 31.03.2019

For the Period ended 31.03.2018

Sales realisation per KG (Biscuits)

101.63

95.31

94.29

87.33

81.04

4. Growing Profits and Cash Flows

The Company has been generating rising profits and free cash flows for the past which favors the fortune and investors are always inclined towards such companies and give a higher valuation to such stocks.

Below tables indicates the summary of profit and loss and cash flows for the Company:

 

a) Summary of statement of profit or loss for the past period

Particulars

For the Period 1.4.2020 to 30.09.2020

For the Period 1.4.2019 to 30.09.2019

For the Period ended 31.03.2020

For the Period ended 31.03.2019

For the Period ended 31.03.2018

Revenue from operations

4,309.94

3,646.16

7,621.22

7,836.65

6,939.65

Total income

4385.55

3662.08

7649.76

7860.29

6957.55

Profit Before Tax

521.41

120.89

391.8

506.56

528.41

Profit after tax

388.83

101.74

304.03

331.5

358.93

Basic EPS

6.79

1.78

5.31

5.79

6.27

Diluted EPS

6.78

1.77

5.3

5.78

6.26

b) Summary of Cash Flows for the past period

Particulars

For the Period 1.4.2020 to 30.09.2020

For the Period 1.4.2019 to 30.09.2019

For the Period ended 31.03.2020

For the Period ended 31.03.2019

For the Period ended 31.03.2018

Cash flow from operating activities

679.71

375.52

1,094.85

539.86

464.99

Cash flow from investing activities

-564.78

-183.31

-432.29

-612.51

-1,120.36

Cash flows from financing activities

-149.50

-224.44

-510.85

69.17

578.05

Net increase/(decrease) in cash and cash equivalents

-34.57

-32.23

151.71

-3.48

-77.32

 

Key Risks Factors should be considered before investing:

  1. Valuation: The equity price per share @ 288 per share will be trading at a P/E ratio of 54 based on FY 2020 EPS which is not a cheap valuation as compared to it’s peers which are having larger market share and wide range of products as compared to Mrs. Bectors.
  1. Adverse Effect on QSR Sales due to Covid: The company enjoys the kind of monopoly in the segment of supplying of buns, breads etc to QSR chains and every giant of the segment i.e Mc Donald, Pizza Hut, Burger King etc are clients of the Company. With the emergence of the Covid people had avoided visiting QSR and they are preferring the home made foods which may adversely effect the sales of QSR supply chains resulting lower revenues for the Company.
  1. Change in eating habits due to Covid: The world is going through from COVID-19 pandemic, resulting the change of food habits among the people, people have become more health conscious and their consumption had shifted to more healthy foods which may adversely effect the sales of Biscuits, Breads, buns etc world wide leading to de-growth in the sales of the Company and lowering the Profits.
  1. Further Lock Downs in the Countries: The countries worldwide are witnessing the second or third wave of the Covid-19, due to which few countries are imposing lock down in their country again, the Company exports it’s products in 68 countries world wide any further lock down may lead to lower sales for the company.
  1. Market Risk: The Company has launched it’s IPO at a time where the fundamentals are near zero, economies are witnessing the a de-growth in their GDP, but the market has seen a sharp rise arising out of the liquidity pumped by the Central Banks of the countries globally. Any bad news may lead to a sharp corrections in the markets which is going to affect the stock as well.

Concluding Remarks

The Company enjoys almost the monopoly in the segment wherein it operates hence, an investor building the long term portfolio shall always invest in such stocks which have niche in their segments and accumulate such stocks on all dips.

Disclaimer

All the information have been compiled from red herring prospectus of the Company, FMCG industry reports, and other public reports, authenticity of the content lies on the authenticity of the information processed. No information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any manner whatsoever it may be. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor prior to making any actual investment decisions, based on information published here. Any reader taking decisions based on any information published here does so entirely at own risk.


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