Mrs. Bectors Food Specialities Limited (BECTORFOOD) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q1 FY '23 Earnings Conference Call of Mrs. Bectors Food Specialties Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Anoop Bector. Thank you, and over to you, sir.

Thank you. Thank you so much. Good afternoon, everyone. I hope that all of you and your families are safe and healthy. On behalf of Mrs. Bectors Food Specialities Limited, I extend a very warm welcome to all participants on Q1 FY '23 financial results discussion call. Today on this call, I have with me Mr. Manu Talwar, our Chief Executive Officer; Mr. Ishaan Bector, Whole-Time Director; Suvir Bector, Whole-Time Director; Mr. Praveen Kumar Goyal, Whole-Time Director; and Orient Capital, our Investor Relationship Consultant. I hope everyone had an opportunity to go through our investor deck and press release that we have uploaded on exchanges and on the company's website. Before discussing the quarterly performance, it gives me an immense pleasure to update you all that the new production line of Biscuits at Rajpura plant has started commercial production in July 2022. This line comes with an installed capacity of 12,000 tonnes per annum and has been effective from July 15, 2022. Project got delayed due to COVID-19 pandemic. Coming to our Q1 FY '23 performance, we witnessed revenue growth of 33% with strong growth momentum across both the Biscuits and the Bakery segment. I'm pleased to share that we saw growth in both volumes and realization. In first quarter, we continue to experience pressure on raw material prices and the company also took price rise hikes to mitigate these pressures. Having said this, the company is currently witnessing softening of raw material prices. This, coupled with price hikes is expected to have a positive effect on our EBITDA margins going forward. Mrs. Bectors has focused over the past few months on strengthening leadership team, building capacities to enhance manufacturing infrastructure, driving S&D through digitization and field force augmentation alongside premiumization. As we have communicated in the previous call, the company continues to focus on strengthening its senior level team. We have successfully onboarded marketing and supply chain heads from reputed organization to achieve our long-term growth targets. Apart from senior level hires, the company is also looking to strengthen its operational team. On manufacturing infrastructure ramp-up, we are investing further in Rajpura to add in Rajpura plant for biscuits alongside Madhya Pradesh and investing in state-of-the-art greenfield manufacturing facility in Maharashtra for our Bakery business. Technology will play a critical role going forward. And as a result, Mrs. Bectors is focusing its efforts on digitization. The company has recently implemented Salesforce Management System and is expected to implement Distributor Management System in the coming quarters. DMS enables our company to track real-time coverage, sales efficiencies and effectiveness and working discipline of our distribution network. Further, DMS system also helps to increase productivity of sales team by providing access to critical information like promotions, sales trends, et cetera, on a real-time basis. Company continues to enhance its existing distribution and plans to double its network in North India in the next 2 years. Further, it will also focus on enhancing its presence in Western and Southern India over the next 3 years. Now I will discuss the financial performance. The consolidated revenues for the quarter stood at INR 301 crores versus INR 226 crores in Q1 FY '23, thus registering a growth of 32.9% on a year-on-year basis. On the biscuit side, our Biscuits segment reported a revenue growth of 24%, which stood at INR 178 crores in Q1 FY '23 as compared to INR 144 crores in Q1 FY '22. This segment has grown by 26% over Q1 FY '21. Our domestic Biscuits segment and export witnessed higher double-digit growth in Q1 FY '23 as compared to same period last year. In the Bakery segment, the Bakery segment revenue stood at INR 107 crores against INR 69 crores in Q1 FY '23, thus registering a growth of 56% compared to Q1 FY '22, including retail Bakery and Institutional segment. Bakery segment has grown by 114% as compared to Q1 FY '21. Both retail and institutional bakery have grown by higher double digits in Q1 FY '23 as compared to the same period last year. The company continues to focus on increasing distribution and premiumization of the products. On the EBITDA side, the EBITDA stood at INR 31 crores, saw a growth of 30 bps points on a quarter-to-quarter basis. Our EBITDA margin for Q1 FY '23 was 10.4% as compared to 10.1% same quarter last year. PAT stood at INR 13 crores, saw a growth of 20 bps quarter-on-quarter basis. Our PAT margin for Q1 FY '23 was 4.2% as compared to 4% in Q4 '22. With this, I would request to open the floor for questions and answers. Thank you so much.

[Operator Instructions] The first question is from the line of Percy Panthaki from IIFL. [Operator Instructions].

Sir, could you give us some idea on the domestic Biscuits business? What is the growth on a Y-o-Y as well as on a 3-year CAGR basis here? And also if you could give some flavor on what part of the growth is coming from our core existing states and what part is coming from the new states that we have ventured in the last 2, 3 years? So...

