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

Ladies and gentlemen, good day, and welcome to the Mrs. Bectors Food Specialities Limited Q2 and H1 FY '26 Earnings Conference Call. [Operator Instructions] Please note, this conference is being recorded. I now hand the conference over to Mr. Anoop Bector, Managing Director and Promoter. Thank you, and over to you, sir.

Thank you so much, and good evening, everyone. On behalf of Mrs. Bectors Food Specialities Limited, I extend a very warm welcome to all participants joining us for our Q2 and H1 FY '26 Financial Results Discussion Call. Today, I'm joined by Mr. Manu Talwar, our Chief Executive Officer; Mr. Suvir Bector, Whole-Time Director; Mr. Parveen Kumar Goel, Whole-Time Director and the Chief Financial Officer. We have also -- we also have with us our Investor Relations adviser from MUFG Intime. I hope everyone has had an opportunity to review our investor deck and press release, which has been uploaded on the stock exchanges as well as on our company's website. I am pleased to share that the company has delivered its highest ever quarterly revenue of INR 551.4 crores, reflecting a growth of 11.1%, seeing a sequential improvement as well versus our Q1 growth of 7.6%. With this, our H1 of FY '26 has grown by 9.5% over H1 of FY '25. The strong top line achievement was driven by both our verticals, biscuits and bakery, each delivering their highest ever quarterly numbers. On macroeconomic environment and outlook, we wholeheartedly welcome and thank the Government of India for rolling out GST 2.0 reforms under the esteemed leadership of Prime Minister Shri Narendra Modiji. These reforms, coupled with easing interest rates, mega taxation relief in budget 2024 led to a spot impressive demand and now show early signs of a broad-based improvement in consumption. Our entire domestic biscuit portfolio now benefits due to the rate cut from 18% to 5%. With the announcement, we demonstrated strong operational agility by promptly executing price reductions across our portfolio, ensuring that the benefits were directly and immediately passed on to the consumers. While the GST reduction remains a structurally positive development, it temporarily disrupted trade as channel partners awaited further price adjustments in anticipation of revised MRPs. Consequently, we witnessed a brief moderation in domestic biscuit sales during September and early part of October. Distribution expansion remains a key pillar of our revenue growth management strategy, a strength that has been consistently demonstrated over the past few years. We are working on our strategy for the next phase of RGM strategy including distribution, products and margin for the period 2026 to 2030. Exports continued its resilient growth trajectory amidst global uncertainties and slowdown. With an anticipated impact of tariffs, we pursued an aggressive strategy to diversify and mitigate the likely impact. We remained hopeful of a favorable outcome from the ongoing trade discussions between the India and the U.S., which would have a positive impact on our sports business, further accelerating our growth momentum in the coming quarters. We remain focused on expanding markets and buyers across with an aim to increase our branded presence as well as our white label footprint. Overall, we remain optimistic about the growth trajectory of our export business, supported by a strong franchise customer-first approach and an aggressive geography and a portfolio diversification strategy. The English Oven brand continues to deliver high double-digit growth, driven by strong brand equity, a robust pipeline of new products and a continued distribution expansion. Quick commerce has emerged as a key growth catalyst, significantly enhancing both reach and visibility for English Oven. We continue to maintain leadership in the Qcom segment, which is witnessing an exponential growth. In the upcoming quarters, we will be further entering in the East India market with the launch of English oven in Kolkata followed by further expansion into Southern India. The commissioning of our Khopoli bakery plant in Q4 will provide additional momentum to our distribution and revenue growth in Maharashtra. We continue to invest behind our core brands, English Oven and Cremica. The Cremica brand has been performing strongly in international markets, now contributing over 50% of the export revenue. To further strengthen our brand portfolio, we are in the process of developing a comprehensive brand strategy, which is expected to be finalized by Q4 FY '26 with a strong emphasis on new age consumer trends, evolving consumption patterns. On the technology and digital transformation front, we had embarked on a comprehensive overhaul of our IT infrastructure with a primary focus on upgrading our core ERP system. We are making consistent progress and remain on track to transition to SAP S/4 HANA by Q4 FY '26 with complete implementation targeted by first quarter of financial year 2027. Now I will discuss financial performance. Starting with biscuits, our biscuit segment revenue reported a revenue growth of 10%, which stood at INR 350 crores in Q2 FY '26 as compared to INR 320 crores in Q2 FY '25. This segment has grown by 35% over Q2 FY '24. On bakery segment, revenues for Q2 FY '26 stood at INR 194 crores against INR 167 crores in Q2 FY '25, thus registering a growth of 16% year-on-year basis, including the retail bakery and institutional segment. This segment has grown 38% over Q2 FY '24. The consolidated revenue for the current quarter stood at INR 551.4 crores versus INR 496.3 crores in Q2 FY '25, thus registering a growth of 11.1% on a year-on-year basis. EBITDA for the quarter stood at INR 59.3 crores with EBITDA margin coming in at 12.6%. PAT stood at INR 36.5 crores with a growth of 18.2% on a quarter-on-quarter basis. Our prior margin for Q2 FY '26 was 6.6%. Moving to H1 FY '25 (sic) [ FY '26] financial performance. The consolidated revenue of H1 for FY '26 stood at INR 1,024.4 crores versus INR 935.7 crores in H1 FY '25, thus registering a growth of 9.5%. EBITDA for H1 FY '26 stood at INR 127.5 crores versus INR 134.5 crores in H1 FY '25 with EBITDA margins of 12.4%. PAT for H1 FY '26 stood at INR 67.4 crores as compared to INR 74.4 crores with a PAT margin of 6.6%. With this, I would request to open the floor for question and answer. Thank you so much.

