Mrs Bectors Food Specialities Ltd Q2 FY2024 Concall Summary

Key Takeaways

• Volume-led growth, margin discipline intact: Revenue rose 19% YoY and PAT surged 70% YoY, with over 75% of Biscuit growth coming from volume. Management reiterated its commitment to a 14.5%–15% EBITDA margin range.
• Distribution is the engine: Outlets expanded from 216,000 to 270,000 in six months, Feet on Street hit the full-year target of ~1,200, and 70% of domestic biscuit growth came from existing outlets.
• Bakery paused for capacity: Bakery growth slowed as new territory expansion was deliberately held back pending the Bhiwadi plant commissioning in Q3, compounded by a high base.
• QSR softness called temporary: Sales to QSR partners were slower than expected, but management views this as a very short-term phenomenon with partners still bullish on store growth.
• What to watch next quarter: The Bhiwadi bakery plant ramp-up, whether the QSR softness reverses as management expects, and any margin impact from elevated ATL spending as the Kareena Kapoor TV campaign rolls out.

Biscuit Segment: Volume, Distribution & Premiumization

• Volume-led growth: Over 75% of the 25% YoY Biscuit growth was volume-driven, with no price increases taken in Q2 or H1; the balance came from premiumization, which improved over 15% in the last year.
• Distribution expansion: Outlets grew from ~216,000 in March 2023 to ~270,000 in Q2 FY24, with Ac Nielsen reach crossing 6 lakh outlets; district presence expanded 18%–19% from 269 to 331 districts, concentrated in the lower north belt (U.P., Rajasthan, Delhi).
• Existing outlets doing the heavy lifting: 70% of domestic biscuit growth came from outlets that existed as of 31 March 2023, with the remaining 30% from new outlets, suggesting deepening penetration in established territories.
• New market entry: Launched in south and west markets (Mumbai, Bangalore, Pune) and expanded from 3 cities to close to 15 cities across Maharashtra, Gujarat, Goa, Telangana, Andhra Pradesh and Karnataka.
• Market share gain: Market share grew from 4.1% to 4.4% in a highly competitive market, driven by distribution expansion and marketing investments.
• DMS implementation underway: Distributor Management System reached 400 distributors with two key modules being implemented; stabilization expected over the next two quarters, with substantial benefit in the next financial year. Distributors currently maintain around three weeks of stock.

Manu Talwar: "So Amit, this growth is primarily led by distribution and supported by marketing."

Bakery: Temporary Slowdown, Capacity Build-Out

• Growth held back deliberately: Bakery growth moderated as new territory expansion was paused pending the Bhiwadi plant coming up in Q3, and the segment was also coming off a very high base.
• Bhiwadi plant imminent: The NCR bakery plant at Bhiwadi is scheduled for commissioning in Q3 of the current financial year, which will unlock the next leg of territory expansion.
• Khopoli for the long term: Investment in a state-of-the-art plant in Khopoli (Mumbai) is positioned as ahead-of-the-curve capacity for 5–6 years of future growth; existing territories (Bangalore, Mumbai, NCR) face no capacity shortage for English Oven growth.
• Long-term growth confidence: Management remains confident of achieving mid- to high-teen growth rates in Bakery over the long term.

Institutional & Export: QSR Headwinds, Walmart Upside

• QSR sales slower than expected: Growth from QSR partners has been muted given exposure to larger customers; management characterizes this as a very short-term phenomenon, noting partners remain bullish on store additions.
• Walmart partnership in early days: The company is in its first year working with Walmart, the largest US retailer with ~30%–35% market share and ~4,800–5,000 stores; management is meeting Walmart leadership to establish a stronger partnership.

Suvir Bector: "Walmart, currently, is the largest retailer in the US, having a market share of upwards of 30%, 35%, with the store count of close to 4,800 stores to 5,000 stores... there is a lot of potential to grow and a lot of headroom for that."

Brand & Marketing: National Ambassador, Regional TV

• First brand ambassador signed: Kareena Kapoor Khan onboarded as the first brand ambassador, with plans to build reach and awareness through TV media alongside print and digital.
• TV campaign is regional, not national: The television media push will be focused based on revenue size and potential in different states, not a blanket national campaign.
• ATL investment rising: B2C-side ATL spend is at ~3.5% of B2C revenue now, and the trend of investing more will continue.

Margins & Costs: Commitment Held, Inputs Manageable

• Margin target reaffirmed: Management aims to maintain EBITDA margins in the 14.5%–15% range, acknowledging the company is in a buildup stage investing in distribution and brand but committing to retain this target.
• Commodity outlook benign: Oil prices remain low; wheat prices are a bit on the higher side but overall things have been under control in the last two quarters with no major price increase impact seen.
• Employee cost reclassification: The increase in employee costs partly reflects reclassification of some expenses from other expenses to employee expenses, plus leadership hiring over the last three quarters that is now complete. Over the years, employee cost as a percentage of sales is expected to come down to 8%–9% as scale increases.
• Capex funding mix: New plants are funded through a mix of own funds and debt, with bank loans at ~65% and the balance from own funds; management is comfortable with a debt-equity ratio of 0.24.

Anoop Bector: "But definitely, as Manu has said, our aim is to maintain our target, which we've always been committing it to be around 14.5% to -- between 14.5% to 15%."

Capacity Expansion: Four Plants in Motion

• Rajpura biscuit lines: Two new biscuit lines with capacity of 2,000 tonnes per month commissioned in the current year; both lines started last year are now fully commissioned.
• Bhiwadi bakery: NCR bakery plant to be commissioned in Q3 of the current financial year.
• Indore biscuit: New biscuit plant in Indore, Madhya Pradesh, to service south, west and central markets, to be commissioned in the next financial year.
• Khopoli bakery: State-of-the-art bakery plant in Khopoli, Maharashtra, to be commissioned in the next financial year.

Guidance & Commitments

Key Metrics