Rating Rationale
March 05, 2020 | Mumbai
Mrs.Bectors Food Specialities Limited
Rated amount enhanced
 
Rating Action
Total Bank Loan Facilities Rated Rs.270 Crore (Enhanced from Rs.200 Crore)
Long Term Rating CRISIL A+/Positive (Reaffirmed)
Short Term Rating CRISIL A1 (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its ratings on the bank facilities of Mrs.Bectors Food Specialities Limited (Bectors) at 'CRISIL A+/Positive/CRISIL A1'.

The reaffirmation 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 370 crore  in first half of fiscal 2020 driven by year-on-year (yoy) 20% growth in bakery segment, healthy domestic growth of 13% yoy in biscuits and new launches in biscuits, bakery segment and frozen foods. This was partially offset by decline in exports.

Going forward, growth is likely to improve at 12-15% over next 2 fiscals driven by healthy market position in biscuits in north India, new orders for institutional biscuits sales, 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 12.5-13% in the medium term. 

Financial risk profile to remain healthy characterised by healthy cash accruals, expected at Rs 80-90 crore in the medium term , debt metrics as well as healthy return on capital employed (RoCE) of around 16% in fiscal 2019; expected to sustain at current levels going forward. Given moderate average capex of Rs 50-70 crore per annum over the next 3 fiscals, and healthy cash accruals reliance on external debt is expected to remain moderate 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.

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 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 30% in fiscal 2020 from 24% in fiscal 2018. 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, however exports are expected to decline in FY20 due to shortage of forex US dollars in certain African countries. Growth in exports is expected to recover in fiscal 2021 driven by its strong focus on quality and healthy share of Indian biscuits exports market. The company is also engaged in job work manufacturing for ITC and Mondelez. Fresh orders from mondelez at higher prices will drive growth in FY21.
 
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 295 crore, low gearing of below 0.5 times as on March 31, 2019, and robust debt protection metrics with cash accruals expected to be Rs 80-90 crore in the medium term. Interest cover and NCA/TD are expected to improve to 11.3 times and 0.7 time in fiscal 2022 from 8.3 and 0.95 in fiscal 2019 respectively. Though gearing has increased over last 3 fiscals because of debt funded capex, going forward gearing is expected to remain below 0.5 time due to expected improvement in accretion to reserves and moderate capex.
 
Weaknesses:
* 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 785 crore for fiscal 2019. 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) which form 50-60% of costs.

Operating profitability will likely remain exposed to sharp fluctuations in raw material prices and forex rates, however company has exposure to forward contracts to hedge forex risk, as companies are able to pass on price increases to consumers only with a time lag.
Liquidity Strong

MBFSL has a strong liquidity profile on account of healthy cash accruals and robust debt protection metrics. Cash accruals remain comfortable at Rs 75-100 cr p.a. and will be adequate for capex and repayments estimated at Rs 40 crore on average over 3 years. Bank limit utilization is around 40% for 8 months ending November 2019.

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.

Rating Sensitivity factors
Upward factors:
* 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 with revenues crossing Rs 900-950 crore

Downward factors:
* Deterioration in capital structure, most likely because of substantially large, debt-funded capital expenditure and gearing above 1 time
* 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.
 
For the 6 months ended September 2019, company reported an EBITDA of Rs 44.3 crore on net sales of Rs 369 crore, with operating margin around 12% for the same period.

Key Financial Indicators
  Units 2019 2018
Revenue Rs cr 786 685
PAT Rs cr 35 35
PAT margin % 4.7 5.1
Adjusted debt/networth Times 0.48 0.51
Interest coverage Times 8.33 13.79

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 CRISIL A+/Positive
NA Overdraft NA NA NA 10 CRISIL A+/Positive
NA Term Loan NA NA Dec-24 5 CRISIL A+/Positive
NA Term Loan NA NA Apr-25 43.95 CRISIL A+/Positive
NA Term Loan NA NA Oct-21 16.41 CRISIL A+/Positive
NA Term Loan NA NA Oct-21 2.43 CRISIL A+/Positive
NA Term Loan NA NA Jun-23 7.31 CRISIL A+/Positive
NA Term Loan NA NA May-26 9.09 CRISIL A+/Positive
NA Term Loan NA NA Jan-25 9.52 CRISIL A+/Positive
NA Term Loan NA NA Jan-27 45 CRISIL A+/Positive
NA Term Loan NA NA Apr-25 12.99 CRISIL A+/Positive
NA Term Loan NA NA Apr-26 7.21 CRISIL A+/Positive
NA Term Loan NA NA Dec-27 27 CRISIL A+/Positive
NA Working Capital Term Loan NA NA Dec-22 6.11 CRISIL A+/Positive
NA Short Term Bank Facility NA NA NA 10.5 CRISIL A1
NA Proposed Long Term
Bank Loan Facility		 NA NA NA 3.98 CRISIL A+/Positive
NA Export Packing Credit NA NA NA 5 CRISIL A+/Positive
*Includes Rs 20 crore of sublimit for export credit packing credit.
**Includes Rs 10 crore of sublimit for bank guarantee
 
Annexure - List of entities consolidated
Sr. No Subsidiary Companies: Subsidiary/ Joint Venture Extent of consolidation
1 Bakebest Foods Private Limited Subsidiary 100%
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  256.50  CRISIL A+/Positive/ CRISIL A1      31-12-19  CRISIL A+/Positive/ CRISIL A1  29-09-18  CRISIL A+/Positive/ CRISIL A1  01-09-17  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      31-12-19  CRISIL A1  29-09-18  CRISIL A1  01-09-17  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 3.5 CRISIL A1
Cash Credit* 35 CRISIL A+/Positive Cash Credit@ 35 CRISIL A+/Positive
Export Packing Credit 5 CRISIL A+/Positive Foreign Exchange Forward 10.72 CRISIL A1
Letter of Credit** 10 CRISIL A1 Letter of Credit@@ 10 CRISIL A1
Overdraft 10 CRISIL A+/Positive Overdraft 5 CRISIL A+/Positive
Proposed Long Term Bank Loan Facility 3.98 CRISIL A+/Positive Proposed Long Term Bank Loan Facility 3.38 CRISIL A+/Positive
Short Term Bank Facility 10.5 CRISIL A1 Term Loan 127.4 CRISIL A+/Positive
Term Loan 185.91 CRISIL A+/Positive Cash Credit 5 CRISIL A+/Positive
Working Capital Term Loan 6.11 CRISIL A+/Positive -- 0 --
Total 270 -- Total 200 --
*Includes Rs 20 crore of sublimit for export credit packing credit.
**Includes Rs 10 crore of sublimit for bank guarantee
@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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