[Operator Instructions] The first question is from the line of Harit Kapoor from Investec.

Congratulations on a good set of results, especially on the revenue side. So my first question is on biscuits. In this 10% growth, in your opinion, how much impact do you believe you would have seen because of the GST transition on biscuits as well as how much impact do you believe you would have seen because of the imposition of tariffs? So if you could just help us understand in a normative environment, what that growth could have actually looked like?

So good afternoon, Haritji. Our impact on overall quarterly revenue on account of GST should be close to 1-odd percent, right, which was there. And on account of tariffs, we definitely had an impact in the H1 on account of tariff -- ambiguity tariff going up. But now we are almost -- it looks like the indication by both the representative of both the governments have been very positive. We should have a positive outcome coming soon. And that definitely will have a positive impact in terms of further enhancing our growth and margins on account of U.S. treaty. So that's how we look at it.

Okay. Okay. The second bit was on the margin. So if you look at the raw material environment from quarter 1 to quarter 2, it has actually eased off a little bit. But your gross margins have actually tailed off a little bit from quarter 1 to quarter 2. Is there a product mix or a segment mix issue here that is happening in this quarter? Or is there a higher cost because of the tariffs? If you could just help us understand what's resulted in a bit of a dip from quarter 1 to quarter 2?

So there were about 2, 3 reasons. One is -- definitely one reason was that what happens as per the accounting policy. On an international export business, whatever freight we recover, that gets clubbed along with the revenues, right? And freights, which were higher in the same quarter last year, right? So that clubbing of revenue has kind of made a difference there. Second is there is some bit of a business mix impact, which is there, right, which has impacted here. And a third item is that there are certain incentives by DGFT, right, which government has temporarily put on hold to kind of review the same and then release and basically strengthen that whole process, right? And so there is some impact on account of that. So that is why probably that there is -- the margins have remained flat over the last 2 quarters at around 12.5%.

Okay. This DGFT factor, which shows up in your operating income, is that something that there's a permanent reduction happening there? Or it's just a temporary stoppage till...

In fact it's temporary.

Actually, I'll take it. So we have 2 options actually in this that either we can take an advanced license and import because we are exporting our goods, right? So we can -- we either get a DFIA, where we get a license and we are able to dispose of the license in the market or we have to create our own infrastructure to start importing things duty free, right? So it's basically, I think, like Manu said, it's more about reviewing. And so they are currently -- I mean, from August 27, they were put on hold. So we've not been able to book that much incentive for the time being. But -- so we are pursuing with the government, and I think there will be a solution soon on that.

Got it, Anoopji. The other thing was on the...

Or we will move to an advanced license where we will start importing raw materials. Do You understand?

Either way, it doesn't -- I mean, either way, it's kind of -- at least from a profit standpoint, it becomes neutral, right? I mean, from...

Yes, it will. But currently, we are not importing because we did not go that route, right? So -- but in case there is -- the benefits of importing are more than the licensing, then we'll go for imports, direct imports. So where we can import whatever ingredients are being used in our biscuits, we can import them duty-free.

Understood. Understood. Just one thing on the biscuit export bit. So there would have been some disruption, especially in the U.S. I just wanted to understand whether the -- how one is dealing with that in the interim, whether it is -- is it that you are kind of your buyer and you are sharing this impact? Yes, go ahead.

So currently, there has not been anything like that, which has happened. Our -- all of our large customers have accepted all their orders. In fact, I think we -- what has happened is our buyers are still visiting us. We are working on our strategy going forward. And -- but definitely, they are also waiting the tariffs to come down to a more rational level, right? I mean at a 50%, it does become a bit tough. So I mean, going forward, the projects are -- the projects which are on the infrastructure stage, new product developments, where we are working with our -- with our relationship partners, it continues in the same manner. But if you ask me, has the business been impacted? Yes, there has been some impact on the business and people are going slow because they are expecting the tariffs to come down. So the ordering is slow. So that is -- I think it's more temporary, which things will keep -- which will come into place very shortly, yes.

