Mrs. Bectors Food Specialities coming with an IPO to raise upto Rs 544 crore

12 Dec 2020

Mrs. Bectors Food Specialities

  • Mrs. Bectors Food Specialities is coming out with a 100% book building; initial public offering (IPO) of 1,89,00,965 shares of Rs 10 each in a price band Rs 286-288 per equity share.
  • Not more than 50% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not more than 15% of the issue will be available for the non-institutional bidders and the remaining 35% for the retail investors.
  • The issue will open for subscription on December 15, 2020 and will close on December 17, 2020.
  • The shares will be listed on BSE as well as NSE.
  • The face value of the share is Rs 10 and is priced 28.60 times of its face value on the lower side and 28.80 times on the higher side.
  • Book running lead managers to the issue are SBI Capital Markets, ICICI Securities and IIFL Securities.
  • Compliance Officer for the issue is Atul Sud.

Profile of the company

The company was incorporated as Quaker Cremica Foods Private Limited on September 15, 1995, as a private limited company under the Companies Act, 1956, pursuant to a certificate of incorporation dated September 15, 1995 issued by the Registrar of Companies, N.C.T of Delhi and Haryana. The name of the company was changed to Mrs. Bectors Food Specialities Private Limited as approved by its shareholders by way of a resolution dated December 10, 1999 and a fresh certificate of incorporation dated December 15, 1999 was issued by the Registrar of Companies, N.C.T of Delhi and Haryana. The name of the company was changed to Mrs. Bectors Food Specialities Limited pursuant to a resolution of the shareholders dated December 7, 2001 and a fresh certificate of incorporation dated December 10, 2001 was issued by the Registrar of Companies, N.C.T of Delhi and Haryana.

The company is one of the leading companies in the premium and mid-premium biscuits segment and the premium bakery segment in North India. It manufactures and markets a range of its biscuits such as cookies, creams, crackers, digestives and glucose under its flagship brand ‘Mrs. Bector’s Cremica’. It also manufacture and market bakery products in savoury and sweet categories which include breads, buns, pizza bases and cakes under its brand ‘English Oven’. It supplies its products to retail consumers in 26 states within India, as well as to reputed institutional customers with pan-India presence and to 64 countries across six continents during the Financial Year ended March 31, 2020.

All the company’s products are manufactured in-house at its six manufacturing facilities located in Phillaur and Rajpura (Punjab), Tahliwal (Himachal Pradesh), Greater Noida (Uttar Pradesh), Khopoli (Maharashtra) and Bengaluru (Karnataka), which enables it to have an effective control over the manufacturing process and to ensure consistent quality of its products. All its manufacturing facilities are strategically located in proximity to its target markets, which minimizes freight and logistics related time and expenses. It has received several quality certifications and accreditations, including certification from the FSSC 22000, the U.S. Food and Drugs Administration, British Retail Consortium (BRC) and Sedex Members Ethical Trade Audit (SMETA).

Proceed is being used for:

  • Financing the project cost towards expansion of the Rajpura Manufacturing facility by establishing a new production line for biscuits.
  • Meeting general corporate purposes.

Industry overview

India’s packaged food business is currently valued at Rs 1,636.00 billion. It has grown significantly in last five years on account of rising incomes, urbanization, favourable demographics and changing lifestyle. The sector’s retail revenue size was worth Rs 984.00 billion in Financial Year 2015, about half of its current size and has registered a CAGR of around 10.70% from Financial Year 2015 to Financial Year 2020. It is estimated to grow at CAGR of 10.40% in next five years to reach at Rs 2,687.00 billion. Demand for packaged foods surged in the first quarter of Financial Year 2021 as people stocked up in panic during the lockdown period. The shutting down of foodservice options also led to a rise in the eating occasions at home. While other sectors in retail are expected to contract by 30-35% during Financial Year 2021 due to the impact of COVID-19, the packaged food segment is expected to grow at an accelerated growth rate of 14%. The recently announced reforms around agri-marketing (Amendment in Essential Commodities Act, APMC Act, and Development of a legal framework for contract farming) are expected to bring efficiencies in the value chain and improve value realization for farmers. These will also encourage inflow of private investments in the food processing industry, thereby building a platform for jobs in the rural India.

