Mrs Bectors Food Specialities Ltd Q2 FY2023 Concall Summary

Key Takeaways

• Record quarter, broad-based growth: Highest ever quarterly sales, EBITDA, and PAT since IPO, with all business verticals (domestic biscuits, exports, institutional and retail bakery) delivering strong, profitable double-digit growth.
• Margins rebounded sharply QoQ: EBITDA margin recovered from 10.4% in Q1 to 12.8% in Q2, driven by marginal raw material softening and price increases, with a stated aim to touch 13–14% by Q4.
• Distribution engine is scaling fast: The company completed its plan to add over 700 distributor salesmen, launched direct distribution in three new metro cities, and is on track to nearly double its direct reach outlets to ~2,25,000–2,30,000 by March 2023.
• Digitization is a new internal growth lever: The rollout of salesforce automation (SFA) and a Distributor Management System (DMS) is enabling daily performance tracking and is expected to make the company’s reaction to market changes “much faster.”
• What to watch next quarter: The magnitude and market acceptance of planned price increases, normalization of elevated finance costs tied to commodity carrying, and the detailed plan for the delayed Khopoli bakery expansion.

Performance & Segment Drivers

• Biscuits lead with high-teens volume growth: Both domestic and export biscuit businesses grew in the “large high teens,” a rate management described as “neck-to-neck” and fully supported by equivalent volume growth.
• Bakery grows on distribution and premiumization: Wholesale and institutional bakery both grew by higher double-digits, supported by a focus on increasing reach and introducing mass-premium products like footlong breads and paninis.
• Modern trade is the fastest biscuit channel: This vertical is the highest-growth segment in biscuits, with a recent scale-up into south and west India modern trade stores in the last few months.
• QSR business strengthens with new client win: The Quick Service Restaurant segment is growing robustly, with the company onboarding Subway and increasing its share of business by proving to be a more reputed supplier.
• Export growth is balanced: Both branded and unbranded (third-party) export sides are growing equally well, with a strategic focus on building the company’s own brand, including adding distributors in Saudi Arabia.

Talwar: “Both our exports and domestic, they're both growing very, very aggressively, both are neck-to-neck to each other, both are growing in large high teens, right? And they are duly supported by the high teens volume growth.”

Margin & Cost Dynamics

• Sequential margin recovery driven by pricing and input costs: EBITDA margin improved 240 bps QoQ to 12.8% as the company witnessed marginal raw material price improvements and took sufficient price increases in its bakery business to protect gross margins.
• Gross margins nearly recovered to last year’s level: Management stated gross margins are “almost close” to the same period last year, with further price increases planned in the October–December quarter to maintain and improve them.
• Other expenses rose on three distinct factors: The increase in other costs was attributed to (1) incremental marketing spends as a new marketing leader scales up investment, (2) higher logistics costs due to a growth mix skewed toward exports and bakery, and (3) the cycling of a COVID-depressed base when transport costs were extremely low.
• Finance cost spike is temporary: A “decent spike” in interest costs was due to carrying costs on commodity contracts booked to protect the supply chain amid volatile prices; this is expected to normalize over the next quarter as allocated commodities are used.

Talwar: “We are going to take some of the price increases also in this quarter, October to December quarter, just to ensure that we are able to maintain and improve our gross margin.”

Distribution & Digitization: The Growth Engine

• Direct reach expansion is on track: The company has a plan to double its direct reach outlets from 150,000 to 320,000 by March 2024, with a midway target of ~225,000–230,000 outlets expected by March 2023.
• New metro cities unlocked: Direct distribution was launched in Bombay, Pune, and Bangalore roughly 3–4 months ago, with products already present in over 5,000 outlets and gaining acceptance.
• Salesforce digitization is now operational: The first phase of a salesforce automation (SFA) system was implemented in April–May 2022, enabling daily tracking of route-wise performance, calls, productivity, and lines sold.
• Distributor Management System rollout underway: A DMS rollout has started and is expected to cover all large distributors by Q4 FY23, which will strengthen market information and enable faster reaction to inflationary trends.
• Modern trade store count set to jump: The company targets crossing 2,000 modern trade stores by March 2023, up from ~1,600 as of September, with a plan to cover 85–90% of the universe in the following two years.

Bector: “With the journey... on strengthening distribution, strengthening digitization, strengthening into information of the market, it is adding strength to the company to react faster. So, definitely going forward, in case there are such inflationary trends... our reaction will be much faster for sure.”

Capacity Expansion & Capex Update

• New Rajpura biscuit line is live: Commercial production from a new line with 12,000 tons per annum installed capacity started on July 15, 2022, with two more lines at the site expected by Q1 FY24.
• Madhya Pradesh (Dhar) project progressing: Construction of the boundary wall has started and building plan approval has been received, with biscuit lines expected to be ready by FY24–25.
• Khopoli bakery expansion delayed by a design change: A “slight change in plan” required acquiring additional land next to the existing plant, causing a delay. The land is now in possession and papers are with the government for approval, with a complete plan to be shared in the next three months and a target date of FY24–25.

Bector: “There are very dynamic changes happening. So, while our planning was happening, there are certain changes happened, where we had to directionally make certain amendments in our needs... And so, that is the reason why there was a bit of delay.”

Strategy & Long-Term Intent

• Pan-India ambition is explicit: Management’s clear intent is to become a pan-India player over the next three to four years in both the bakery and biscuits categories, driving revenue growth aggressively alongside margin.
• Premiumization will target the mass market: The strategy for introducing premium bread varieties is to ensure they are “readily acceptable by the larger audience rather than a very niche customer,” a mass-premium approach.
• No formal long-term guidance yet: The company is in the process of creating a strategic plan and expects to share formal guidance over the next three to four years towards the end of this financial year or the start of the next.

Talwar: “We are very, very firm of driving our revenue growth alongside our margin side... we have a very large potential over the next few years to consistently grow up, become a pan India a player over next three to four years' time and that's clearly our intent.”

Guidance & Commitments

Key Metrics