Looking for a big bite

Can Motilal Oswal PE hit the jackpot by selling its stake in the Mrs Bector’s biscuits business?

What’s cooking at Mrs Bector’s Food Specialities? The Ludhiana-based company, started by Rajni Bector in 1978 as a household enterprise, is now a ₹700-crore entity with interests in bread, sauces, syrups and biscuits and a strong presence in north India with the Cremica label. The company has seen a spate of private equity investment. Jade Garden, the Mauritius-based unit of Goldman Sachs, had invested ₹72 crore in 2006 and, four years later, sold its 22.44% stake to Motilal Oswal Private Equity (MOPE). 

While Jade Garden is said to have exited at a marginal profit, all eyes are now on MOPE as it is negotiating a part-exit from Mrs Bector’s. Rakesh Sony, director, MOPE, confirmed that his company is planning an exit through a secondary sale to a larger private equity fund. 

Part of the excitement around the Mrs Bector’s exit is because MOPE had made a respectable 3X return when it exited a part of its holding in Parag Milk Foods in September last year. MOPE had invested ₹55 crore in 2008 for a 10-12% stake in the dairy company. This investment was made out of its India Business Excellence Fund (corpus: $125 million), where the average ticket size was in the $5-15 million range. The investment in Mrs Bector’s is also a part of this fund.

The sudden flurry of activity is because of a division of the firm between the founder’s three sons. Akshay Bector will lead the ₹200-crore B2B business that supplies bread, sauces and syrups to clients such as McDonald’s, Pizza Hut and Barista. The two other sons, Anoop and Ajay, will run the B2C business that owns Cremica biscuits with a ₹500 crore turnover, said to be second-largest by volume in Punjab and Haryana. Incidentally, the firm will also engage in contract manufacturing for Cadbury’s Oreo biscuits and some Sunfeast brands owned by ITC.

Following the demerger, MOPE will stay invested in Akshay’s business but will exit the biscuits business. While MOPE has put its 22.44% holding on the block, Ajay is also expected to sell his 24% stake. Anoop Bector, managing director, Mrs Bector’s Food Specialities, and head of the biscuits business, will continue to hold 53% and has no intention of selling his stake. Says Anoop, “The biscuits business is growing well at 18-20% a year and plans are afoot to set up a third plant. We are in the process of firming up the location and it should be ready in about a year.”

What could impact Mrs Bector’s biscuit business valuations are Cremica’s limited presence outside north India and pressure on margins across players on the back of rising input costs. Siddhartha Nigam, partner and leader (consumer sector), Grant Thornton, points out that there is much interest among PE funds around the domestic consumption story. “However, this is subject to having a strong brand, good distribution and scale of operation. Growth in this industry normally takes the shape of a hockey stick and PE funds will have to wait longer than usual to make good returns,” he says.