| Mrs.Bectors Food Specialities Limited | ||||||
| Ratings Reaffirmed | ||||||
| Rating Action | ||||||
| ||||||
| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL AA-/Stable/CRISIL A1+’ ratings on the bank facilities of Mrs.Bectors Food Specialities Limited (MBFSL).
The company reported revenue growth of ~40% on-year to Rs 1,364 crore in fiscal 2023, driven by expansion in export business, revival of demand in bread segment (both branded and institutional) and higher capacity utilisation. Revenue is expected to grow 12-14% to Rs 1,500-1,600 crore in fiscal 2024 aided by new product launches and ramp-up of new capacities. Furthermore, the operating margin improved to 13.4% in fiscal 2023 from 12.0% in fiscal 2022 with softening of key raw material prices. The operating margin is expected ~14% backed by better absorption of fixed cost with improved capacity utilisation and cost rationalisation initiatives.
The financial risk profile will remain comfortable supported by annual net cash accrual of Rs 150-180 crore over the medium term. Debt protection metrics were strong, as reflected in interest coverage ratio of 14.1 times in fiscal 2023. Gearing was 0.22 time as on March 31, 2023. The financial risk profile will remain strong over the medium term despite sizeable capital expenditure (capex) planned owing to prudent funding.
The ratings continue to reflect the company’s strong business risk profile, supported by improving geographical diversity, healthy product portfolio, strengthening distribution network and expansion in capacities. The ratings also factor in a comfortable financial risk profile supported by healthy net worth and robust debt protection metrics. These strengths are partially offset by modest scale of operations amid intense competition in the biscuits segment and susceptibility to volatility in raw material prices and foreign exchange (forex) rates. |
Analytical Approach For arriving at its ratings, CRISIL Ratings has combined the business and financial risk profiles of MBFSL and its wholly owned subsidiary, Bakebest Foods Pvt Ltd (Bakebest; 'CRISIL A/Stable’), as the entities have strong operational and financial linkages.
Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths: Strong brand presence in north and northwest India and improving revenue diversity Around 83% of the company’s biscuit revenue comes from north and northwest India. MBFSL is among the top three players in many states (Punjab, Haryana, Himachal Pradesh, Jammu & Kashmir, Uttar Pradesh, Uttarakhand and Delhi National Capital Region). The company has presence across 28 states and 4 union territories and a network of more than 490 super stockists and 1,180 distributors, which supply to 580,000 retail outlets and 3,200 preferred outlets.
Furthermore, MBFSL has been increasing its premium product portfolio and leveraging its presence with focus on high-margin biscuits, such as cookies, creams and crackers, and reduced dependence on low-margin glucose biscuits. Strong growth in the bakery segment is reflected in its contribution of 36% to overall revenue in fiscal 2023. English Oven is among the leading premium bakery brands in India. With addition of new lines and new products (premium breads, croissants and buns), the business is likely to grow over the medium term.
Established relationships with large institutional players The company is a preferred supplier of buns (for the past 16 years) to McDonald’s (Hardcastle Restaurants Pvt Ltd in west and south, and Connaught Plaza Restaurants Pvt Ltd in north and east), Burger King and KFC (Devyani International Pvt Ltd). MBFSL is also targeting new quick-service restaurants and supplies to Subway and Faasos, supported by continued focus on quality. Longstanding relationships with large institutional customers have resulted in steady revenue over the past few years.
MBFSL exported its biscuits to 69 countries as of March 2023. Moreover, it undertakes job work for Mondelez International Inc. Established customer relationships should continue to provide stability to operating income and profitability, given the revenue visibility and cost-plus margin built into the long-term contracts with established institutional clientele.
Strong financial risk profile Capital structure and debt protection metrics were strong, with gearing at 0.22 time as on March 31, 2023, and interest coverage ratio at 14.1 times in fiscal 2023. The financial risk profile will remain strong over the medium term despite sizeable capex planned over the next two fiscals. Expected annual cash accrual of Rs 150-180 crore will be sufficient to cover debt obligation. Working capital cycle was healthy, as reflected in receivables and inventory of 24 and 25 days, respectively, as on March 31, 2023. The company had strong liquidity and financial flexibility supported by low bank limit utilisation and unencumbered cash balance of ~Rs 59 crore as on March 31, 2023.
Weaknesses: Modest, though improving, scale of operations in the intensely competitive biscuit industry MBFSL is a relatively small player in the biscuits industry vis-à-vis other manufacturers, as reflected in revenue of over Rs 1,350 crore in fiscal 2023. Although its brand Cremica has an established presence in north and northwest India, it has limited presence in other parts of the country. Furthermore, the biscuit industry is intensely competitive, with large players such as Britannia Industries Ltd (Britannia; ‘CRISIL AAA/Stable/CRISIL A1+’) vying for a greater market share. With the entry of ITC, Mondelez and Unibic in the biscuits segment, competition has intensified across product categories.
Susceptibility to volatility in raw material prices and forex rates The biscuits segment, accounting for ~60% of the total revenue, is price-sensitive with little product differentiation, especially in the low-end biscuits segment. Thus, players have limited ability to pass on increase in input prices (wheat, sugar and oil comprising 50-60% of overall cost) to customers. Therefore, profitability will remain vulnerable to sharp fluctuations in raw material prices and forex rates. While the company undertakes forward contracts to hedge against the forex risk, it is able to pass on price rises to consumers only with a time lag. |
Liquidity: Strong MBFSL has strong liquidity profile on account of healthy expected cash accrual and robust debt protection metrics. Cash accrual is expected to improve in the next two fiscals and will sufficiently cover planned capex and debt obligation. Further, utilisation of fund-based working capital limit was low. Unencumbered cash balance was ~Rs 59 crore as on March 31, 2023. |
Outlook: Stable MBFSL is expected to achieve healthy revenue growth over the medium term, backed by improving business risk profile, established market position, better geographical diversity and strong clientele. The financial risk profile will also remain comfortable. |
Rating Sensitivity Factors Upward Factors
Downward Factors
|
About the Company Mr Anoop Bector set up MBFSL as a joint venture (JV) with Quaker Oats (now a subsidiary of PepsiCo Inc) to supply packaged ketchup to McDonald's, in addition to buns, batter and bread. Quaker Oats withdrew from the JV in 1999. In fiscal 2014, the company underwent a business reorganisation and demerged its food supplements (sauces, spreads and namkeen) division. MBFSL is now focusing on digitisation and strengthening its senior leadership team in operations and supply chain. The company’s new CEO, Mr. Manu Talwar has over three decades of experience and business leadership exposure in consumer facing industries. The company has also expanded its geographical presence over the years.
MBFSL operates in three segments: it sells biscuits under the Mrs Bectors Cremica brand; it sells buns and other bakery items to institutional investors, such as KFC and Burger King; and it supplies bread and bakery items under its English Oven brand to modern retail chains (Easy Day, Reliance Retail, Big Bazaar, More and Spencer's) and distributors. MBFSL is the sole supplier of buns to McDonald's in India. |
Key Financial Indicators (CRISIL Ratings-adjusted financials)
|
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
*Includes Rs 20 crore of sublimit for export credit packing credit |
Annexure - List of Entities Consolidated
|
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||||||||||
| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | |||||||||||||||||||||||||||
|
Criteria Details
|