Mrs Bectors trades at 54 times FY20 earnings per share, 14% discount to Britannia Industries Ltd
The price offer seems expensive considering Mrs Bectors's 1% market share, an analyst says
As Mrs Bectors Food Specialities Ltd’s initial public offering (IPO) opens today, there are two main factors that work in its favour. One, the company operates in the packaged foods segment, which has lately benefited from the increase in stay-at-home consumption during the pandemic. Mrs Bectors operates in the premium and mid-premium range of biscuits and bakery segment in North India. Secondly, the issue comes at a time when the IPO market is performing well. On Monday, Burger King India Ltd saw a spectacular listing gain with the stock more than double from its issue price of ₹60.
However, valuations are pricey, says Sachin Bobade, analyst at Dolat Capital Market Pvt. Ltd. The price band of Mrs Bectors issue is ₹286-288 per share. According to Bobade, “At ₹288, Mrs Bectors trades at 54 times FY20 earnings per share, 14% discount to Britannia Industries Ltd."
True, Mrs Bectors performed well in the half year ending September (H1FY21), backed by covid-19 tailwinds, making it an attractive proposition. Revenues increased by 18% year-on-year in H1FY21. Bigger peer, Britannia too saw about 19% year-on-year revenue growth in H1FY21.
Mrs Bectors’ Ebitda margin expanded to 16.7% in H1FY21 compared to 12.2% in FY20. Ebitda is earnings before interest, tax, depreciation and amortisation.
But the moot question is whether the good run will continue? As the impact of the pandemic wanes, it would be difficult for the company to sustain its robust margins and revenue growth seen in H1FY21. “Considering mere 1% market share in biscuit category and higher dependence on B2B business, we believe that the offer price is expensive," says Bobade.
Even so, given that the general IPO market scene is bright and demand is strong going by the grey market premium, it is likely that Mrs Bectors shares may see decent listing gains as well. Coming to the financials, revenues in FY20 had declined by nearly 3% year-on-year. On the other hand, Britannia’s revenues had increased by 5%. Arun Kejriwal, founder of Kejriwal Research and Investment Services Pvt. Ltd, “Mrs Bectors’ relatively smaller size in terms of revenues compared to Britannia and Nestle means they are not fully comparable even though all these companies are in the packaged foods." For perspective: Mrs Bectors revenues for FY20 stood at Rs762 crore and Britannia’s operating revenues were Rs11599 crore. Nestle’s revenues for the year ending December stood at Rs12370 crore. Kejriwal added, “Mrs Bector would have to grow fast and build capacity at a rapid pace to take advantage of the ever-growing market and command higher multiples like bigger peers."
Prabhudas Lilladher Pvt. Ltd’s analysts said in a report on 14 December, “We believe Bread and Institutional Buns business is a silver lining (for Mrs Bector) given strong share and the credibility it provides to the system and processes from being a supplier to McDonald’s, KFC, Burger King and Rebel Foods."
Mrs Bectors’ issue will comprise of a fresh issue of shares to the tune of Rs40.5 crore and an offer for sale for ₹500 crore.
Potential listing gains notwithstanding, investors will have to closely watch whether the initial euphoria persists later. Optimism on that isn’t particularly bright.