Mrs Bectors Food Specialities Ltd Q2 FY2025 Concall Summary

Key Takeaways

• Resilient top line, margin squeeze: Revenue grew in the mid-to-high teens, but gross margin dipped QoQ on commodity inflation and elevated freight costs, setting up a quarter of temporary margin pressure.
• Commodity inflation is the central challenge: Edible oil, cocoa and wheat flour prices are all rising, compounded by import duty hikes; management has initiated price increases to recover costs, but the cycle will take two to three months to complete.
• Biscuit demand is stabilising, not accelerating: Domestic biscuit volumes grew in low-single digits YoY and QoQ, with management cautioning that a meaningful consumption recovery is still a few quarters away.
• Bakery and frozen are the growth engines: The B2B bakery business grew healthily, with frozen products now contributing 18–20% of that segment, while B2C bakery expanded geographically into Punjab.
• What to watch next quarter: Whether the price increases fully land and restore margins, any softening in competitive intensity as commodity costs rise industry-wide, and the pace of the consumption recovery.

Margin & Commodity Cost Recovery

• Gross margin dipped QoQ: Inflationary trends on the commodity side, plus further pressure in the last one to two months, pulled gross margin slightly below Q1 levels.
• Commodity basket under broad pressure: Edible oil prices are up, cocoa prices have risen substantially, and wheat flour is showing an upward trend, all exacerbated by government import duty hikes and international price escalation.
• Price increase cycle underway: The process has already started and was triggered instantly by the duty hikes in late September and October; management expects to fully recover increased costs by next quarter.
• Temporary margin pressure expected: The running quarter will carry some impact because the price increase cycle is still rolling through; management drew a parallel to Q1 FY23, when a similar squeeze was overcome quickly.
• Freight costs added to the squeeze: Other expenses rose primarily on freight and forwarding, with a higher export contribution in the quarter and the Red Sea issue persisting with elevated freight rates.
• Annual EBITDA guidance held: Management expects to maintain 14–15% EBITDA margin on an annualised basis, with the commodity-driven impact stabilising after the next quarter.

Arnav Jain: "We definitely see some bit of a pressure on that in this coming quarter or in the running quarter, right? We will definitely have some pressure because as explained that price increase as a role also is in cycle. So yes, there would be some impact from that. But that would be temporary."

Demand Environment

• Subdued consumption backdrop: The June quarter was hit by extreme heat and elections; the September quarter saw extreme rains and inching inflation, which kept consumption muted, especially in urban markets.
• Domestic biscuit volumes grew, but slowly: Q2 biscuit volumes grew in low-single digits YoY and also grew QoQ; the business did not degrow, but the recovery is gradual.
• Recovery will take time: Management expects the growth trend to improve from here, but cautioned that improving consumption is on a slower side and will take another few quarters to correct.
• Export biscuit demand healthy: Trends in Q1 and Q2 were better than previous quarters and continue to be good and in line with expectations.
• Competitive intensity remains elevated: Since the October–December 2023 quarter, competition has been extremely high, especially around extra dynamic sizing, and it has not mellowed much so far.

Anoop Bector: "The trend in terms of improving consumption seems to be a little on a slower side as per our estimate and will take another few quarters to get corrected."

Bakery & Frozen: The Growth Drivers

• Bakery B2B grew healthily: Both B2B and B2C sides of the bakery business continued to grow fairly well on the revenue side.
• Frozen products are scaling within B2B: Frozen products now contribute 18–20% of the B2B business, helping bridge the slow QSR growth trajectory and keeping overall B2B growth healthy.
• Bakery B2C expanding geographically: The business, primarily in NCR, has expanded into upcountry North India and other North cities over two years, and recently started in Punjab. The Bombay market is currently constrained on capacity.
• Frozen B2C entry planned: The next step will be to start introducing frozen products into the B2C segment.
• New bakery capacity coming: A state-of-the-art bakery plant for English Oven and the bread/bun side is expected in the FY25–26 financial year, which will unlock the Bombay market as an aggressive growth engine.

Operational Initiatives & Capacity Build

• Distribution reach has nearly doubled: Direct-build outlets grew from 160,000 to over 310,000, with overall reach per AC Nielsen at more than 700,000 outlets. Focus on Cremica preferred outlets (large, high-end stores) has shown extremely good results.
• DMS rollout progressing: Around 550–600 distributors, accounting for 65% of revenue, have been onboarded with the order module. Secondary sales and claim management modules are now being implemented, and a mini DMS pilot for smaller distributors is underway.
• Project Impact 1.0 targeting cost efficiencies: The programme covers manufacturing efficiencies, logistics cost, HR efficiency and revenue management. Full impact on cost optimisation will be visible on a 12-month basis in the next financial year.
• New biscuit line commissioned: One more biscuit line was added in Rajpura during Q2.
• Indore Dhar plant on track: Commissioning is expected in Q4 of this financial year, which will strengthen the company's play in central, western and parts of the southern region.
• Cremica Rusk launched: An immediate decision was taken to roll out Cremica Rusk.

Competitive Dynamics & Pricing

• Competitive intensity may ease: Management expects some correction in competition intensity in this and the next quarter, especially with commodity prices rising for all players.
• Biscuit price increase timeline: The process has already started and will take probably two to three months to fully gear up and get prices back.
• Bakery price increase to cover RM index: The bakery price increase should more or less cover the raw material index increase.
• Health range repositioned: The health range of bread was repurposed and enhanced with zero maida and zero palm oil, supported by a "No means No" campaign across print and digital platforms.

Anoop Bector: "Competition intensity has been extremely high since October, December quarter of '23. It has not mellowed down much so far, but we do expect now in this and the next quarter definitely there should be some correction coming in, especially also in light of the commodity prices going up for everyone."

Guidance & Commitments

Key Metrics