Daily Stock Market Reports

This smallcap stock hits fresh 52-week high. Should you buy more?


FMCG player, Mrs. Bectors Food Specialities on Wednesday witnessed huge buying that led the smallcap stock to touch a new 52-week high. Overall, in the day, Mrs Bectors stock has risen by around 3% on exchanges. The stock currently trades near its fresh 1-year high. The stock has the potential for more upside on the back of a healthy and delectable growth trajectory.

On BSE, at the time of writing, Mrs Bectors stock traded at 432.85 apiece up by 3.38%. The stock was near its fresh 52-week high of 433.50 apiece. Its market cap is around 2,546.70 crore.

Due to a strong upside on November 23, 2022, Mrs Bectors stock has climbed by a whopping nearly 77% compared to its 52-week low of 245 apiece which was recorded on June 20 this year. So far in 2022, the stock has jumped by at least 12.25%.

During Q2FY23, Mrs Bectors posted a net profit of 21.93 crore rising by 21.2% yoy, while revenue from operations climbed by 41.1% yoy to 347.4 crore. EBITDA soared by 28.3% yoy to 44.5 crore, however, margins dipped to 12.8% versus 14.1% in Q2FY22. The biscuit segment reported a growth of 40% in Q2FY23 over Q2FY22, meanwhile, the bakery segment has grown by 51% in Q2FY23 including the retail bakery and institutional segment.

In its research note dated November 22, Ventura Securities said, “post our initiating coverage on Mrs Bectors Food Specialities Ltd (MBFSL) in Jun 2021, the stock underperformed street expectations on the back of a decline in profitability (EBITDA margins declined from 16.1% to 12.4% in FY22 and 11.7% in H1FY23) and delay in the operationalization of its Dhar facility in Madhya Pradesh.”

However, Ventura believes that things are set to change at Mrs Bectors due to two factors. These are:

Firstly, the upcoming Dhar facility will cater to southern and western India, which will subsequently free the MBFSL’s northern facilities to focus on north India and the export market. This is expected to reduce the logistics cost and transportation time for the company. Additionally, the company shifted 2 biscuit lines from Tahliwal (Himachal Pradesh) to Rajpura (Punjab) which is expected to reduce annual OPEX (labour & logistics) by 12 crore.

Secondly, MBFSL has been witnessing significant demand for its Cremica biscuit brand in Maharashtra and Karnataka, which will be largely catered to by the new Dhar facility. Hence, Ventura is expecting a higher capacity utilization of the Dhar unit.

Also, Ventura pointed that Cremica biscuits are gaining momentum, the direct distribution strategy to retailers worked well for the company in English Oven bread, which has a domestic market share of ~5% and a leading position in northern India.

Another trigger for upside in Mrs Bectors as per Ventura would be the supply of buns to QSRs, where MBFSL has strong B2B relations with KFC, McDonald’s, Subway, Yum Brands, etc. QSR is a significantly underpenetrated format in India (less than 3 stores per mn people) compared to China (8), the US (200), and Europe (100).

Notably, the company has been investing in new capacities and working on cost optimization to improve its profitability. Ventura’s note said, “the company is in a high growth phase and the steep valuation discount of >50% to industry peers is unwarranted. We believe that as this growth story emanates, the valuation discount will narrow substantially.”

That being said, over the period of FY22-25E, Ventura expects Mrs Bectors revenue/ EBITDA/ PAT to grow at a CAGR of 23.6%/ 26.5%/ 32.5% to 1,866 crore/ 248 crore/ 133 crore, respectively. Also, EBITDA and PAT margins are expected to improve by 88bps to 13.3% and 134bps to 7.1% due to cost optimization measures taken by the company and improvement in asset utilization.

Moreover, Ventura expects the company’s return ratios – RoE and RoIC – to improve by 680bps to 19.0% and 1207bps to 27.2% respectively by FY25E.

Thereby, Ventura has initiated coverage on the stock with a BUY for a price target of 497 (22X FY25 P/E).

 

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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