Mrs. Bectors Food Specialities Limited (BECTORFOOD) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to the Mrs. Bectors Food Specialties Limited Q1 FY '26 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Anoop Bector. Thank you, and over to you, sir.

Thank you so much. Good evening, everyone. On behalf of Mrs. Bector Food Specialties Limited, I extend a warm welcome to all participants on Q1 FY '26 financial results discussion call. Today on this call, I have with me Mr. Manu Talwar, our Chief Executive Officer; Mr. Ishaan Bector, Whole-Time Director; Mr. Parveen Kumar Goel, Whole-Time Director and Chief Financial Officer. We also have MUFG Intime with us on the call, who are our Investor Relations adviser. I hope everyone had a chance to review our investor deck and press release, which was uploaded on the exchanges and our company website. In a challenging macro environment, the company has delivered a resilient start to financial year '25-'26, recording a 7.6% year-on-year increase in revenue from operations and delivering an EBITDA margin of 12.3%. Coming to the macro environment, we are cautiously optimistic about the prospects of Urban segment. On the back of recent interest rate cuts and the rationalization of tax slab, we are seeing early signs of recovery. On the inflation front, particularly in the raw materials, the sharp price hikes driven by geopolitical disruptions and supply chain bottlenecks appear to be behind us. Prices of key commodities like cocoa, palm oil and maida, even though still elevated, are now stabilizing. A stable raw material price environment going forward should translate into stable end consumer pricing and help propel demand. The sharp increase in input costs was effectively mitigated through strategic pricing actions and initiatives undertaken under Project Impact. The Bakery segment delivered its highest ever quarterly performance of INR 183 crores, a 19% growth for the quarter. This was led by English Oven, whose market-leading brand equity, superior product quality and high consumer trust have been instrumental in driving momentum. We continue to strengthen our position in incumbent markets and are now also aggressively pursuing geographic expansion through both distribution and brand building initiatives. Coming to biscuit portfolio, a top line growth of 3% underlines the challenges faced by the exports business. The export business continues to operate in a highly volatile environment. The uncertainty of tariffs, slow passing of input price hikes on account of muted demand and supply chain disruptions due to geopolitical tensions continue to be challenging. Business from America has been particularly impacted. However, we remain in close engagement with our customers to drive this -- to drive through this uncertainty. On the domestic front, all price actions have been factored in and now end pricing has stabilized. The growth rate even on the back of sharp price hikes have improved consistently quarter-on-quarter from quarter 3 last year, indicating resilience and provides an optimistic outlook as broader consumption improves. We continue to scale up and enhance business contribution from innovation. Our innovation philosophy is to upgrade and enhance consumer experience, through differentiation by use of healthier ingredients, convenient formats and rich experience products. Products like short bread made with 25% butter and low palm oil has performed well in the indulgent segment. In the kids snacking category, we introduced animal shaped crackers under the brand name Teddies, which continue to scale up well. Tapping into the demand for convenience anytime in-home indulgence and building in our bakery expertise, we entered in the ready-to-eat dessert segment with the launch of Choco Lava Cake, muffins and brownies. It continues to scale up well on quick commerce. In response to the growing demand for healthier alternatives, we launched our flagship coconut cookies with zero maida offering at INR 20 per 100 grams. Additionally, we are building a pipeline of health first products, which should be out in the next few quarters. Furthermore, we launched clean label range of breads under Nature Baked, a health first exclusive brand with no maida, no palm oil and no added colors, and no preservatives with the proposition. It is honest, it is clean, it is Nature Baked. [indiscernible] with super seed and whole wheat flour -- flavors. Early feedback has been encouraging, and we plan to scale up this range with more exciting offerings in the future. On marketing, having recovered from the input price drop in the last quarter, we regained our committed spend to build and investing behind our brands in critical priority markets, a blend of mass media, TV and outdoor and BTL activities like out-of-home campaigns, wall painting, vehicle branding, along with participation in exhibitions, melas, helped gain significant visibility for the brand. We celebrated Mother's Day with heartfelt YouTube film, Maa Ke Sapno Ka 1st Birthday, honoring mothers and their dreams, which resonated deeply with our audience. As the next driver of growth, English Oven expanded both its reach and visibility in the top 14 cities of North through a large outdoor campaign. On the technology front, we have made significant advancements aimed at strengthening our operational backbone. In manufacturing and supply chain, we have rolled out digitization initiatives across 50% of our plants in sales and distribution, the deeper adoption of our distributor management system, across 60% of distributors delivering enhanced visibility, real-time tracking and improved order fulfillment. Additionally, our technology investments have enabled better management of trade spends and improved key sales force metrics, including productivity rates and territory coverage. On our new biscuit facility in Dhar commenced operations in May and is currently in a phased ramp-up to ensure operational stability. Full-scale commercial production is targeted for Q3 -- sorry, for Q2. Once fully operational, the plant will not only deliver improved operational efficiency and enhance service levels, but also strengthen our manufacturing capability for the differentiated products, playing a pivotal role in driving the growth of our product portfolio. On the bakery front, we remain focused on scaling operations to capture growth opportunities. Our plant in Kolkata is going to be commissioned in quarter 3 and the facility in Maharashtra is going to be commissioned towards the end of the financial year. In line with our commitment to enhancing shareholder value and improving liquidity, the Board has approved a subdivision of equity shares, whereby each fully paid equity share of INR 10 face value will be split into 5 fully paid up equity shares of INR 2 each. This move subject to the shareholder and regulatory approvals. Move to our -- Moving to our financial performance for the quarter, starting with Biscuits. Our Biscuit segment reported a revenue growth of 3%, which stood at INR 281 crores in Q1 FY '26 as compared to INR 273 crores in Q1 FY '25. The segment has grown by 26% over Q1 FY '24. Our Bakery segment revenue for Q1 FY '26 stood at INR 183 crores against INR 154 crores in Q1 FY '25, thus registering a growth of 19% on a year-on-year basis, including retail bakery and institutional segment. This segment has grown by 35% over Q1 FY '24. The consolidated revenues of the current year stood at INR 473 crores versus INR 439.4 crores in Q1 FY '25, thus registering a growth of 7.6% on a year-on-year basis. EBITDA stood at INR 58.2 crores while EBITDA margin for the quarter stood at 12.3%. PAT stood at INR 30.9 crores for the quarter and PAT margin for Q1 FY '26 stood at 6.5%. Thank you so much. Over to you.

