Mrs Bectors Food IPO opens tomorrow. Here’s what top brokerages say

The Rs 540-crore initial public offer (IPO) of Mrs Bectors Food Specialities will open for two days on Tuesday (December 15). The price band has been fixed at Rs 286-288 per share.

The IPO comprises fresh issuance of shares worth Rs 40.54 crore and offer for sale to the tune of Rs 500 crore by existing shareholders. Linus Private Limited, Mabel Private Limited , GW Confectionary Pte Ltd and GW Crown Pte Ltd will be offering stocks in the initial share-sale.

Net proceeds of the issue would be utilised for financing the project cost towards expansion of its Rajpura manufacturing facility by establishing a new production line for biscuits and for general corporate purpose. In addition, the company aims to achieve the benefit of listing on the stock exchanges.

SBI Capital Markets, ICICI Securities and IIFL Securities will manage the IPO.The equity shares will be listed on BSE and NSE.

About the company

Mrs Bectors Food, incorporated on September 15,1995, is a premium biscuit maker and supplier of buns to restaurant chains, such as McDonald’s. The company manufactures and markets a range of products such as biscuits, breads and buns. It markets a wide variety of biscuits and bread under the flagship brand “Mrs Bector”s Cremica” and the “English Oven” respectively.

The company is one of the leading companies in the premium and mid-premium biscuits segment and the premium bakery segment in North India.

The company 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. For Biscuits distribution, the company has a widespread network of 196 super-stockists and 748 distributors supplying to a wide range of customers through 458,000 retail outlets and 4,422 preferred outlets.

According to brokerages, among the company’s competitive strengths are: the company is a leading exporter of biscuits, it has established presence in retail and institutional bakery business, boasts of modern and automated production processes with a focus on quality control, and has a wide spread and established sales and distribution network. Besides, the company has an experienced promoter and management team.

On the other hand, the company’s lack of long-term contracts with its QSR customers and overdependence on biscuits business are the key risks, going forward.

Here’s what leading brokerages suggest regarding the offer.

Angel Broking — Subscribe

For the next few years, we expect the domestic biscuit and bakery market to grow by 9 per cent due to urbanization, increase in disposable income, favorable government policy. On the other hand, the institutional Indian bakery industry is expected to grow by 20 per cent due to increasing market share of QSR chain.

We think Mrs. Bectors Food Specialities should be able to grow in line with the industry managed by the promoters having more than 25 years of sector knowledge. Company results were better than the industry in the first half of the fiscal 2021. Company peers such as Britannia Industries, Nestle India, Prataap Snacks and DFM Foods are trading at trailing PE of 50.2, 85.6, 57.1 and 97.6 respectively. On the other hand, the company is priced at trailing PE of 27.9.

Given the significant discount compared to listed peers, there is comfort on the valuation. We are positive on the long-term growth prospects of the industry and the company, and hence recommend to “Subscribe” to the issue for long term as well as for listing gains.

Prabhudas Lilladher — Subscribe

Mrs. Bectors Food Specialties has a presence in the Biscuits and Bakery segment under the brand Creamica and English Oven. Although the brand is well known in north India, it has just 4.5 per cent market share in key states. Given 11 per cent share in outlets present suggest significant room to expand share by increasing distribution. We note that the company has improved product quality over the years and has benefitted from being the contract manufacturer of Oreo biscuits for Mondelez. We believe Bread and Institutional Buns business is a silver lining given strong share and the credibility it provides to the system and processes from being a supplier to McDonald’s, KFC, Burger King and Rebel Foods.

The company has reported strong margin expansion in the first half, which seems unsustainable, although bounce back in Institutional business will provide reasonable profit growth in FY22. We believe that MBF is well placed to grow in the bread and Buns business but needs to scale up in the Biscuits business, given smaller size than Britannia, Parle and Sunfeast.

The stock is being offered at around 28xFY21 in comparison to 48xFY21 EPS for Britannia which provides a long term re-rating opportunity if it scales up the Biscuits business.

Geojit — Subscribe

At the upper price band of Rs.288, MBFSL is available at a P/E of 22x on FY21E EPS (annualized), which looks attractive, given its higher profitability compared to similar sized peers. Considering its future growth prospects in packaged biscuits and QSR segment, we recommend a “Subscribe” rating with a long-term perspective.

LKP Research — Subscribe

At the higher price band of Rs 288, the stock is valued at 28x TTM earnings of Rs 10.32, which looks quite attractive considering the brand equity, distribution network, strong fundamentals and robust growth prospects. We recommend investors to ‘SUBSCRIBE’ for this IPO.