The Indian biscuits and bakery retail market is valued at Rs 450 billion and is expected to grow at a CAGR of around 9% over the next five years. Biscuits and other snacking bakery products such as rusks, wafers and tea cakes contribute almost Rs 400 billion or 89% to the total market. The balance 11% is contributed by breads including loaves, buns, pizza bases which together account for Rs 50 billion. The Indian biscuit market size is estimated to be Rs 400 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 billion. This growth will increase India’s share in the global market to around 6% by 2025. 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.

Pros and strengths

One of the leading brands in biscuits, bakery businesses in North India: The company is one of the leading companies in the premium and mid-premium biscuits segment in North India and sell its products under its flagship brand ‘Mrs. Bector’s Cremica’. It is among the top two Indian biscuit manufacturers in the premium and mid-premium biscuits segment in Punjab, Himachal Pradesh, Ladakh and Jammu and Kashmir. In the Financial Year 2020, it had a market share of 4.5% of the premium and mid-premium biscuits market in North India respectively. Its customers associate the brand ‘Mrs. Bector’s Cremica’ with high quality premium and midpremium biscuits that incorporates quality, taste and value. Its brand recall is enhanced through its arrangements with certain preferred retail outlets, which enhance its brand visibility and presence in their shops by displaying its products prominently in their shelves. It focuses more on digital marketing initiatives such as social media integration, influencer marketing and content marketing. It has also started its brand promotions in various e-commerce channels for its biscuits and bakery products and are listed with various e- commerce platforms in India.

Established presence in retail and institutional bakery business: The company markets and sells its premium bakery products in savoury and sweet categories such as breads, buns, pizza bases, and cakes to its retail customers under its brand ‘English Oven’ which is one of the largest selling brands in the premium bakery segment in Delhi NCR, Mumbai and Bengaluru. It also focus on manufacturing and offering a wide variety of premium breads and other bakery products in savoury and sweet categories to its customers based on expansive understanding of the evolving market for bakery products in India. It is one of the few bakery companies in India that can handle fresh, chilled and frozen products and this model enables it to distribute its bakery products across India. It is also the largest supplier of buns to reputed QSR chains and it benefit from its strong association with these customers, including in terms of its adoption of stringent quality controls and industry best practices such as use of premium quality raw materials, which its customers expect of it. It constantly focus on increasing the variety of its products for its retail as well as its institutional customers.

Modern, automated production processes with focus on quality control: The company’s production facilities are strategically located in proximity to its target markets, which minimizes freight and logistics related time and expenses. It currently manufactures biscuits in its Phillaur Manufacturing Facility, Rajpura Manufacturing Facility and Tahliwal Manufacturing Facility. It currently manufacture its breads and other bakery products including buns and frozen products offered to retail consumers as well as its institutional clients, in its Greater Noida Manufacturing Facility, Khopoli Manufacturing Facility and Bengaluru Manufacturing Facility. In order to ensure that its products meet the desirable quality standards, it currently manufactures all its products at its own facilities. Its manufacturing facilities are equipped with advanced equipment, modern technology and automated systems. It is a quality-focused company and are committed to maintaining stringent quality standards at all steps of the manufacturing cycle, from procurement of the raw material to dispatch of the finished product. It uses premium quality raw materials and ingredients in its products.

Wide spread and established sales and distribution network: The company’s extensive sales and distribution network allows it to reach a wide range of consumers and ensures effective penetration of its products and marketing campaigns. Its sales and distribution network is strategically spread across different states in North India, and has an especially strong outreach in certain urban and semi urban markets, where it expects growth to be more significant. It distributes its biscuits across 23 states in India, through its widespread network of super stockists and distributors. Its extensive distribution network enables it to serve its customers and markets in an efficient and timely manner. Additionally, most of its products are sold through modern trade channels including Walmart India. It also directly supply biscuits to institutional clients like CSDs, Indian Railway Canteens and stores in North India. The company is the largest suppliers of biscuits to CSD and an approved and listed supplier for Indian Railways having strong presence across Railway Station Canteens and their Stores in North India.

Risks and concerns

Revenue significantly depends on sale of biscuits: The company will depend on the sale of its biscuits for a majority of its income in the near future. Therefore, factors such as change in consumer preference for biscuits and the increasing sales of other substitute products in the market may have an adverse impact on its total income. It cannot assure that it will be able to maintain the sale of its biscuits in the future which will have a positive impact on its total income. In addition to its Phillaur Manufacturing Facility, Rajpura Manufacturing Facility and Tahliwal Manufacturing Facility are dedicated for manufacturing of its biscuits. If the consumer preference for its biscuits decline or sale of other substitute products increase in the future or sale of its biscuits fall due to any reason, it may experience significant loss including cost involved for establishing and maintaining these manufacturing facilities which in turn will lead to lower revenues and gross and operating margins resulting in to material adverse effect on its business financial condition and results of operation.

