Mrs. Bectors Food Specialities - Multiple drivers of growth; initiate at ADD - ICICI Securities

We believe the expansion of domestic biscuits and branded breads business into new regions driven by sales initiatives will be a key driver for growth. Further, focus on premiumisation within existing product segments with focus on increasing sales realisations, volume and provide differential offerings to customers will drive margin expansion. Strong relationships with institutional customers (QSRs, Mondelez, exports) augurs well for adopting innovations faster to drive penetration and customer acquisitions. We initiate coverage with an ADD rating and DCF-based target price of Rs400 (implied P/E of 27xFY23E).

- Sales driven initiatives to accelerate growth: We expect Mrs. Bectors growth to be driven by (1) Expansion of domestic biscuit business in NCR and Uttar Pradesh, (2) Distribution reach expansion in existing markets and (3) Expansion of branded bakery business into metros - Mumbai and Bengaluru.

- Focus on premiumisation to drive margin expansion in domestic branded business: We expect margin expansion to be driven by (1) expand product offering to niche biscuits and bakery products, (2) reducing the contribution of lower margin glucose biscuits, (3) targeting developed and emerging export markets and (4) premium products in bakery segment such as sub-breads, frozen doughs, pizzas, garlic breads, cheese garlic bun fills and frozen cookies.

- Growth in Chain Food Service market to drive growth in institutional bakery segment: The chain food service market in India is projected to grow at a CAGR of 19% to Rs966bn by FY25. We believe that strong relationships with these large QSR players will help the institutional bakery division to mirror the strong growth expected in the QSR industry in India.

- New product development and innovations to improve penetration and help recruit new customers: We believe that Mrs. Bectors Food is well positioned to capitalise its relationships with large institutions to accelerate new product launches and innovation. In biscuits, it can benefit from its relationship with Mondelez (the largest global biscuit manufacturer) and its experience in biscuits exports business. Similarly, in branded breads segment, the company is likely to benefit from its relationship with reputed QSRs.

- Valuations and risks: We model revenue / EBITDA / PAT CAGR of 17% / 24% / 42% over FY20-23E. Initiate at ADD with a DCF-based target price of Rs400. At our target price, the stock will trade at 27x P/E multiple March-23E. Key downside risks are delays or failures distribution expansion or steep rise in competitive intensity and raw material prices.

Source : Equity Bulls

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