Hello, should we begin with the question and answer.

Yes, please.

Okay. Thank you very much. We will now begin with the question and answer session. [Operator Instructions] The first question is from the line of Resha Mehta from GreenEdge Wealth.

Sir, the first question is on biscuits. 2-part question here, domestic biscuits and export biscuits. So domestic biscuits, the growth has been very, very muted. Now since we've taken all the pricing actions and the RM, the raw material costs are also largely stable, like you called out, what is the kind of growth that we are expecting for the balance 9 months or from here on?

So in the domestic biscuit side, what we have seen that over the last 2 to 3 quarters, there has been improvement in the revenue growth quarter-on-quarter, right? Even this quarter, revenue growth was better than last quarter, right? And we are very hopeful that these trends will kind of build up and especially when the festive season also kind of helps. So we're definitely targeting, right, that we should be able to build up in the next 2 quarters and get to a run rate of a double-digit growth over the next 2 quarters' time. So that's what we are gunning for or that's what we are heading for, targeting to keep improving this growth rate from a high single digit and take it to a double-digit growth and build it up.

Just taking a step back, right, the headwinds that we were facing in our domestic biscuit business was essentially that demand was muted and we had taken price hikes, which probably in a muted consumer environment did probably further suppress demand and there were competitive pressures also. But now with that, I mean, the muted demand kind of still remains or do you see that there is an improvement in the demand sentiment in urban areas?

Look, there's definitely -- that's why I said, if I look at Q3 of last year to Q4, Q4 to Q1 of this year, it has been quarter-on-quarter, the growth has been improving, right? There's a clearcut trend of sequential improvement in growth quarter-on-quarter. We are at a high single-digit growth in domestic biscuit business. And we're very confident that over the next 2 quarters, -- and there has been a fair amount of steep price increase in the last 6 months' time, which is also kind of settling in now and commodity prices have also stabilized. So we are -- and the festive season hitting, we should be able to move the growth sequentially up in the next 2 quarters also and get to a sustained double-digit growth going towards the quarter 4 of this year and then the next financial year.

So the Q1 domestic biscuit growth was in high single digits, like you called out, correct?

Yes, it was...

Year-on-year, right? And this is year-on-year, you're talking about?

Year-on-year, yes, absolutely.

Right, which effectively means that there has been some kind of a degrowth or very muted growth in the export...

Yeah, absolutely. There has been...

Can you specifically call out like what exactly are the issues here? And how big would our U.S. exposure be? And how can we kind of mitigate this?

