Mrs Bectors Food IPO opens today: Should you subscribe?

The IPO comprises of a fresh issue of equity shares worth Rs 40.54 crore and an offer for sale (OFS) worth Rs 500 crore by existing shareholders. The company will utilise funds towards the expansion of the Rajpura facility by establishing a new production line for biscuits.

Most brokerages advise subscribing to the issue for listing gains given its attractive valuations as compared to peers. Strong financials and growth prospects will also help the firm in the near term, analysts added. However, stiff competition, higher dependency on the north Indian market for growth are key risks.

Nirali Shah, Senior Research Analyst, Samco Securities advises 'subscribing' to the issue solely for listing gains.

"The company has shown a strong revenue CAGR of 12 percent compared to a 10 percent CAGR by Britannia in FY17-19. Its free cashflows have improved from the previous year and its debt to equity ratio has also been on a decline despite the pandemic," Shah said.

Mrs. Bector’s 'Cremica’ is one of the leading biscuit brands in the premium and mid-premium segments across north India with a market share of 4.5 percent. The company caters to well-renowned brands such as PVR, Burger King and McDonald's and has a budding exports business contributing to 22 percent of its revenues.

"However, a number of risks such as stiff competition, higher dependency on the north Indian market for growth and a premium category target market which might not appeal to the rural and semi-urban areas make Mrs Bectors a prime candidate solely for listing gains," Shah added.

The brokerage suggests subscribing for listing as well as long-term gains.

Mrs Bectors Food Specialities should be able to grow in line with the industry managed by the promoters having more than 25 years of sector knowledge, noted the brokerage.

It added that the company's results were also better than the industry in the first half of the ongoing financial year. Peers such as Britannia Industries, Nestle India, Prataap Snacks and DFM Foods are trading at trailing PE of 50.2 times, 85.6 times, 57.1 times and 97.6 times, respectively. Given the discount, there is comfort on the valuation and it is positive on the long-term growth prospects of the industry and the company as well.

The brokerage advises 'subscribing' to the issue. As per the brokerage, the firm is well placed to grow in the bread and buns business but needs to scale up in the biscuits business, given its smaller size than Britannia, Parle and Sunfeast.

"The stock is being offered at 28 times FY21 EPS in comparison to 48 times FY21 EPS for Britannia which provides a long-term re-rating opportunity if it scales up the Biscuits business," Prabhudas Lilladher said.

However, it added that the strong margin expansion in the first half of the ongoing financial year seems unsustainable, although bounce back in institutional business will provide reasonable profit growth in FY22.

The brokerage recommends subscribing with a long-term perspective. It sees healthy future growth prospects in packaged biscuits and the QSR segment.

"Financial performance has started to improve in FY21, reporting PAT of Rs 39 crore on a revenue of Rs 431 crore in H1FY21, up by 284 percent on a YoY basis. Mrs Bectors has maintained a high average gross margin of 44 percent for Biscuits, which is higher compared to peers owing to its in-house manufacturing and 51 percent for bakery segment, in the past three and half years," it noted.

The brokerage also suggests subscribing to the issue. "At the higher price band of Rs 288, the stock is valued at 28 times its trailing 12-month earnings of Rs 10.32, which looks quite attractive considering the brand equity, distribution network, strong fundamentals and robust growth prospects," the brokerage said.

The company has also turned free cash flow positive in H1FY21, added th brokerage. Net debt of the company has also reduced from around Rs 133 crore in FY18 to Rs 107 crore in H1FY21, bringing down its net debt to equity ratio to 0.21 times, it said.