Mrs Bectors Food Specialities Ltd Q3 FY2024 Concall Summary

Key Takeaways

• Strong quarter, volume-led: Revenue grew +17% YoY and PAT +25% YoY, driven primarily by volume growth in biscuits and premiumization across both biscuits and bakery.
• Premiumization is working, but the pace is measured: Premium biscuit contribution moved from 30-31% to 34-35% YoY, a 15% improvement, with management targeting faster growth in these higher-margin segments.
• Margins squeezed sequentially by commodities and competition: Gross margin contracted QoQ due to an upsurge in wheat and sugar prices, plus higher free-grammage offers in domestic biscuits where the company also participated.
• A capex cycle is underway to unlock the next leg of growth: Close to ₹500 crores is being invested across FY23-25 in new biscuit and bakery plants, with infrastructure built to handle double or 35-40% more volume in the future.
• What to watch next quarter: Whether the elevated competitive intensity in domestic biscuits corrects within "another quarter or two" as management expects, and if the December bakery price increase delivers the promised marginal gross margin improvement.

Premiumization & Brand Building

• Premium biscuit share is climbing: Contribution moved from 30-31% last year to 34-35% now, tracked via AC Nielsen-defined categories (premium cream, premium cookies, premium health). Management targets higher growth in these segments than in value and mass, because both gross margins and industry growth rates are better there.
• New products support the shift: Launches included Bake Fit, millet cookies, atta kulcha, and multigrain breads with 11 grains, all aimed at driving the premium portfolio.
• Advertising spend is ramping with a clear target: The company ran its first-ever media plan on top Hindi channels featuring Kareena Kapoor Khan, alongside digital, print, and outdoor campaigns. The stated aim is to scale ATL spends on consumer businesses from the current 3.5% to close to 5% over the next three years, moving gradually through 4%.
• Integrated marketing is now part of the bakery playbook: Campaigns on bun-to-burger-grade products used bus shelters, digital marketing, and influencer marketing, while consumer offers ran on English Oven bakery products.

Anoop Bector: "Our aim over the next, I won't say over the three years' time, would be to scale these spends up close to 5% odd."

Margins: The QoQ Squeeze & The Forward View

• What drove the sequential gross margin contraction: Two forces hit simultaneously. First, an upsurge in commodity prices on both the bakery and biscuit sides, particularly sugar and wheat flour. Second, heightened competitiveness in domestic biscuits forced higher free-grammage offers, in which the company also participated.
• Hedging amplified the wheat impact: The company's wheat hedging position differed from the market because it had anticipated a short crop and low government stocks. Government policies to contain inflation by releasing stocks into the market then worked against that position.
• Export NSR seasonality added pressure: Highly priced Diwali gift packs and Christmas orders are executed by September, so export realizations in Q2 are always higher than in Q3, adversely affecting gross margins in the December quarter.
• A selective bakery price increase offers partial relief: A price increase on certain SKUs in northern India was taken in December; the benefit will flow more in Q4 but is expected to deliver only marginal improvement, not a significant one.
• Management's margin commitment: The endeavor is to deliver EBITDA margins of 14% and upward over the next few quarters, with the current quarter's gross margin delivery offered as a representative indicative trend going ahead.

Manu Talwar: "We have always kind of maintained that we will be maintaining and doing our best to deliver EBITDA margin in the range of anything between 14% to 15%. Our endeavor and confidence as of now is that we should continue to deliver 14% and upward kind of EBITDA over the next few quarters."

Competitive Intensity in Domestic Biscuits

• Free grammage is the battleground: Both the company and its competitors are offering increased free grammage, a trend that held true for Q3 and is expected to continue into Q4. This is the primary driver of the heightened competitive environment.
• Management sees this as temporary: The trend of increased competition intensity is expected to correct within "another quarter or two," after which both the industry and the company should return to better growth.
• Volume growth remains the engine: Despite the competitive pressure, prime growth on the biscuit side has been led by volume, with no big changes in prices on either the domestic or export side. Revenue growth in Q3 and on a YTD basis is primarily volume-led.

Distribution & Geographic Expansion

• Direct reach is scaling fast: The company is on track to achieve direct distribution of over 3 lakh outlets by end of FY24, with confidence in crossing 300,000 and getting close to 3,10,000-3,20,000 outlets by March. Overall district coverage moved from 269 to close to 350 districts.
• Growth is mostly from existing outlets: Approximately 65-70% of growth comes from existing outlets, with one-third from new outlets and new territories.
• South and west expansion is underway: Launched in three cities last financial year, the company added twelve more cities this year and is now in 15 cities, with unique outlet coverage in south and west reaching about 20,000 outlets.
• Punjab is the next virgin market: With the Bhiwadi plant now operational, the company is focusing on Punjab as the next lever of growth, appointing distributors and going in with complete automation and visibility onto secondary performances from day one.
• Distribution plans are being finalized: A meeting over the next 10 days to two weeks will finalize plans for next year and the next two years, to be shared on the next call.

Capacity Expansion & Infrastructure

• A ₹500 crore capex cycle is in motion: Close to ₹500 crores is being invested over FY23-24 and FY24-25 combined to augment capacities across biscuits and bakery.
• New plants and lines are staggered through FY25: The Indore biscuit plant will be commissioned in FY25. The Khopoli bakery plant will be ready towards the end of Q4 FY25. Two additional lines in Rajpura will be ready in H1 FY25. The Calcutta plant will be ready by Q3 FY25.
• Infrastructure is built for future scale: The Indore biscuit plant infrastructure can handle double the initial volumes. The Khopoli bakery plant infrastructure can handle 35-40% additional volumes. Land is available at Indore and surrounding land is available at Khopoli for future growth.
• The NCR bakery plant is already running: Commissioned in Q3, it is up and running to cater to national capital and surrounding region demand.

Exports & Institutional Business

• Export growth is robust and broad-based: Increased demand came from Canada, North America, South America, Europe, and Australasia, fueled by the premium range of cookies and cream categories. The company is focusing on building the Cremica brand while remaining a preferred partner in white label.
• Walmart relationship is expanding: Currently working on one specific SKU for Christmas, the company is aggressively working to extend the relationship to daily-usage products, with confidence to take it forward not only with Walmart but also with other large retailers in the US.
• Institutional bakery is steady with a slowdown: Both branded English Oven and QSR/institutional business have performed similarly. Institutional business has seen a slowdown, but the company is focusing on adding new products.
• Bakery returns are within industry norms: Returns due to short shelf life are within the 7-9% industry range, with continuous efforts to bring this down.

Guidance & Commitments

Key Metrics