Mrs Bector Food Speciality IPO To Open Today

After the stellar listing by Burger King India  (BKIL) shares on Monday, another company from the food and bakery sector entering the capital market Mrs Bector Food Speciality (Mrs Bector) is expected to generate an overwhelming response from investors when its initial public offering (IPO) opens on Tuesday, 15th December 2020 for a subscription. Mrs Bector is offering its shares in the range of ₹ 286-288 per share and its grey market premium has already crossed ₹ 200 per share. The company IPO will close for subscription on Thursday 17th December. Investors can bid for a minimum of 50 shares and in multiple thereof.  

Prabhudas Lilladher Securities, a brokerage firm in its IPO note to its clients recommended to subscribe to the IPO and said, the company has a presence in the Biscuits and Bakery segment under the brand Cremica 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. 

PL note to its clients said, “We note that the company has improved product quality over the years and has benefitted from being a 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 1H, 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 its smaller size than Britannia, Parle and Sunfeast.

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

Sharing the key analyst meet takeaways, PL note said, the company has a market share of 4.5 per cent in premium & mid-premium biscuits in North India, 5 per cent in bread segment and 11 per cent in semi processed and dough products.

In the Biscuits segment, its current capacity utilization is at around 72 per cent. The company will set up a greenfield facility in Madhya Pradesh by FY24 at a cost of ₹ 100 crore funded by internal accruals. Its current market is mainly in Punjab, Haryana, HP, J&K, with a market share at 4.5%. Glucose Biscuits form just 2 per cent of its total sales.

The company’s EBITDA margins were at 17 per cent in 1Q (during April-June 2020), sustainable margins at 14-15 per cent. As all biscuits and bakery products were categorized as ‘essential goods’, operations were shut only for 3-6 days during the lockdown imposed in the first quarter. “There was no material impact on our procurement of raw materials and distribution of products. While QSR and CSD sales were impacted initially, now they are improving with expectations of bounce back to pre-covid levels soon”, the note said quoting company officials.

LKP Securities commented in its IPO note that the company has strong Fundamentals and 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.

At the higher price band of ₹288, the stock is valued at 28x TTM earnings of ₹10.32, which looks quite attractive considering the brand equity, distribution network, strong fundamentals, and robust growth prospects. 

Commenting on Outlook & Valuations, the LKP IPO note said, “We recommend investors to subscribe for the IPO”. 

The company’s EBITDA margins were at 17 per cent in 1Q (during April-June 2020), sustainable margins at 14-15 per cent. As all biscuits and bakery products were categorized as ‘essential goods’, operations were shut only for 3-6 days during the lockdown imposed in the first quarter. “There was no material impact on our procurement of raw materials and distribution of products. While QSR and CSD sales were impacted initially, now they are improving with expectations of bounce back to pre-covid levels soon”, the note said quoting company officials.
LKP Securities commented in its IPO note that the company has strong Fundamentals and 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.

At the higher price band of ₹288, the stock is valued at 28x TTM earnings of ₹10.32, which looks quite attractive considering the brand equity, distribution network, strong fundamentals, and robust growth prospects.

Commenting on Outlook & Valuations, the LKP IPO note said, “We recommend investors to subscribe for the IPO”.