Rating Rationale
September 29, 2018 | Mumbai
Mrs.Bectors Food Specialities Limited
Rating outlook revised to 'Positive'; ratings reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.200 Crore (Enhanced from Rs.175.47 Crore)
Long Term Rating CRISIL A+/Positive (Outlook revised from 'Stable' and rating reaffirmed)
Short Term Rating CRISIL A1 (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has revised its outlook on the long term bank facilities of Mrs.Bectors Food Specialities Limited (Bectors) to 'Positive' from 'Stable' and reaffirmed the ratings at 'CRISIL A+/CRISIL A1'.

The revision in outlook reflects the expectation of sustained improvement in business profile supported by increasing revenue and geographical diversity also facilitated by newly added capacities. Improving product and geographic diversity along with established customer relationship in institutional business are expected to increase revenue growth to 12-14% over next 3 fiscals. This is also reflected in revenues of Rs 183 crore  first three  months of fiscal 2019 led by year on year (yoy) 31% growth in bakery segment and improving contribution from bakery segment (26% of overall revenues), exports (29% of overall revenues) and new launches in biscuits, bakery segment and frozen foods. Healthy market position in biscuits in north India is complemented by strong market share in exports (share of 23% India's total biscuit exports) and established retail and institutional bakery business Improvement in growth, premiumisation and ramp up of new capacities are likely to result in sustenance of improved operating profitability of 12.4% in fiscal 2018 in the medium term. 

Financial risk profile to remain robust characterised by healthy cash accrual (expected at Rs 50-70 crore per annum), debt metrics as well as healthy return on capital employed (RoCE) of around 16% in fiscal 2018%. Bectors incurred capex of Rs 145 crore in fiscal 2018 for its new plant at Rajpura (biscuits facility) and for bakery lines at Greater Noida and Bengaluru facilities funded by mix of debt and internal accruals. Given moderate capex of Rs 50-60 crore per annum over the next 3 fiscals, and healthy cash accruals with reducing on reliance on external debt is expected to remain low over the medium term.
The ratings continue to reflect the company's strong market presence with the 'Mrs. Bectors Cremica' brand of biscuits and 'English Oven' brand of bakery products in North and Northwest India and improving revenue diversity; established relationships with large customers McDonald's, ITC Ltd (ITC; rated 'CRISIL AAA/Stable/CRISIL A1+'), and Mondelez International Inc; and a strong financial risk profile, with healthy capital structure and debt protection metrics. These strengths are partially offset by modest scale in the intensely competitive biscuits industry and susceptibility to volatility in raw material prices and foreign exchange (forex) rates.

Analytical Approach

For arriving at its ratings, CRISIL has combined the business and financial risk profiles of MBFSL and its wholly owned subsidiary, Bakebest Foods Private Ltd (Bakebest; rated 'CRISIL A-/Positive'), because of their strong operational and financial linkages. Bakebest manufactures buns for McDonald's in Mumbai. Breads and bakery items are manufactured under the English Oven brand.

Key Rating Drivers & Detailed Description
Strengths
* Strong market presence through 'Mrs. Bectors Cremica' and 'English Oven' brands in North and Northwest India and improving revenue diversity
MBFSL gets 90% of its biscuit revenue (Mrs. Bectors Cremica brand) from North and Northwest India, and is among the top three biscuits in most of the states-Punjab, Haryana, Himachal Pradesh, Jammu & Kashmir, Uttar Pradesh, Uttarakhand, and Delhi National Capital Region (NCR) in that region. A network of 570 distributors and 135 super stockists and 1271 Cremica preferred outlets ensure brand presence in over 450,000 retail 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. With enhanced capacity and increasing distribution reach, growth of segment to increase to 15% from 3% in last 3 years.

Strong growth in bakery segment under the brand 'English Oven' led to increase in revenue contribution to 25% in fiscal 2018 from 21% in fiscal 2016. The brand is amongst the leading premium bakery brands in India. With addition of new lines and new products (premium breads, croissants, buns) the growth of over 18-20% is likely to continue over the medium term.

* Established relations with large institutional players
The company remains a preferred supplier of buns to Mc Donalds (Hardcastle Restaurants Pvt Ltd in West and South and Connaught Plaza restaurants Pvt Ltd) in North and East) , Burger king, KFC (Devyani International Pvt Ltd )and is also targeting new QSR chains supported by continued  focus on quality and standards. Longstanding relations with large institutional customers such as McDonald's (over 15 years), as the sole supplier of buns, has resulted in a steady source of revenue over the past few years. MBFSL also supplies to Domino's Pizza, Wendy's, KFC, and Burger King. It also sells bakery products in modern retail chains such as Easy Day, Big Bazaar, and Reliance Retail, among others.

In biscuit segment as well, the company has also shown over 20% growth in exports segment (branded and private label) driven by its strong focus on quality and healthy share of 23% of Indian biscuits exports market.

Established customer relations should provide stability to operating income and profitability, given the revenue visibility and cost plus profitability built into long-term contracts.

* Strong financial risk profile
Financial risk profile should remain strong, with a healthy net-worth of Rs 265 crore, low gearing of 0.5 times as on March 31, 2018, and robust debt protection metrics. Though gearing has increased over last 3 fiscals because of debt funded capex, going forward gearing is expected to remain below 0.5 times due to expected improvement in accretion to reserves and moderate capex.