Understood...

But if you see, our exports overall have grown. So they have grown more than last year. I mean -- so that -- I think that has been a good thing about exports.

The next question is from the line of Amit Purohit from Elara.

Good performance on the biscuit side, domestic biscuit. Sir, could you just provide some insights on the -- would -- domestic biscuit, would it be fair to say it would be double digit, right? And exports would be slightly lower than the domestic business growth in the biscuit sector?

Amitji, we don't share, as you know, vertical-wise growth. But overall biscuits, they both performed in a kind of a similar trajectory for this quarter. As I told you, the domestic biscuit was definitely impacted a bit because of the GST implementation, which I think every FMCG company has very expressed in the month of September. And I also shared that impact was close to 1% on the quarterly revenues. But, yes, both have kind of performed well in that direction.

Okay. And could you just provide some insights on the raw material input cost? You highlighted the export incentive in the other operating income impacting the margins. But how is the RM index for us? Is it comfortable or it is going down?

So on the RM side, it is what we had anticipated in our operating plan. So it is as per that to -- it's very tough to look at on a quarterly-to-quarterly basis. I mean, because certain times, there is a hedging, certain times the markets can be -- but at the moment, I think the RM should not be a concern going forward, should not be any major concern on this.

Sir, I wanted to compare first half last year versus this year.

Yes, Manu, you can probably share...

Amit, on the quarter-on-quarter basis, the quarter 2 over quarter 1 has been consistent. There is no major deviation in the prices on an overall basis, right? So whatever volatility we faced and we came with the prices for the quarter 1, they have remained on an overall basis in line with that. There's no -- quarter 2 doesn't have any additional negative impact on account of variance versus quarter 1 on commodity prices.

Okay. Okay. And could you just provide some outlook in terms of growth for the next FY '27 or just how should one think about it on the margin? On the second half, probably margin improvement is a fair estimate, right, versus first half? Is that for FY '26 and FY '27? I wanted your thoughts on top line growth because now we are close to now double-digit revenue growth. Our aspirations have been somewhere around teens. So...

Yes. Absolutely, Amit, and our aspiration remains in the same direction. We want to be a company which want to achieve for the next financial year and endeavor working and planning for that is to achieve somewhere between mid- to little high teens and that's our endeavor to devise a business plan, which we are working on as of now for the next financial year and get back there in that range of growth, which we have very well achieved over the past few years, right? So yes, absolutely, bang on, that's endeavor. And also on the margin side, there has been some temporary setbacks, as I call it. But endeavor is to get back to that 14% -- above 14% EBITDA range and then improve it beyond that. The first step is to work towards achieving that 14% EBITDA and kind of 14% to 15% EBITDA, maintain it and then take next steps of improvement beyond that. So these are cardinal to our strategy, both the things.

Yes. And lastly, on the freight cost, with the Dhar plant being operational now, would there be some savings? And would you be able to quantify something aiding into margin improvement? We've been -- last year, I think our freight costs have been pretty high. It's close to high single digit at an overall company level.

So definitely, with Dhar plant -- we have Dhar plant here for 2 lines, right? And we have as of now commissioned first line and we're commissioning the second line right there. So in the next financial year, we should definitely see a positive impact on our logistic cost because of that. We will definitely see that, and that's as per the plan.

The next question is from the line of Mrunmayee Jogalekar from Asit C. Mehta Investments Intermediates.

Congratulations on a good set of numbers. Sir, I have a couple of questions. So firstly, in the bakery segment, you mentioned that English Oven had seen high double-digit growth. So is it a fair assumption that even QSR growth was maybe in the low double-digit kind of a range?

So QSR growth in this quarter was in single digit. It was not in double digit.

Okay. Okay. Got it. And sir, you mentioned about the target EBITDA margin of about 14%. So would it be possible to reach that in H2 or the coming couple of quarters? Or maybe because of the new plant also coming up, this will be more of an FY '27 event?

So definitely, our endeavor is to keep improving the EBITDA margin. But yes, for sure, '27 -- FY '27 is one we will definitely -- will achieve that 14% or above EBITDA margin for the next financial year.

Okay. And sir, just one last question. I think the earlier target was for the full year export growth to be around low teens. Is that something that's still possible for FY '26?

For the export growth, yes, we'll be again targeting the low teens kind of growth for the full financial year, right? And so yes, we are still gunning for that. We're still gunning to touch. You see what is the hope now? The hope definitely is that we should hear some good news also on the U.S.-India treaty. And with that getting resolved, we should see an upsurge in our growth on international export side. And we are endeavoring that we should be able to touch double-digit kind of growth for the exports.

