Mrs Bectors Food Specialities: Can it beat the industry?

The coming results for Mrs Bector could be very very good, with a full impact of high EBITDA margins and topline trending even higher on a very low base. But then, what beyond that? Can the company continue to deliver the growth the valuations now build in? I am of the opinion that post upcoming Q4 results in end May, everything is fully priced for the company, and dare I say, seems quite optimistic. My reasons are outlined below:-

1. Is distribution expansion feasible at the same pace? All concalls point towards how this growth is a distribution expansion story driven by distributor automation and sales force enhancement. I agree this could help, but distribution expansion is usually not so easy to carry on year on year. This is because once stock is sold to distributors and put in stores, the harder part is to sell it to consumers. Hence early distributor expansion always plucks the low hanging fruits. From now on, very fast sales growth due to increased distribution seems quite ambitious.

2. If growth was distribution led last year, why did export sales almost rise as much as domestic sales? This makes me think that the company probably greatly benefited from price increases last year and this will not be a growth component this year. Additionally, Mr. Berry from Britannia has already guided in the latest Britannia Q4 results this year that they will look at pricing to address market share. Could pricing actually then tend down for a highly trade competitive product, if the market leader is getting aggressive?

3. At 60X TTM PE, the market is expecting stellar growth ahead for a company with 7-8% NPMs. The expectations are high, and the coming year ahead is on a very high base of both sales and margins. Additionally, price increase in core products looks distant.

4. Charts are still in Stage 2 suggesting that this is a very strong growth story and that is one thing that makes me very weary about my recent exit. The above points through pointed me to a place where I just can’t see how the numbers next year can deliver what is expected.

Disclosure : I was invested for just over a year in family accounts and exited today and hence am biased towards my thesis. I am not a SEBI registered advisor, and this is not investment advice.