So basically, what happened is, this uncertainty had impacted the phasing of the orders, right? And because of the phasing the order, discussion with customers, the announcements coming and changing has kind of delayed these orders. And as far as our U.S. business, which is impacted is about 20-odd percent, which is there. But while these things were settling down, our dispatches in June and quarter 2 had started building up. And then again, this announcement came off heavy impact of 50%, right? And then that has again kind of created an uncertainty, no doubt about that. We are in touch and engaging our customers. And we are also hopeful that somewhere, there would be some resolution, which Indian government and U.S. government will also work out. So very hopeful by end of August, things should be better and clear. But, yes, as of now, we are engaging with the customer to kind of make this.

U.S. is 20% of our export biscuit revenues, right?

Yes, approximately around 20%.

Got it. Got it. And lastly, on the margin front, so considering -- so from here on, considering pricing actions have been affected and the raw material input prices are largely stable. So can we see the gross margins Q2 onwards kind of improving and going back to, let's say, 47%, 48% kind of levels, which effectively would perhaps lead to translation into improved EBITDA margin?

So first thing is definitely, we are looking at EBITDA margins to improve, right? Our EBITDA margin in this quarter was also further impacted by the business mix, right, with change and exports being low. So -- but yes, in the coming quarter and the coming quarters, as we had indicated in previous call also that from quarter 2 onwards, we will start getting back to our EBITDA margins of close to 14%. And we are working in that direction. We are confident of getting there.

And the last one, if I may. So the bakery business, 19% revenue growth, can you break that up into the B2C and the QSR business?

We...

Manu please corrected that -- excuse me, Manu, just correct it that, it is 20% of the export business, not B2...

Yes, sorry. It is 20% of export business. It is just about close to 5% to 6% of our overall business. So that North America, which is impacted as a percentage of export is 20%, but overall business should be around 5%, 6%. Coming to Bakery side. Bakery side, obviously, our B2C business is growing very healthily. We don't share the numbers separately. But, yes, English Oven growths are much more healthy and aggressive compared to B2B. B2B or QSR business, we are growing, right, but it continues to be on a low growth mode as compared to English Oven, which is B2C business.

So you know, export part is overall U.S. revenues is just 5% to 6% and largely...

Of overall revenues.

Yes, of overall revenues. And largely, the impact would -- I would imagine, would have been on the U.S. business on the export.

No, let me just correct it. What has happened is that currently, we do not face -- our [indiscernible] are going as normal. But what had happened was that we have a lot of carried over stocks, which could not be -- it is in transit, right? The stocks were in transit. So otherwise, till now, I mean, our business is as normal, but there have been a lot of fluctuations. Once they started with 25%, then they started with 50%. So the shipping documents, we are waiting for the customers to respond. So at the moment, our business, we are supplying all orders as they are. We continue -- we shall be continuing to doing similar business in quarter 2 also. And -- but the total U.S. business is 5% of the total company sale. That is what it is at the moment.

[Operator Instructions] The next question is from the line of [ Preeti ] Agarwal from SK Associates.

My first question is that the bakery segment grew 19% year-on-year, significantly outpacing the biscuit segment. So what specific product innovation or market strategy contributed to this growth?

Ishaan, you can take this.

Yes. So on the Bakery side, we are basically always been saying that our vision is to be a pan-India player. So there's 2 parts to it. So we have extensively increased our distribution. We have also entered into the upper north geographies of Punjab. We are also seeing where as an early mover into the category, we have a very strong market share on the quick commerce, where we are aggressively working, we are gaining market share. Our products have been well accepted. On the general trade side, we -- despite significant movement of volume going into quick commerce, we are continuing to increase our distribution. So in both the categories, whether it is general trade or quick commerce, we are seeing positive numbers in terms of growth. right? So like I have always said that English Oven still has a long journey to become a national brand and to be in a line or vision of being the top 3 brands in India in the bakery segment. So expansion is one such thing. Secondly, we have also noticed that lot of trend has gone towards the health segment, right? So we were again one of the early movers into catching this health segment. In fact, most of our breads today on the healthy side are made of no maida, they are using no palm oil. We have also now added a new brand to our portfolio, which is called Nature Baked, which by this month will be available across all the geographies where we are currently operating in, right? And this is taking the health portfolio to the next level where on top of the no maida, no palm oil, we are also removing preservatives from our product. We are removing any kind of emulsifiers, right? So I think we are focusing on the trends well and focusing on expanding distribution and maintaining more importantly, a high market share in Q-comm. So we're excited about the time to come.

