Mrs Bectors Food shines as green shoots of rural demand emerge

The broader consumer staples index has posted a cumulative total return of around 22% over the last one year, while Mrs. Bectors has offered a return of around 36% for the same period.

In fact, the biscuit maker from Punjab outperformed Britannia Industries Ltd, the market leader in the domestic biscuit market, which posted a total cumulative return of around 29% over the last one year. Robust returns on these stocks have coincided with the recent revival in rural demand, which contributed to better sales for fast-moving consumer goods companies in the June quarter of FY25.

However, Mrs. Bectors’ success story hinges on the rising trend of premiumization amongst Indian consumers and its penetration in the tier-II cities of the Hindi heartland. Last week, the company reported a 17% year-on-year growth in its consolidated revenue, which was around ₹439 crore for the quarter ended June in FY25. Its net profit grew 1.7% year-on-year to ₹35.4 crore for the same period.

“Our strategic emphasis on premiumization and strong branding has positioned us to capture a greater market share," Anoop Bector, managing director of the company said in a recent investor presentation. Currently, Mrs. Bectors has a 2% market share of the biscuit industry under the Cremica brand.

Peer pressure

Analysts have pointed out that the 23% on-year growth in revenue from Mrs. Bectors’ biscuit segment for the June quarter of FY25 was largely led by their penetration into new markets like Uttar Pradesh, Madhya Pradesh and Rajasthan. The company earned a revenue of ₹273 crore from their biscuit business in the April-June quarter of FY25.

“Around 60-65% of their biscuit revenue comes from Punjab and Haryana. In the last one and half year they have been making their foray into UP which is controlled by Parle and regional brands like Priya Gold," Jignesh Makwana, lead transportation, logistics, and retail analyst at Asian Markets Securities told Mint.

“Despite competitive pressure, they are expanding fast, as the base is not high for them. Quick commerce is working well for them as well," he added.

The company has been aggressively expanding its distribution network and has increased its spending on consumer promotion over the last two quarters to capture and retain its market share. It aims to expand its distribution network from the current 7 lakh to 10 lakh outlets in the next few years, according to the company’s latest earnings call transcript.

“The competition intensity has increased quite significantly, especially on account of the market leaders taking an aggressive stance on consumer promotions across the variety. Thus, we also had to join to ensure that we are able to kind of retain our market share," Manu Talwar, chief executive officer of the company, said during the earnings call.

“The good news is that we, in this journey over the last two quarters, we have very well retained our market share," Talwar said.

Interestingly, the company also had to shift away from its mid-premium product portfolio and offer products on the lower end in a bid to protect its market share amidst heightened competition. However, Mrs. Bectors remains committed to its strategy on premiumization, according to Talwar.

“The hype of competition drawn in by the aggressive consumer promotions and other things being done by the market leaders, we had to come and participate to protect our ground. (But) premiumization is the way the company has been living life and growing very well...that's the way it will continue. In the last two quarters, we stand at 39% premiumization on the biscuit side," Talwar said. “And the same is on the export side also and we have very well seen that premiumization journey on exports is also continuing and moving in the right direction."

 

Mrs. Bectors is one of the major biscuit exporters to 69 countries across six continents. It sells its products under the Cremica brand in South America and has partnered with retail giants like Walmart, Walgreens, CVS, Dollar General to supply products under private labels and its own brand.

“Their export segment has also contributed to their (revenue) growth, particularly over the last two three quarters. Margin-wise and relationship-wise, their export business has been far more lucrative than the domestic business," Makwana said.

Growth prospects

Analysts expect Mrs. Bectors’ business-to-business segment of its bakery business to usher in better growth prospects for the company. It supplies premium bread to major quick service restaurants, cloud kitchens and multiplexes across the country.

“It (the company) anticipates new store openings and increasing competition in (the) QSR sector will boost market trends and support stronger growth rates, thereby benefiting the B2B business," a Mirae Asset Capital Markets report said.

The company’s revenue from the retail and institutional bakery businesses grew 14% year-on-year to ₹154 crore in the quarter ended June. Even though the growth in bakery business was hampered due to Navaratri falling in April and an extreme heatwave in North India, the company is optimistic about a turnaround in the industry with the upcoming Diwali season.

Foods made from refined grains, such as white rice, white flour, and their derivatives like bread and pasta, see tepid demand during Navratri fasting.

To support its growth prospects, Mrs. Bectors has allocated ₹350 crore for capital expenditure for FY25. The company has already commissioned a new biscuit line in Rajpura in the first quarter of this financial year with another one in the pipeline in the second quarter.

It will spend around ₹270 crore on a greenfield biscuit plant in Indore and ₹280 crore on another greenfield bakery plant in Khapoli, close to Mumbai. The company plans to initiate its expenditure when it reaches 80% capacity utilization in these areas, it said during its earnings call.

Mrs. Bectors plans to raise the proposed funds for its capital expenditure through a qualified institutional placement to avoid excessive reliance on debt. With a current debt-to-equity ratio of 0.36%, the company will decide whether it will repay its existing debt or maintain current debt levels post-QIP. Currently the company has a debt burden of ₹225 crore, some of which will be used for capex, it said during its earnings call.

Outlook

The trend in premiumization of consumption among Indian consumers and a revival of rural demand have analysts betting big on FMCG companies.

Analysts remain bullish on Mrs. Bectors, with nine out 10 giving a ‘buy’ recommendation over the last 12 months, according to Bloomberg data. These analysts expect the stock to offer returns of around 14% in the next one year based on the average target price of ₹1,532.67.

This is mainly on the back of volume-led growth and their penetration-drive to expand both the scale and quality of consumption in small towns. Rising aspirations across middle India should help this process along.

“Even rural markets will see an increased degree of premiumization, once income levels rise and inflation falls further over the next two-three years. Everybody has aspirations, mobiles, and 5G. And they want to replicate what their urban counter parts are consuming," Makwana said.

Shares of Mrs. Bectors Food were at ₹1,360 apiece on the National Stock Exchange in early trade on Friday, up 1.5% from the previous close.