So your first part of the question was how is the domestic Biscuit performance. So domestic Biscuit has grown well in high teens over the last year as well as over -- the last year same quarter as well as over the last quarter of last year. So it's a good volume growth -- double-digit volume growth as well as a high-teen revenue growth which we have witnessed in the domestic Biscuit business. And this growth, as we were briefed by MD in the opening speech has been led by the strong work which is happening now on the distribution strengthening side. So the whole implementation of the SFA, digitization and growth in our field force. So just to take this opportunity of updating you that in the previous call also, I think we updated that we have started adding ADSR, which is area distributor salesmen. And in the last year, we had added 300. So just to share with you that in this year itself, we have already added 300 more ADSRs, which was close to the full plan for this year. So we have front-loaded the addition of the ADSRs. So now if you look at over the last almost 7 months, we have added 600 ADSRs, which are working in the field. We have implemented Salesforce Management System by which we are able to not only track, drive the efficiency, productivity of our sales force. So domestic Biscuits for us has grown in high teens in revenue side and also in the double digit on the volume side, both compared to the same quarter last year as well as quarter 4 of last year.

Yes. On a 3-year basis, that is versus 1Q '20, would the CAGR growth over 3 years also be double-digit volume growth?

We will just get back on this. We'll just quickly get this number available, we will just update you during the call itself. Normally, Percy, what we are doing is on the volume basis because we are always looking at premiumization, volume numbers for our company become quite irrelevant. We focus more on the value proposition because if you start counting volume, low-priced products will get a better -- so I think for Mrs. Bectors, we should always look at value proposition than volume contribution. Yes.

Fair enough, sir. My second question is on the margin, that is the gross margin as well as the EBITDA margin. So firstly, on gross margin, it is roughly flat Y-o-Y, and there has been a fair amount of input cost inflation. So just surprised as to how you are able to keep the gross margins largely unchanged? And secondly, on the other expenses line, there is a very big inflation from 67% Y-o-Y growth in the other expenses. So can you let us know what is the reason for that?

So first thing is on the gross margin side. So as you said, we are very close to gross margin of same 44%, which was in the same quarter last year. And versus last quarter of the '21, '22 financial year, our gross margin is lesser by 1%. And I think that across the industry, we have seen quarter 1 continue to have a very high pressure on the material prices, right? So our improvement, which we did over the quarter 1 over '21, '22 is we had done some improvement in our margins over the first 6, 7, 8 months of last financial year. But then we started getting hit. Across the industry, everybody started getting hit with inflation post November onwards. And that's the reason that in the Q4 '22, our gross margin was -- or rather our value addition gross margin had dipped by 1% versus quarter 2. Now in the quarter 1 '23, although the pressure continued on the material cost side, but we were able to still sustain and retain it around 43.8%.

Yes. So another thing, Percy, this is Anoop Bector here. If you see the Bakery business has grown better than the Biscuit business and our Bakery business definitely on the bread side, our English Oven is doing great in the market, has a better EBITDA margin. So that also reflects. But surely, going forward, the numbers should be better as we are looking at subduing our prices. Some price increases happened -- which happened in the mid of the quarter, we did not get the complete price increases in the first quarter also. So we would -- we should look at going forward, we are looking at better than now gross margins coming over to the company.

Understood. And on the other expenses?

On the other expenses side, basically, there are 2 large reasons which are there. So one large element is our fuel prices. So our fuel cost has gone up, right, which is one large part of the increase which impacted over 1% to us. Second is the freight and forwarding, right? So freight and forwarding has gone up because of 2 reasons versus the same quarter last year. One is the fuel price went up and secondly, also our mix changed. So we had a very good quarter in terms of exports. So export has shown a higher growth. So that because of the tilt in the mix, the freight and forwarding is slightly higher. So we got an impact of close to over 1.5% on freight and forwarding. And one more smaller reason is there that you would remember that quarter 1 last year was second wave of COVID when the travel was literally 0. So with now everything opening up, our travel is back. So the sales staff, everybody and the business people are traveling. So that's another small business. So these are the primarily 3 reasons which fill up for the increase in our other expenses versus the same quarter last year.

The next question is from the line of Digant Haria from GreenEdge Wealth.

Very good to see the INR 300 crore number on the revenue front and that our Distribution Management System is picking up. So congrats on that, sir. Sir, my question was mainly on the Bakery segment that now in this quarter, the entire QSR is running full throttle, all the malls, all the outdoor activities are open. So is it fair to say that this quarter represents the true potential of our B2B Bakery business? Like have we bounced back to our complete potential? And now going on from here, the growth should normalize to that 12%, 15% as the sector grows?