Weakness
* Modest scale of operations, albiet improving in an intensely competitive biscuit industry
MBFSL is a relatively small player in the biscuits industry vis-a-vis other players with a revenue of Rs 687 crore for fiscal 2018. Although the Cremica brand has an established presence in North and North West India, it has limited presence in other parts of the country. Furthermore, the biscuit industry is highly competitive, with large players willing to sacrifice profitability to achieve a greater market share. With the entry of players such as ITC, Mondelez, and Unibic, the competition has intensified across product categories.

* Susceptibility to increase in raw material prices and volatility in forex rates
The biscuits segment, accounting for nearly three-fourths of MBFSL's total revenue, is price-sensitive, with little product differentiation, especially in the low-end biscuits segment. Thus players have limited ability to pass on increases in prices of key raw materials (wheat, sugar, and oil). Profitability in fiscal 2017 moderated to 10.7% from 12% in the past due to increased input prices which form 50-60% of costs.

Operating profitability will likely remain exposed to sharp fluctuations in raw material prices and forex rates, as companies are able to pass on price increases to consumers only with a time lag.
Outlook: Positive

CRISIL believes business profile of MBFSL is expected to improve with improvement in revenue diversity supported by improving scale on account of capacity enhancement with expected sustenance of operating efficiencies. Financial profile to remain comfortable supported by adequate debt metrics and healthy cash generation.

Upside scenario
* Significant improvement in scale of operations driven by ramp up of newly added capacities, improving distribution reach and sustenance of profitability and
* Sustenance of healthy financial risk profile

Downside scenario
* Deterioration in capital structure, most likely because of substantially large, debt-funded capital expenditure and
* Weak operating performance

About the Company

Ms Rajni Bector set up MBFSL as a joint venture (JV) with Quaker Oats, USA (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.

In December 2015, Mr Ajay Bector (brother of managing director, Mr Anoop Bector) and Motilal Oswal Private Equity (MOPE) sold their stakes to private equity (PE) investors, Gateway Partners and CX Partners. Mr Anoop Bector and his family members continue to hold majority stake (52.46%), Mr. Ajay Bector holds 0.79% while the rest is owned by the PE partners (46.75%).

MBFSL operates in three segments: consumer, institutional, and private label. It sells biscuits under its 'Mrs. Bectors Cremica' brand. It also sells buns and other bakery items to client such as KFC, Burger King, ITC, and Mondelez. It supplies bread and bakery items under its 'Mrs. Bectors English Oven brand' and '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
Particulars Units 2018 2017
Revenue Rs cr 685 627
Profit after tax Rs cr 35 28
PAT margin % 5.1 4.5
Adjusted debt/networth Times 0.51 0.28
Interest coverage Times 13.79 12.96

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments.
Annexure - Details of Instrument(s)
ISIN Name of instrument Date of Allotment Coupon rate (%) Maturity date Issue Size
(Rs. crore)		 Rating assigned
with Outlook
NA Bank guarantee NA NA NA 3.5 CRISIL A1
NA Letter of credit** NA NA NA 10 CRISIL A1
NA Cash credit* NA NA NA 35.0 CRISIL A+/Positive
NA Cash credit NA NA NA 5.0 CRISIL A+/Positive
NA Foreign Exchange Forwards NA NA NA 10.72 CRISIL A1
NA Overdraft NA NA NA 5 CRISIL A+/Positive
NA Term loan NA NA May-2022 70 CRISIL A+/Positive
NA Term loan NA NA Dec-2021 57.4 CRISIL A+/Positive
NA Proposed Long Term
Bank Loan Facility		 NA NA NA 3.38 CRISIL A+/Positive
*Includes Rs 18 crore of sublimit for export credit packing credit.
**Includes Rs 7.5 crore of sublimit for bank guarantee
Annexure - Rating History for last 3 Years
  Current 2018 (History) 2017  2016  2015  Start of 2015
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  186.50  CRISIL A+/Positive/ CRISIL A1      01-09-17  CRISIL A+/Stable/ CRISIL A1  17-05-16  CRISIL A+/Stable/ CRISIL A1  05-05-15  CRISIL A/Stable/ CRISIL A1  CRISIL A/Stable/ CRISIL A1 
            30-06-17  CRISIL A+/Stable/ CRISIL A1           
Non Fund-based Bank Facilities  LT/ST  13.50  CRISIL A1      01-09-17  CRISIL A1  17-05-16  CRISIL A1  05-05-15  CRISIL A1  CRISIL A1 
            30-06-17  CRISIL A1           
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Bank Guarantee 3.5 CRISIL A1 Bank Guarantee 7 CRISIL A1
Cash Credit* 35 CRISIL A+/Positive Cash Credit* 27 CRISIL A+/Stable
Foreign Exchange Forward 10.72 CRISIL A1 Foreign Exchange Forward 11.72 CRISIL A1
Letter of Credit** 10 CRISIL A1 Letter of Credit** 10 CRISIL A1
Overdraft 5 CRISIL A+/Positive Proposed Term Loan 82.4 CRISIL A+/Stable
Proposed Long Term Bank Loan Facility 3.38 CRISIL A+/Positive Term Loan 37.35 CRISIL A+/Stable
Term Loan 127.4 CRISIL A+/Positive -- 0 --
Cash Credit 5 CRISIL A+/Positive -- 0 --
Total 200 -- Total 175.47 --
*Includes Rs 18 crore of sublimit for export credit packing credit.
**Includes Rs 7.5 crore of sublimit for bank guarantee
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
Rating Criteria for Fast Moving Consumer Goods Industry
CRISILs Criteria for Consolidation
CRISILs Criteria for rating short term debt

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