Significant portion of revenue depends on exports to international consumers: The company is a leading exporter of biscuits from India. It exports biscuits to overseas geographies including Australasia, East and South Africa, Europe, MENA region, and North America. Its export revenues accounts for 22%, 31.50%, 33.17%, 24.51% and 20.87% of its revenue from operations in the Financial Year 2020, 2019, 2018, for the period between April 1, 2020 to September 30, 2020 and the period between April 1, 2019 to September 30, 2019 respectively. As part of the terms and conditions of certain of company’s purchase orders, it is subject to conform to standards prescribed by the United States Food and Drug Administration, the United States Department of Agriculture or any other agency with competent jurisdiction. Additionally, in the event it does not comply with specifications prescribed by its consumers, outstanding payments applicable to it may be withheld. If any disputes arising out of any non-compliances under these purchase orders, it may be subject to jurisdictions other than India. It cannot assure that such proceedings, if initiated, will not be determined against it and it may become unfeasible for the company to manage such litigation or obtain enforcement of awards made in such suits.

Rely largely on third party distributors, super stockists: The company rely largely on third party distributors and super stockists to sell its products to retailers who place its products in the market. For the period between April 1, 2020 to September 30, 2020, its distribution network for its biscuit products included over 748 distributors and 196 super stockists supplying to wide range of customers through 458,000 retail outlets. Its ability to expand and grow its product reach significantly depends on its ability to influence the market that it caters to and effective management of its distribution network. It continuously seek to increase the penetration of its products by appointing new super stockists to ensure wide distribution network targeted at different consumer groups and regions. It cannot assure you that it will be able to successfully identify or appoint new super stockists or effectively manage its existing distribution network. It may not be able to compete successfully against larger and better-funded distribution networks of some of its current or future competitors, especially if these competitors provide their distributors and super stockists with more favourable arrangements.

Working capital requirements: The working capital requirement for the company’s business is met through a combination of internal accruals, short term borrowings. In many cases, working capital is required to finance the procurement of raw materials, labour and the upkeep of its manufacturing facilities before payments are received from consumers. It extends credit terms to certain of its first time domestic as well as export distributors and customers and those distributors and customers pay it a specified percentage of the price of its products as an advance at the time of placing the order and the remaining amount is payable in subsequent intervals. Inability of these distributors and customers to meet its payment schedules or any delay or non-receipt of payment from such distributors and customers, which may result in loss and an increase in its working capital cycle and has an adverse effect on its business, financial condition and results of operations.

Outlook

Incorporated in 1995, Mrs. Bectors Food Specialities 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.). The company 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. Its exports provide it with the flexibility to operate successfully across business cycles, mitigate seasonality risk in the domestic market, and help it in expanding its geographical footprint to global emerging markets. Its production facilities are strategically located in proximity to its target markets, which minimizes freight and logistics related time and expenses. Besides, its Board and senior management have an extensive experience and an in-depth understanding of the retail business. On the concern side, the emergence of modern trade channels in the form of supermarkets and high end retail outlets may adversely affect the company’s ability to negotiate its distribution agreements, which may have an adverse effect on its results of operation and financial condition. Besides, the company largely relies on third-party transportation providers for both procurement of its raw material and distribution of its products.

The issue has been offered in a price band of Rs 286-288 per equity share. The aggregate size of the offer is around Rs 540.57 crore to Rs 544.35 crore based on lower and upper price band respectively. On the performance front, the company’s total revenue from operations decreased by Rs 187.92 million or by 2.50% from Rs 7,521.52 million in Financial Year 2019 to Rs 7,333.60 million in Financial Year 2020. It has recorded a decrease in its profit after tax by Rs 27.47 million or by 8.28% from Rs 331.50 million in Financial Year 2019 to Rs 304.03 million in Financial Year 2020. The company will continue to expand its product portfolio within the existing product segments, focus on increasing sales realisation and volumes, and strive to provide differentiated offerings to its consumers. It also seek to increase the capacities of its manufacturing facilities by installing new, automated and product specific equipment such as installation of a cookies manufacturing line sourced from Denmark. Moreover, it seek to increase its presence in export markets by targeting to serve in developed and emerging countries through reputed retail chains and distributors in order to access a more diversified customer base across geographies.

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