Yes. So this is Ishaan Bector here. Yes. So definitely, there has been a very, very strong recovery on the QSR side. And we have also been updating that we are constantly looking at addition of new customers. In fact, one very big account that we have also sort of onboarded has been Subway. So as and as I think we are improving our capabilities, as we are improving the quality and the number of products that we have on offer to some of our customers, as we are onboarding new customers, I think we will continue to see a healthy growth. What we are seeing in terms of the market outlook as we are talking to some of our partners is a great sense of aggression coming forward in the next 3 to 4 years in terms of number of store openings. And I think what we are doing in the back end is also gearing ourselves to have the ability to meet the market expectations in terms of demand. So we see a very healthy forecast for the QSR business going forward. But yes, this significant increase that you see on the QSR as compared to quarter 1 of last year is because also the QSR business was impacted by COVID last year. I hope that answers the question.

The next question is from the line of Mansi Desai from Dalal & Broacha.

My question is answered, sir.

The next question is from the line of Amit Purohit from Elara.

Sir, on the Bakery side, while you indicated that you have added new customer and then there is overall growth expansion by the QSR players. So I wanted to check would you expect a sequential kind of ramping up of this business from here on as things are opening up and with the kind of inquiries that you are getting from the new customer, is that a fair number? And this becomes...

As in similar numbers in terms of growth as compared to the...

No, no, not in terms of -- I'm saying in terms of the run rate. So we did 107. So one, you have a QSR piece, other is the bakery piece. So wanted to know as we look at in the second half or even the ensuing quarters, probably this run rate should improve, right, given the fact that at that overall level?

So if you look at on the bakery side, I think on a long term -- for the long term, we have -- sorry, medium term, we have always said that we are targeting strong growth in double digits in terms of, let's say, 20% for the Bakery side. And we sort of continue to hold firm on that as we see a lot of opportunity, both on English Oven and the institutional side. On the English Oven side, we are seeing great response of our brand. And this is not only in one market, right? I think the test of the brand has -- the brand has proven itself in the Delhi market, in the Mumbai market, in the Bangalore market. And now as we are moving outside of Delhi, we have taken focus cities for us in the North India side being in Punjab, Chandigarh, Ludhiana, Jaipur, Agra, which we see a very high potential areas. And in fact, we have already started -- our brand is already present there. We are seeing great acceptance of the brand. So in terms of, I think, distribution, we have a long headroom to grow. And what we are going to be focusing on is continuing to execute on distribution. And at the same time, building world-class infrastructure like our Mumbai project, which is being envisioned is going to be a state-of-the-art facility. And we are very confident that it will give a very, very superior product to the market. So we will continue to remain bullish on the Bakery side with both these businesses on a positive outlook.

Okay. So this quarter run rate, you will look to build it up from there here on, right? Is that fair -- is there any seasonality in this that probably second half does because, I mean, last couple of years has been impacted because of COVID and whenever you look at sequentially, it still looks good only. But I just wanted to know second half versus...

No. Seasonality, there is a little bit of seasonality in the sense that winter the sales of breads are higher. But then also then Diwali time comes in. But yes, I think you must understand that on the bread side, what we have also done this time is we have been able to cover the increase in our costs by price rises. And I think oftentimes, whether it is in the Delhi market, we despite not being the leader in terms of number of the volume we sell, we have always very aggressively taken price rises from the market in order to protect the margins. So there has been a significant price rise that we have taken this quarter.

Okay. And sir, on the biscuit side, you -- just wanted to understand this growth is largely -- it would be both existing as well as new markets, but I wanted to know as in the new markets, it's more of a -- you indicated distribution-led growth, but would that be largely primary sales or largely also secondary sales? Would you have some sense on how that growth would have been? And existing versus new markets in terms of growth rates?

So first thing is that our domestic growth is as of now, largely led by North India, right, which is our existing territory, correct? And our all growth are secondary led. So we are a secondary company. We primary follow the secondary sale. So it's all about treasury and secondary. Plus the growth is both in general trade and the modern trade. So we are expanding also on the modern trade and general trade side. So both the verticals have grown well. And this is on the domestic Biscuit side of the growth. And I'll just take this opportunity also to request, Suvir to say because we also have a very good growth on the export side. Our momentum on export is building up very well. So Suvir, I would request you to update on that.

This is Suvir Bector this side. So in exports, we are significantly increasing our branded sales in developing markets such as the Middle East region, specifically the 6 GCC countries, plus we are also rapidly expanding in the North American market. Currently, we're growing our business at a double-digit growth, and we continue to see this space growing at -- it will grow at the same rate. And our target focus is going to be North American and GCC markets. Hope it answers your question.

Yes. And last, sir, on the other expenditure, you highlighted that freight cost. Would that also be to some extent because of the entry into new markets? Or it's again, like the growth has been largely in the existing market, the impact of higher freight cost is also felt in the existing markets, is that right?