No, another -- I'm Anoop Bector here. Another thing is the confidence of international buyers into our company is growing. And so we are already working with a number of other companies, large retailers, where the possibility of business getting transacted in the next 3, 4 months in the next quarter or within this year, start of the business can happen, right? So what is important is that we are continuing to develop products with international customers, more international, large retailers are coming to us. So there's a lot of confidence in the international business where biscuits are concerned that Mrs. Bectors is a good potential with India -- from India.

The next question is from the line of Aliasgar Shakir from Motilal Oswal Mutual Fund.

First question is on margins. So you mentioned that while FY '27, you will try to reach 14% plus margin. But just from a quarterly point of view and given the volatility we have seen in raw material prices in the last few quarters, is that now fully behind and you have taken large part the price increase. So in that context, should the coming quarter onwards, you should be able to reach your steady-state margin of 14% plus?

So we would definitely see a margin improvement, right, as -- over the next 2 quarters, right? And our endeavor is clearly to move towards the 14%. But the previous question which I answered, I clearly said that definitely next year, next financial -- full financial year, complete year, we should be endeavoring to deliver 14%-plus EBITDA margin.

And correct me if I'm wrong, but if my memory serves me right, earlier, we were indicating 15% plus. Am I right? I mean have we toned down that expectation because of any reason? Or I'm not very sure?

No, no. So we have been very consistent for past almost few quarters that we will be endeavoring to deliver EBITDA between 14% to 15%. Once we stabilize at that range, we will work towards taking it above 15% EBITDA. But then November, December last year is when we had a huge commodity price hike and which had to be kind of managed and tackled with, which took about few months to kind of take and correct our pricing and other things to kind of manage that part of impact on the margin. So yes, we have been always maintaining that rightful place along with investing behind. So what we need to try and understand is that we had -- this quarter also, when we have grown about 11% is close to 2x of industry average, right? And we also need to keep investing behind. We are a young company, and there has to be an investment behind also the growth along with margins. So we have been very consistent that we will be maintaining an EBITDA margin of 14% above. And once it stabilized -- if you ask me a midterm kind of scenario, we have been a company which clearly believe in growth in both revenue and margin. And say, next over 2, 3 years, will we be improving our margin? 100% we will be. We'll be moving in that direction and kind of working to up our margin alongside revenue growth.

Got it. I have a question each on your both segment, bakery and biscuits. So bakery has done fairly decent growth. I understand we have now started a facility both in Maharashtra, right? And I think another one is coming in Indore as well as Kolkata, I guess. So given that this is a particular category, which has to be operating close to the facility, so how should we see these 2, 3 facilities coming up? Should that debottleneck your funnel and we should see a stronger growth over here? I know that QSR is also a category which may have not been doing very well for you, so that would have probably had some impact. But otherwise, from a retail point of view, should this drive growth? And also, is it a higher margin, so that should also help you improve your margin?

So answer to your first question, definitely, yes. We have been investing behind this capacity, and geographical expansion is to boost our growth because in the Bombay, definitely, we were tight on our capacity. We needed to up our capacities, and we have put one of the world-class plant, fully automated plant to -- which will not only give us efficiencies on the manufacturing side, but also it will open up our growth aspiration. So with this plant coming up in the quarter 4, English Oven will be able to expand their distribution reach in Maharashtra very extensively or rather we may able to approach some of the territories, which are outside Maharashtra, also, right, with it. So definitely, with Khopoli plant coming up, we can expect firing a growth engine and expanding our distribution in this Western part of kind of India. Alongside western part of India, we're further planning to expand also in southern part of India in this quarter, and we should see that movement. We'll be able to share in our next investor call more details about it. Kolkata is a new journey, which is starting on the eastern side of India where in Eastern side of India, we were not present with our own manufacturing. We put up a small plant to make a start, both on English Oven side as well as on the B2B bakery business side. And that also is kind of fading off in this quarter and which will, again, help us to cover that geography as of our English Oven kind of a superior product to East customers and drive the revenue growth. So yes, the expansion of capacities by us has definitely helped us fuel the growth. We have very strong aspiration for English Oven brand and very tough -- very aspirational tight targets for us. So definitely, over next 2 to 3 years, we want to be pan India in the top 2, 3 brands -- bakery brands of India. Alongside this, which I briefed earlier also, to drive the B2B business, we had started offering a frozen range, and that had shown a good traction last year. Now we are working on that for the next leg of growth and journey on the frozen food side, which will strengthen our -- the B2B business also. And out of this frozen range, we have launched selected few products as a pilot on the quick com in the Northern India, in dairy sector. And we've seen the traction building also for that. Rather frozen products will also offer us a good international market. And we're seeing some good responses. We will be happy to share with you in our next investor call on that also. So yes, overall bakery business, capacity is going to help us big time. They were very well required. And we continue to build our strength and English Oven, definitely a very, very strong brand. We're very aspirational of becoming a pan-India player in the next 2 to 3 years' time and become one of the top 2 or 3 brands in India.