Mrs Bectors Food Specialities IPO opens today: Here’s what brokerages recommend

The IPO by Mrs Bectors Food Specialities is set to hit the capital market on Tuesday. Most of the brokerages have given a ‘subscribe’ call to the Rs 541 crore public offer. The IPO will be sold in the Rs 286-288 price band and would comprise an offer for sale (OFS) of Rs 500 crore and a fresh issue of Rs 40.5 crore. Investors can bid for a minimum of 50 equity shares and thereafter in multiples of 50 equity shares.

Analysts said the company's financials have improved; net debt has declined and free cash flows have turned positive. The fact that the demand outlook for the biscuit and buns maker looks decent and the IPO is priced at a steep discount to listed peers leaves enough on the table, they said.

Here's what brokerages said:

• Hem Securities: Subscribe

The company is bringing the issue at price-to-earnings (p/e) multiple of around 28 times at the higher end of the price band of Rs 286-288 per share on post issue annualised H1FY21 EPS basis. Mrs Bectors, being one of the leading brands in biscuits and bakery businesses in North India, has established a presence in retail and institutional bakery business with a modern and automated production process and a focus on quality control. It has widespread and established sales and distribution network and an experienced promoter and management team. Therefore, we recommend subscribing to the issue both for short and long term horizon.

• Angel Broking: Subscribe for listing, long-term gains

Keshav Lahoti of Angel Broking expects the domestic biscuit and bakery market to grow by 9 per cent going ahead, due to urbanisation, increase in disposable income and favorable government policy. The institutional Indian bakery industry, he said, is expected to grow by 20 per cent due to increasing market share of the QSR chain.

"We think Mrs Bectors Food Specialities should be able to grow in line with the industry managed by the promoters having more than 25 years of sector knowledge. The company's results were better than the industry in the first half of the ongoing financial year. Peers such as Britannia Industries, Nestle India, Prataap Snacks and DFM Foods are trading at trailing PE of 50.2 times, 85.6 times, 57.1 times and 97.6 times, respectively. Given the discount, there is comfort on the valuation. We recommend “Subscribe” to the issue for long term as well as for listing gains," Lahoti said.

• Prabhudas Lilladher: Subscribe

The brokerage said that even as the brand is well known in north India, it has just 4.5 per cent market share in key states. The brokerage said that the strong margin expansion in the first half of the ongoing financial year seems unsustainable, although bounce back in Institutional business will provide reasonable profit growth in FY22.

"We believe that MBF is well placed to grow in the bread and Buns business but needs to scale up in the biscuits business, given its smaller size than Britannia, Parle and Sunfeast," it said.

"The stock is being offered at 28 times FY21 EPS in comparison to 48 times FY21 EPS for Britannia which provides a long term re-rating opportunity if it scales up the Biscuits business," the broking firm said.

• Geojit: Subscribe with long-term perspective

The brokerage is expecting healthy future growth prospects in packaged biscuits and QSR segment and is thus recommending a “Subscribe” rating to the issue with a long-term perspective.

• Samco Securities: Subscribe solely for listing gains

Nirali Shah of Samco Securities said 'Cremica’ is one of the leading biscuit brands in the premium and mid-premium segments across North India with a market share of 4.5 per cent and its bakery products brand ‘English Oven’ is also one of the largest selling brands in Tier-I & II cities with a market share of 5 per cent in the branded breads segments in India.

The company, she noted, caters to well-renowned brands such as PVR, Burger King and McDonalds and has a budding exports business contributing to 22 per cent of its revenues.

"Financially too, this company has shown strong compounded annual revenue growth of 12 per cent compared with a 10 per cent for Britannia in FY17-19. Its free cash flows have improved from the previous year and its debt to equity ratio has also been on a decline despite the pandemic. Mrs Bectors trades at a lower valuation multiple compared with Britannia, which makes it a good bet from a subscription standpoint," Shah said.

"However, a number of risks such as stiff competition, higher dependency on the north Indian market for growth and a premium category target market which might not appeal to the rural and semi-urban areas makes Mrs Bectors a prime candidate solely for listing gains," he said.

• LKP Securities: Subscribe

At the higher price band of Rs 288, the stock is valued at 28 times its trailing 12-month earnings of Rs 10.32, which looks quite attractive considering the brand equity, distribution network, strong fundamentals and robust growth prospects, the brokerage said.

"The company has turned free cash flow positive in H1FY21. It generated FCF of Rs 31.5 crore in H1FY21 from a negative FCF of Rs 71.5 crore in FY18. On the working capital front, the company has shown improvement by reducing the overall working capital days from 33 days in FY18 to 25 days in H1FY21. Net debt of the company has also reduced from around Rs 133 crore in FY18 to Rs 107 crore in H1FY21, bringing down its net debt to equity ratio to 0.21 times," it said.