So in the domestic side, our growth has been primarily -- we have just launched in 3 cities in South and West, which is Bangalore, Mumbai and Pune. So these are 3 city launches. It's a very small volume as well. We just started our journey there about 2 months back. Our majority of domestic growth is from our existing markets. What I briefed earlier that our freight cost going up has 2 reasons, which is obviously the fuel price hike over the years and second is our mix of export was higher than normal mix, which has led to higher freight costs.

Okay. Okay. And anything you would highlight on the overall, what kind of margins that you're looking at for the full year? Any indication rate?

So our -- as Anoop, MD said that we are clearly seeing a softening of material prices and which will clearly start reflecting to us in our margin improvement over the next few quarters. And as briefed in again, previous quarter meeting that our aspiration continues to be reaching a 13% to 14% EBITDA margin. That's where we are -- that's our first milestone where we are targeting to reach. But yes, it was quite seriously impacted like the industry by the very high inflation in material prices. But yes, we're seeing now softening and definitely this trend should continue, and we should see improvement in the next few quarters.

The next question is from the line of Sonal from Prescient Capital.

Sir, I had 2 questions. First, I wanted to understand what part of price rise is still pending to catch up with the rise in the raw material prices. If you could quantify that? And what is the time frame within which you intend to take the subsequent price rises in the next few months? Just if you could help with that.

Okay. So in terms of as a company, I think we are through with large part of our price rise, right, because in one segment, we have taken whatever price rise we had to take, and we have completed the price rise for our current inflationary time. In other part of the segment, we are doing a gradual price increase. We have definitely in the quarter 4 of last year and quarter 1 of this year, we have taken price rise to cover as much as possible. But we also always have to keep in account the industry and the industry large players. So we will still have something to catch up in this quarter on the price rise side.

So I'll take this. This is Anoop Bector. So there are certain areas. I mean, there was a price rise which came in mid of the first quarter. So 100% price rise could not come in. And even our QSR businesses, the price increases have come in, in the later part of the first quarter. So going forward, also we are looking at further price increases, but they will take some time and might happen in Q3. They would get -- start getting reflected in Q3. And because we are seeing certain of our competition changes happening or any part increases which are yet to take place. So it is a continuing journey. So this is never going to stop. Till the time inflation is going to stay, we will have to cover up our costs. So this is going to be -- we cannot correlate it to a percentage because it keeps changing. I mean, last quarter, we really saw a big jump in certain -- especially in the fuel cost. So gas prices have gone up and things like that. So this is a continuing journey, and our teams are fully geared up to keep this exercise on. We are currently evaluating our competitors what they're doing, especially our senior leaders in the industry. And we see there are certain changes happening, and we're going to continue to make price amendments to reflect on the inflation.

And we don't see any softening in demand because of this price rise that everybody has been taking around. I'm talking more from a market perspective...

See, these price rises are taken very, very carefully. And for us, we are in a high distribution increase. You see, what Manu told you about the ADSR. We are focusing very heavily on improving our distribution, on the SFA, on the DMS. So that is really promoting the company to increase its outlets. I mentioned in my speech, we plan to double our outlets in 2 years. Now that's going to be something which is going to be a turnaround. And also, I mean, in biscuits, the price rises are not that big. We do it in a sense which are -- for the customer, they're able to take it. Yes. I mean, when we say rural economy has gone down, that's not down because biscuit price rises. That's down because agriculturally, there are certain challenges which have happened, inflation has happened in the overall field. But for us, with the increase in distribution, we have seen such high numbers coming in, in our business. I think that reflects very clearly that in the Biscuit business, we have grown by around 23% on the value terms which is considerably good.

Sure, sir. So I have a follow-on on this one. So when we compare your Biscuits branded business compared to your larger competition, what is the difference in price in your brand vis-a-vis your peers? If you could broadly indicate the...

There is some price difference because we are still a lower volume player and extra margins are given in the retail side or in the -- or our distributors where economics are working. On the MRP side, most of our products would stand very similar to competition.

Yes. So more on the MRP is what you basically trying to...

Yes. MRP side, they will stand very close to competition.

Okay. And sir, lastly, I don't have a question. I have just a request on disclosure that just to understand the branded and the unbranded business. So when I say B2C and the B2B business is better, if you could just start sharing data on the direct consumer-facing businesses bundled -- where you bundle the bread and the biscuits together and the other businesses, that will just help understand how the mix of the business is changing. This is more a request if we're analyzing the company...

Yes, fine. We will look after -- take care of it, and we will discuss internally, and you'll see in case -- or we can...

At a broader level, that will just help...