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Premiumization trend to continue

Growth led by premiumization

Mrs Bectors Food Specialities’ (BECTORS IN) Q3 sales rose 16.6% YoY to INR 4.3bn, led by 22.4% YoY growth in the biscuits segment and 15% in the bakery segment. Strong premiumization trend was observed in both the segments of domestic biscuits and branded bakery. Premium and mid-premium offerings such as creams, cracker biscuits, whole wheat bread, multigrain bread, and foot-long bread boosted revenues. The premium share in domestic biscuits rose to ~34-35% compared with 30-31% last year. Existing outlets contributed two-thirds to growth for biscuits. The management is targeting overall sales growth in mid-teens.    

Reach expansion and capacity building on track

BECTORS continued to prioritize distribution as a key strategy. In the domestic biscuits sector, BECTORS is expanding its direct reach to 0.32mn outlets by FY24. In emerging markets of North and South, the biscuits business has expanded to 12 cities from three previously, while in the North, BECTORS has strengthened its presence from 269 districts to 350. Also, BECTORS is venturing into the lucrative Punjab region in the branded bakery segment. In Q3, it inaugurated its bakery plant at Bhiwadi (NCR), with plans to launch bakery and biscuits plants in Khopoli and Dhar, respectively by FY25. It is also adding two additional lines in Rajpura plant in H1FY25.           

Margin guidance maintained at 14-15%

Q3 EBITDA margin contracted 130bps QoQ to 14.3% due to increased promotions in domestic biscuits from heightened competition and inferior mix of exports. BECTORS expects to achieve 14%+ EBITDA margin in the near term despite increased competition in biscuits. 

Valuations: Revise to Buy with TP of INR 1,414

We cut FY25E/26E earnings estimates 7%/10%, to factor in slower growth in domestic biscuits business and lower margin. We revise to Buy from Accumulate as the stock has corrected 6% in the past two months, with TP unchanged at INR 1,414, as we assign 40x (unchanged) and roll forward to March FY26E.