Mrs Bectors Food Specialities Ltd Q1 FY2023 Concall Summary

Key Takeaways

• Strong top-line, margin pressure easing: Consolidated revenue grew 32.9% YoY with volume and realization growth in both biscuits and bakery, while gross margins held near 44% despite peak raw material inflation.
• Bakery is the breakout segment: Revenue surged 56% YoY to ₹107 crore, fueled by QSR recovery, the Subway win, and English Oven's brand acceptance in new cities.
• Distribution engine is being rebuilt: The company added 600 ADSRs in ~7 months, implemented a new salesforce management system, and plans to double its North India outlet count in two years.
• Price and raw material tailwinds are converging: Mid-quarter price hikes are yet to fully flow through, while management sees softening material prices, setting up a margin recovery story over the next few quarters.
• What to watch next quarter: The pace of EBITDA margin expansion toward the 13-14% milestone, the ramp-up of the new Rajpura biscuit line, and any further detail on the planned Maharashtra bakery facility.

Top-Line Performance

• Biscuits: Domestic biscuits grew high-teens in revenue and double-digit in volume YoY and versus Q4 FY22, driven by distribution strengthening, SFA implementation, and field force augmentation. Growth was secondary-led and concentrated in existing North Indian territories across both general and modern trade.
• Bakery: Revenue grew 56% YoY to ₹107 crore, with both retail and institutional bakery growing higher double-digit. The QSR business saw a very strong recovery as malls and outdoor activities fully reopened, and one very large account (Subway) was onboarded.
• Exports: Export momentum is building well, with double-digit growth driven by branded sales in the Middle East (6 GCC countries) and rapid expansion in North America. The higher export mix tilted freight costs upward.
• New market launches: The company launched in three South Indian cities (Bangalore, Mumbai, Pune) about two months back, though volumes remain very small and the majority of domestic growth still comes from existing markets.

Ishaan Bector: "I think, we are focusing as a company, more on the input rather than the outputs. I think we are doing the hard work in terms of opening up outlets, opening up distribution, hiring people like ADSR. I think the results will follow."

Margin & Cost Structure

• Gross margin: Sustained at ~43.8% in Q1 FY23 despite continued high pressure on material prices, down only 1% versus Q4 FY22 because inflation hit post-November across the industry. The bakery business (English Oven) carries a better EBITDA margin, which helped reflect positively.
• Other expenses: Grew 67% YoY primarily due to fuel cost increases impacting over 1%, freight and forwarding up close to over 1.5% on fuel price rises and a higher export mix, and travel expenses returning as COVID wave-2 restrictions ended.
• Price hikes: The company took price increases mid-quarter, so the full benefit was not realized in Q1. Coupled with softening raw material prices, these are expected to positively affect EBITDA margins going forward. Further price increases are being looked at and would start reflecting in Q3, with management calling price rises a continuing journey as long as inflation stays.
• Bread pricing strategy: A significant price rise was taken this quarter in the Delhi market to protect margins despite not being the volume leader.

Manu Talwar: "I think oftentimes, whether it is in the Delhi market we despite not being the leader in terms of number of the volume we sell, we have always very aggressively taken price rises from the market in order to protect the margins."

Bakery: The Growth Engine

• English Oven brand: Seeing immense potential and brand acceptance in both Pune and Mumbai, with good growth numbers in existing focus cities outside Delhi: Punjab, Chandigarh, Ludhiana, Jaipur, and Agra.
• QSR recovery: Partners are showing a great sense of aggression on store openings over the next 3-4 years, and the company is gearing its back-end to meet demand expectations. The Subway onboarding adds a very large account to the institutional book.
• Capacity expansion: Work has started on increasing plant capacity at the existing Bangalore unit, and a new manufacturing facility is coming up in Mumbai for bread production. A state-of-the-art greenfield manufacturing facility in Maharashtra (Khopoli) is planned for 2024.
• Medium-term target: Management is targeting strong double-digit growth (~20%) for the bakery side over the medium term and continues to hold firm on that outlook given the opportunities in English Oven and institutional.

Ishaan Bector: "What we are seeing in terms of the market outlook as we are talking to some of our partners is a great sense of aggression coming forward in the next three to four years in terms of number of store openings. And I think what we are doing in the back-end is also gearing ourselves to have the ability to meet the market expectations in terms of demand."

Distribution & Digitization

• Field force build-out: 300 ADSRs were added in FY23 year-to-date, front-loading the full-year plan, with a total of ~600 added over the last 7 months. The plan is to double outlets in two years by improving distribution via ADSR, SF pay, and VMS.
• Salesforce management system: Recently implemented, enabling real-time tracking of coverage, sales efficiencies, effectiveness, and working discipline of the distribution network.
• Distributor management system (DMS): Expected to be implemented in coming quarters, which will help increase sales team productivity via real-time access to promotions and sales plans.
• Geographic expansion: The company will focus on enhancing its presence in Western and Southern India over the next three years, while also planning to double its distribution network in North India in the next few years.

Capacity & Capital Allocation

• Rajpura biscuit line: The new biscuit line started commercial production in July 2022 with an installed capacity of 12,000 tonnes per annum, effective July 15, 2022. The project was delayed due to COVID-19.
• Next biscuit unit: Planned for Madhya Pradesh within the next five years, expected to be a bigger unit.
• Bakery manufacturing: A new Mumbai facility will significantly increase penetration into Bombay and Pune, including modern trade. The Khopoli bakery plant is scheduled for 2024. The existing Bangalore facility is being upgraded for more capacity, with a new facility there planned for the future.
• CAPEX guidance: FY23 CAPEX is still being lined up, with management promising to connect within one to two months to give the right number. Bombay plant CAPEX will come in FY23-24, while this year is about Rajpura. CAPEX returns and repayment are expected in five years.

Competitive Positioning & Disclosure

• Biscuit pricing: On the MRP side, most products stand very similar to competition. Some price difference exists because the company is a lower volume player and extra margins are given on the retail and distributor side.
• Volume vs value: Management explicitly declined to provide a three-year domestic biscuit volume CAGR, stating volume numbers are "quite irrelevant" for the company because it focuses on premiumization and the value proposition rather than volume contribution.
• Segment disclosure: Management declined requests to disclose individual EBITDA margins for the bakery segment or to split retail versus institutional bakery, citing the competitive nature of operating with both B2B and B2C customers. A request to bundle B2C versus B2B data across biscuits and bakery was also resisted, though management agreed to discuss it internally.

Anoop Bector: "Normally Percy, what we are doing is on the volume basis, because we are always looking at premiumization. Volume numbers for our company become quite irrelevant, we focus more on the value proposition because if you start counting volumes low price products will get a better. So I think from Mrs. Bectors that we should always look at value proposition than volume contribution."

Guidance & Commitments

Key Metrics