My Investment process

Using Tasty Bite Eatables as an example

Anil Tulsiram, ContrarianvalueEdge.com

Flame Alumni Meet, Pune

Disclaimer
This is not a stock recommendation. I am using Tasty Bite as an
example to explain my investment process.
Its a highly illiquid stock.
I WILL NOT buy at current price, though I will not sell either.
I am holding this stock in my family portfolio, my opinion can be
biased.

Basic numbers

CMP (29/9/2015)

1,180

Market Cap Rs. Cr

Enterprise Value
Yearly H/L

FY15 Revenue Rs.Cr

175

300

FY15 EBITA Rs. Cr

18

360

FY 15 EV/EBITA

19x

1566/505

Book value Rs.

172

Introduction
Tasty Bites [TB] is an indirect play on the rapidly rising QSR industry in
India, which is expected to grow at high double digits.
As a policy Tasty Bites focuses only on vegetarian food, as it believes there is
worldwide movement towards vegetarian food.
It supplies frozen foods and sauces to Indias leading QSR players like
Dominos, Mc Donalds etc.
100%
90%

10%

15%

14%

15%

21%

23%

80%

30%

35%

33%

70%

65%

67%

70%
60%
50%
40%

90%

85%

86%

85%

30%

79%

77%

20%
10%
0%
200703 200803 200903 201003 201103 201203 201303 201403 2015
Exports - RTS

Domestic Insitution

What do I look for in a company [LT Trends or Strong Niche]

Why Small caps

Most investment gains are made
during the development phase and
not afterwards [Emerging moats].
Emerging moats are found more in
small caps than in large caps

1) If you are a One Man army focus on multibaggers helps in easy elimination of lots of
stocks.
2) If you are running a concentrated
portfolio, focusing on multi-baggers if the
only choice else you cannot do justice to
your research
3) In a 10 stock portfolio, if only two stocks
gain 10x in 10 years and all other decline
to zero, one still makes 7% CAGR. Thus
few winners can compensate for lots of
mistakes.

Tasty Bites I think LT trends for

RTE food and QSR [Veg food] are
favorable

Focus on 4Ps after finding small companies with favorable long term trends

Very imp & still its many investors make mistake here.
Despite good mgt and Business model
I sold few stocks because I was not sure of their
Potential opportunity size,

Management needs to be judged by Objective [ROE] + Subjective [Interviews]

ways Bharat Shah

Integrity: Review last 10-15 yrs of annual report

I ignore some negatives in mgt. if other 3Ps are

Strong..

Innocent till proven guilty if other 3Ps are strong [Potential, Product &
Predictability]
Basant Maheswari quote from his excellent book The Thoughtful Investor has changed the
way I invest and analyse small & mid-cap companies

Based on above rule I have invested in Tasty Bites and Kitex Garments despite presence of controversial
related party transactions.
Exceptions: Real estate, Defence & Infrastructure

Management is NOT crook. Appears to be competent with good capital

allocation skills.
Additional details released by new strategic investor in Aug 2015 shows that
US company operating margin at 10% for FY 2015 is same as TB and sales double of
TB which implies 66% of MRP. I understand this the general standard for distributors..

Read last 15 years annual report. No instance of capital misallocation or any act against minority investors.
Quick turnaround within 18 months post acquisition in 1998.

Product [Business]

Product [Business]

Huge potential
Unorganized segment enjoys > 70% share in food services
% of sales generated through chained format is lowest in India
Market share of chained restaurants in India is dominated by fast growing QSRs and cafes

Key customers plans to increase stores by 2-3x in next 5-6 yrs

Extract from Mindmap, Aug 2014

Focus on Veg food by KFC for

Indian market

Look for Win-Win ecosystem

QSRs mainly sell Junk food which is not good

For health. TB aims to supply natural foods.
CEO and Chairman of Pepsi Indra Nooyi:Weve never seen the consumer as confused as they are today, she
said in response to a question from an analyst about PepsiCos approach of sorting its products into three
buckets: fun for you, better for you and good for you. (The categories roughly capture a spectrum ranging
from junk food to relatively healthy.) If youd asked me a few years ago, it was about things like [diet drinks],
Nooyi said. Now they view real sugar as good for you. Theyre willing to go to organics even if they have high
sugar, high salt and high fat. Its a challenge.

When to buy

I urge you to think in terms of unit volume growth, average realization growth,
profitability and a reasonable exit multiple to force you to focus on expected
return instead of fuzzy intrinsic value Prof Sanjay Bakshi in Final Relaxo lecture
post.
I buy when the expected return over next 5-7 yrs is more than 25% CAGR
factoring conservative exit multiple.
At my entry price [which is substantially below current price] I expected > 25%
CAGR

When to sell

When the investment hypothesis proves wrong.

Even on blue sky scenario expected return over next 5 years < 10%
To invest in a better investment opportunity which provides 2x return expected from current
investment.

Q&A