Saturday, April 10, 2010

Tasty Bite Eatables Ltd. TBEL - another 2x - 3x upside after 15x rise in past one year?

 Tasty Bite Eatables Ltd. TBEL - at least a 2x upside in one year.
Tasty Bite Eatables Ltd. TBEL is a BSE Listed micro cap firm.
Summary -  TBEL still has good potential for a 2x-3x upside from here , even after a 15x rise in last one year ( cmp of 222 Market Cap of 57 crs) or a Fifteen-bagger in the last one year (from its 1 year low of 15.)
Business - RTE /RTS Food Business ( Ready to Eat /Serve) and farms /farming of crops ( backward integration, supposedly owning 30 acres of fertile land near Pune.), also has cold storage capacity of 1800 tonnes and earns income by renting out excess capacity.
History - In May 2009, TBEL announced its intention to delist from BSE. Price was 29 Rs. per share. At the EGM meeting ,as per the co. the shareholders have agreed to the delisting plan but they have not yet received approval from SEBI/Regulators.Further since that time ( May 2009) Promoter holding is same level at 74% as on Mar 2010 ,implying promoter is not that keen to de-list ?
Promoter- US based Preferred Brands International has been holding 74.22% consistently since past 7 years at least . Very positive. (based on avail. data  -since 2003) 
Hindustan Lever HLL had acquired it 1995 but failed to grow it and then sold it to Preferred Brands  in  1998 who then made an open offer at price of 22 per share and thereby increased its stake to 74%. ( and who knows with HLL struggliing to grow now it might buy it again .lol. that would be really funny).
Technicals -Cmp 222. mkt cap 57 crs. + 20% on volumes of 15k shares vs 2 week avg. of 5k shares.
Share at all time high on lifetime great results and delisting news. 200 DMA at 120.
About the brand Tasty Bite
  • As a brand, Tasty Bite is the No. 1 brand in the ethnic dishes, entrees and mixes category in the United States and commands a leading share (more than 50% in conventional supermarkets)
  • Aside from the US, Tasty Bite is marketed in several countries globally.
  • In India, the Company also develops and manufactures a range of products for institutional users such as hotels, quick-service restaurants and other retail and corporate customers
  • Exports comprises of 85% so strong rupee can hit growth to some extent.
Reasons to buy Tasty Bite Eatables TBEL
  1. Even after a 15x rise in the past one year from low of 15 to 222, it still is trading at a market cap of just 57 crores !!. Now let us evaluate if 57 crores is cheap or expensive.
  2. Last year ( FY09 or 2008 great recession) it sales grew 27% from 36 crs to 46 crs and EBIDTA grew 30% from 3.3 crs to 4.3 crores. So this has validated its recession-proof business model. PAT grew 22% to 1.4 crs. CFO of 2 cr.So on last year results , at cmp of 222 ( mkt cap of 57 crs) , it is trading at PER of 41 and EV / EBIDTA of 16 ( EV of 67 ( 57 + 10 cr debt) / 7.4 ) and PSR Price to Sales Ratio 1.2.
  3. Now lets see 9 months Dec`09 results. Sales of 51 crs (up 55% YoY). EBIDTA of 8 crs ( up 16x), PAT of 5 cs ( loss of 0.5 crs). So on Annualised basis it is now trading at PER of 8.6x , EV /EBIDTA of 8 and PSR of just 0.86x .!!
  4. Now fair valuation for such a high growth FMCG business would be at least 3-5x PSR implying an upside of 4x-5x from these levels!!
  5. Diversifying into all possible food brands - soups, frozen foods, spices. with  targeting foreign exports ( help from its promoter that has good global presence in foods distribution) . Also it has barely scraped the Domestic market with sales of just 6 crs. And also has backward integration by doing farming on its 30 acres of fertile land near Pune.( No land bank story here. Sorry. EV per sq ft is already at Rs 500 per sq ft.  which is more than its fair value for agri farm land. I rather believe more in the Fertile land value theme owing to high food inflation and decreasing agri land YoY). Results date not yet announced but most likely to be in May 2010 end.
  6. Promoter PBFIL( Preferred Brands Food India Ltd) Ashok Vasudevan  (see profile) has paste experience in  FMCG gorillas such as Unilever & Pepsi. Last 5 years CAGR growth in Sales has been 20%.
Risks -
  1. Unfavorable Delisting price  -with shareholders approved the delisting in June 2009 ( when price was ~ 30), not sure if any shareholder will agree to delist at that price) and the firm waiting for regulator approval, a de-listing of price of less than market price will be bad for the stock. ( My take - delisting will be very tough due to recent SEBI delisting guidelines 2009. see here and here. For delisting to be successful promoter holding would have to goto 90% from present 74% and at least 50% of open offer should get subscribed , whichever is higher). ( another issue is de-listing plans announced almost at the same time ( May 1009) when SEBI was also revising the delisting rules ( in June 2009).Further since that time ( Jun 2009) Promoter holding is same level at 74% as on Mar 2010 implying promoter is not that keen to de-list ?
  2. Strong Rupee -Strengthening rupee would impact growth to some extent but given the high growth potential of the brand due to low penetration in India and the world, on a net basis risk is not that material.
  3. Forex derivative losses -Since over 80% of its sales is exported /and the firm could have aggressive hedging or speculation on the direction of the USD INR that could go awry. Case in point last year had sold rupee at 39-41 per USD and as a result had to take MTM loss of over 3 crores on its balance sheet. ( had this impact been taken on P&L then PAT would have been negative. This time again rupee reverse swing from 39 to 52 and then back again to 44 will catch most players offguard. Add to that given that the management has announced its intentions to delist , it might incentivize the firm to show losses so that stock price tanks and then they can buy the stock at lower prices.
  4. PBFIL ( Preferred Brands Food India Ltd) has right to demand redemption its (1%   non-cumulative,  nonconvertible,  redeemable) preferred shares worth of 12 crores with a 90 days notice period. As on Mar`09 , TBEL had cash of 3 crs so it might face a liquidity problem if PBFIL demands redemption.
Yes should have entered earlier , especially when it crossed it early lifetime high of 100 in Nov 2009. But better late than never.( similar logic -Sensex was 100 in 1978 so why buy when it was at 8000 in 2008). For those interested a case study of Turnaround story of Tasty Bite see here.

Disclosure - None. plan to buy next week.

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