Understood. So better market strategy is helping us to target specific pockets of the region?

Yes, yes.

Understood. My second question is that what is the current contribution of e-commerce and modern trade channels to overall revenue? And how do you see this evolving in the next 2 years for the bakery as well as the biscuit segment?

From. Yes, go ahead, Ishaan.

So for the bakery, it's about 30%, our contribution of modern trade and e-commerce, quick commerce. What we are seeing is that this contribution should and will go up higher as expansion of these segments of quick commerce becomes deeper into Tier 2 cities as well.

Understood. And lastly, on exports, how are we navigating geopolitical disruption in the export market, especially given our presence in more than 70 countries.

So we are not facing any concerns other than the U.S. market. So otherwise, business is as normal, but what has happened is that with a lot of U.S. disruptions going on, on final deadline, lot of shipping transportation has been moving in and out to other countries. So that was one disruption. Otherwise, other than U.S., we don't foresee anything coming back, anything other than the U.S., other than that everything else stands normal to us.

The next question is from the line of Shirish Pardeshi from Motilal Oswal.

Ishaan, starting from the Bakery business, can you break down this 19% in terms of volume and value?

So growth for us in Bakery this quarter has, I would say, 65% has been volume led and the balance being value. A large factor of this is also focused more on premiumization, right? So as the Q-comm mix has improved, our listings on Q-comm are of the premium category, which also helps increase our premiumization mix. So it's been largely volume driven, followed by value.

So is it primarily driven by the new product in the bread segment, the growth would be significantly higher than the overall?

No. Firstly, it's not -- so a lot of our products have also become revamped, right? So it's not like we've introduced many, many new products. It has been reengineering of existing products to make them healthier. I think that has worked, right? And Nature Baked as a brand has just been launched a month ago. We are getting a good response for it. I think it is just the start of Nature Baked. So it's largely been through existing products rather than new products, reengineering of existing products is a better preposition...

I think this has been explained it earlier -- As just Ishaan explained it earlier. So there are 2 things with that. Quick commerce, we are the kind of leader there. So our share in quick commerce is ahead of the GT channel and the transition of consumers from GT to e-commerce and e-commerce growing very exponentially is helping us and drive our overall growth. The -- our growth territories where we have been investing, which was outside NCR, which is whether it's a U.P. or Haryana or Rajasthan and now Punjab or Bombay, it is something which continues to be growth engines for us and will only increase in terms of growth trajectory over the coming years.

Okay. It's really helpful. But just one follow-up. Nature Baked, what price premium you are charging at this time?

What?

Price premium you're charging to your other maida breads?

Ishaan?

So price -- yes, definitely, the whole wheat category, the multigrain category are priced more expensive, also have higher gross margins for us than white bread. And we are very conscious of the fact that -- in fact, a very big KPI for us in our organization is also premiumization as a percentage of sales. And we continue to track that to -- and how we can improve it. As far as premiumization in the market as compared to competitors, we don't really -- we are very well benchmarked to competition in terms of price.

Yes. But towards our portfolio, is it at least 10% premium?

As compared to competition?

Our portfolio?

So, Ishaan, what he is asking -- let me respond here. So our realization of our mix on a per piece basis is much ahead of our competition, right? So yes, the question which you're asking, yes, our premiumization percentage compared to our competition is much ahead.

Okay. My last follow-up on the Bakery. What is the distribution you have for the retail coverage for Bakery?

In terms of number of outlets?

Yes. And how -- what is the plan to grow over the next 1 year? I mean, are you trying to look at any new markets?

See we are definitely looking at new markets. For us, even Punjab is a new market. I mean, at the present in Punjab, our distribution is quite limited. Even, let's say, the top 14 cities, right, we are seeing month-on-month improvement in all geographies. For us, Mumbai as the new plant comes up is going to be a priority market where we're going to see our quality significantly ramp up. In fact, the newest plant, which is a fully automatic plant, which is going to be coming in, is also going to help in Nature Baked as a category as we are moving more towards preservative-free bread, automation is going to definitely help us, and I think it's an investment in the right direction. Calcutta is going to be coming up, which primarily we will first be looking at as a new market. So that will be our entry into the East, which we look forward to this year. And yes, so this is what we are going to be doing. We are also going to be looking at adding at least one metropolitan city this year through a co-packing arrangement.

Okay. My second, last question, we acquired the Cremica facility and even brand. Is there any progress you can say? Or is there any update you have at this time?