Steady scale of operations
MFL has achieved revenues of Rs. 135.03 Cr. in FY2024 as against Rs. 127.69 Cr. in FY2023. Further, the company has estimated Rs.148.57 Cr. in FY25. The increase in revenue primarily driven by increase in the quantity of products sold, supported by a strategic price hike on average across all products and states (except Odisha and Bihar) by September 2024.
The EBITDA margins stood at 7.44 percent in FY24 as against 6.57 percent in FY23. The increase in margin was driven by effective cost management and the ability to pass increased costs onto customers without disturbing the demand, thereby supporting profitability. Secondly, reduction in power expenses was noticed as the machines previously operated on diesel are now being operated on LPG gas, resulting in energy cost savings. Additionally, a detailed cost analysis of MFL’s product categories indicates that production costs constitute ~50-55% of the MRP, with fluctuations influenced by flour price movements. The PAT margin stood at 0.92 percent in FY24 as against 0.91 percent in FY23. Acuite believes the scale of operations is expected to improve over the medium term.
Efficient working capital cycle
The working capital cycle was efficient marked by GCA days of 86 days in FY24 as against 77 days in FY23. The inventory days stood at 35 days in FY24 as against 33 days in FY23 given a lead time of 30-40 days for FMCG packaging and has created 120-130 Strategic Business Units (SKUs) across different states. The shelf life varies across product categories, with bread lasting around 6-7 days, cookies and rusk approximately 90 days, and cakes about 45 days. The debtor days stood at 38 days in FY24 as against 34 days in FY23. Credit terms vary depending on customer relationships, but for quick commerce and modern trade, they are ~7 days. As against, the creditor days stood at 40 days in FY24 as against 52 days in FY23. The credit terms on an average is ~45 days but prefer cash purchases for better pricing. Acuite believes that the working capital operations of the company will remain at the similar levels over the medium term.
Moderate Financial Risk Profile
The financial risk profile of the company is marked by moderate net worth, high gearing and modest debt protection metrics. The tangible net worth of the company stood at Rs.27.29 Cr. as on March 31, 2024, as compared to Rs.24.55 Cr.as on March 31, 2023, due to accretion to reserves. The company has infused equity share capital of Rs. 0.47 Cr. and premium on equity shares of Rs.1.74 Cr in FY24. Acuite has considered unsecured loans as quasi-equity of Rs.6.75 Cr. as on March 31, 2024. The unsecured loans stood at Rs.0.35 Cr. in FY24 as against Rs.0.76 Cr. in FY23. The gearing stood at 1.31 times as on March 31, 2024, as against 1.07 times as on March 31, 2023. The company also has a plan to automate its existing production units across all product lines. The Total Outside Liabilities/Tangible Net Worth (TOL/TNW) stood at 1.68 times as on March 31, 2024. The debt protection metrics of the company stood modest marked by Interest coverage ratio (ICR) of 2.22 times and debt service coverage ratio (DSCR) of 1.02 times for FY2024. The net cash accruals to total debt (NCA/TD) stood similar at 0.16 times in FY2024. Acuite believes that the company’s financial risk profile will remain at a moderate level in medium term backed by steady cash accruals and absence of any major debt funded capex plans.
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| Presence in a Competitive industry
The company operates in a highly competitive and fragmented FMCG industry, primarily deriving revenue from bread and bakery products in Eastern India, a segment characterized by numerous players and a strong brand-conscious consumer base. The industry is highly competitive with the presence of branded players. Some of these players have a large scale of operations, a pan-India presence and are well-established brands. Apart from these, the company is exposed to competition from a large, local unorganised segment. While this environment presents challenges due to intense competition and economic volatility, the company’s diversified product portfolio and established client relationships help mitigate these risks.
Susceptibility in fluctuation in input prices
The raw materials required for manufacturing bread and bakery products are wheat flour, sugar, edible refined hydrogenated vegetable oil, skim milk powder (SMP), flavours, preservatives etc. The company also consumes a significant amount of packaging materials and needs fuels like LPG. The prices of flour, sugar and oil are highly dependent on both agro-climatic conditions and Government policies and thus are subject to considerable volatility. Historically, Flour prices rose from around Rs.30 per kg in Sept-Oct 2023 to Rs.35 per kg between July and August 2024, before stabilizing again at Rs.30 per kg, as per management. The company effectively manages these fluctuations by engaging with multiple vendors and procuring appropriate quantities at lower prices, thus maintaining cost control despite market volatility. Prices of packaging materials and fuels remain linked to crude oil prices, which also exhibit significant volatility, thus impacting margins.
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