Q3FY24 Review: Mrs Bector’s Food: Biscuit segment drags margins

9 Feb 2024 , 01:56 PM

Mrs. Bector’s Food (MBFSL) reported a sales grow of ~17% which was primarily driven by volumes, however it disappointed on the margins front. The gross margin expanded by ~50bps YoY (vs analysts of IIFL Capital Services estimate of 180bps), but contracted by ~130bps sequentially. This was primarily due to the promotional actions taken by MBFSL in the biscuits segment (due to increased competitive intensity) and pre-loading of premium products for exports markets in Q2 to fulfil the anticipated demand during the Christmas season. While in medium term, the margins are expected to be under pressure, analysts of IIFL Capital Services expect the strong top-line growth to continue on the back of distribution expansion, increased penetration and premiumisation of the product portfolio. Analysts of IIFL Capital Services cut their EPS estimates for FY25/26 by ~6%/5% to factor in the margin pressures. Maintain BUY, TP Rs1325. 

Sales in line, margins disappoint: 

The sales grew by ~17% (in-line with analysts of IIFL Capital Services estimates), however there was a miss on margins. The gross margin expanded by ~50bps YoY (vs IIFLe 180bps), but contracted sequentially by ~130bps. The sequential contraction was due to: i) promotional actions taken in biscuits segments as a result of increased competitive intensity, and ii) unfavourable base of Q2 as there was preloading of cookies and other products in the export markets (high GM as they are priced at a premium) for the Christmas season. As a result of miss in GM, the Ebitda and PAT grew by ~19%/25%. 

Margins to be in the range of 14%-15%: 

The company has guided for the Ebitda margin to be in the range of 14%-15% in medium term and a mid-teens sales growth. While the margin pressures are likely to sustain in medium term, the robust growth trajectory of sales is expected to continue on the back of distribution expansion, increased penetration and premiumisation. 

EPS downgrade by 5-6%: 

Analysts of IIFL Capital Services downgrade their EPS estimates for FY25/26 by ~6%/5% to factor in the margin pressures. The Ebitda margin for FY24 is expected to be 14.9% (15.1% in 9MFY24). However, the increased competitive intensity in biscuits and the promotional actions to counter this are expected to drag Ebitda margin by ~40bps in FY25. With premiumisation and economies to scale, the margins are expected to improve in medium term. Maintain BUY, TP Rs1325.