Tasty Bite Eatables Ltd.

Fair Value 2797.99

July 22,

2016
Industry: Packaged Foods

CMP 2726.70

Recommendation: BUY
BSE Code

517385

BSE ticker

SYMCOM

Face value ( per share)

Shares outstanding (mn)

2.56

Market cap ( mn)

8102.77

Enterprise value ( mn)/

(US$
mn)range ()/(H/L)
52-week

737

Dividend Yield (%)

0.04%

Free float (%)

25.78%

Tasty Bites Eatables Limited was incorporated in 1985. It went public in

1987
with
theIt issue
of Rs 75
lac.
commenced operations in India in 1989. The market

response
was
lukewarm
towards its
Ready
To Eat (RTE) food products in India. It launched its
products in the Middle
East, Russia and USA in 1991. By that time the company did not show any
sign of business
better prospects. It continued to make losses and was not able to
Future
repay
its
debts,
falling into
the category of sick units in 1996 and taken over by BIFR for
reconstruction.
Ex-Pepsi Executives, Rakesh vasudevan and Kartik Kilachand took over the
company
promotersas
from BIFR with its Rs 12 crore debt converted into Equity. In the

2800/783

subsequent
year profit for the first time in The history of its existence. It
1999,
TBEL posted
went retail in India
with RTE but soon pulled out and focussed on the export, a strategy that
worked well for it.

Avg daily volumes (30-days) 75,063

Market Data as on 08th August,2016

Earning Per Share (EPS

35.17

TTM) ( ) Price To Earnings

65.87

(P/E) Ratio Book Value Per

Share ( )

88.04
11.62

EBIT Margin (%)

12.95

PAT Margin (%)

36.

ROCE (%)

21.74

PAT Growth (%)

49.4

Total Debt to Equity (D/E)

Ratio

0.98

Recent
developments:

Share price performance

Y
1
5

Long term bond rating upgraded to [lCRA] A- from

[ICRA] BBB+
and its Short term rating upgraded to [ICRA] A1
from [ICRA] A2+
This will reduce the cost of short term and
long term borrowing
The company might also be able to get the loan
at favorable terms now
It also shows the investors as well as the
creditors in the future prospect of the
companies growth
Instead of 10% dividend which was given earlier,
20% dividend has been recommended by the
board which is subject to approval by
shareholders in the AGM

The Japanese firm has

bought the stake in USbased holding company
Preferred Brands

International Inc (PBI) whose arm in turn owns

74.22 per cent of public listed TBEL. Post this, TBEL
has become a subsidiary of Kagome with an indirect
holding of 51.95 per cent stake

Geographical Presence:
1. North America - US and Canada
Operates the consumer food business by providing ready-to-eat food
packets
2. Asia India and Japan
Operates in the B2B food services business to QSRs in India. Gained
recent entry into Japan through the Kagome deal in April 2015
3. Europe UK
4. Oceania Australia and New Zealand

Business Segments:
The company now has two business units
1. Consumer Business where it sells ready-to-eat food in the USA,
Australia, Canada, New Zealand and the UK
2. Service Business where is supplies frozen foods and sauces to Indian
QSR chains

Product portfolio:
Consumer Business

Frozen

Sauces

Revenue Split: Product Portfolio-Wise

Tasty Bites Major Growth Drivers

Competent Management
The current Management took over the company in 1997 when
company was in huge debt and was really stressed. The company
was undergoing restructuring with BIFR and its 12 Cr debt was
converted into equity and then the current management took
over. In less than 18 months, they turned the company around
and the company posted profit.
Also the ROCE and ROA in 2015 has improved 4 times vis-a-vis 2007
Domestic Business of company was less than 2 Cr in 2007 whereas it has reached
more than 50 Cr in 2015
There have not been any issue of misallocation of capital in all
these years which speaks volumes about the integrity of the
company management
Sales have declined only once in 2004 due to Packaging goof up.
Management compensation has averaged only around 1% of
sales or 10-12% of EBITA. This implies that no extravagant
benefits have been transferred to Promoters
Continuous Product introduction since 1999
Operational Excellence
The capacity utilization in the RTS sector has been constantly increasing
due greater investment in R&D by Tasty Bite over the years as it is
evident from the graph below.
Capacity Utilization of
RTS
200
200
201
2
8
4
<25
<60
>70
%
%
%

Market Sensitivity
The continuous investment in Market Research

has enabled the company to

be more responsive of the demands in the market they are present. A
lot of their Products have come up due to their being able to sense the
need of the market and promptly respond to it. There is a dedicated
team to research and sense the market opportunities, competitor
moves, changing consumer needs and technological advancements in
the Product and Business Segment they are present.

Industry Drivers
Demographic factors
INR 8,000 cr
2004

Increasing urbanization

INR 550,000
cr 2015

Government policy initiatives

Demographic factors
Demographic factors like change in the consumer lifestyle has been one
of the primary reasons for the growth of packaged food (snack) industry.
Profile of an urban consumer in India is changing with increase in
working population, predominance of married couples with double
income, singles/ professionals staying away from home, nuclear
families, etc, coupled with increase in per capita disposable
income, has opened opportunities for the ready-to-eat snack food
segment.
A need for convenience due to fast-paced lifestyle and a cultural
tradition of eating snacks between meals has led to an increased
demand for these products.
The next 20 years are likely to see India add approximately 245
million youth to its workforce. At the same time, there will also be
a rise in the middle-class population, as well an increase in
disposable income across the socio-economic spectrum which
could aid sustainable growth of the packaged food (snack)
industry.
Increasing urbanization
One of the increasing phenomena observed in India is the formation of urban
agglomerations, which is the geographic concentration of urban population and
economic activities. Over the years, India has been experiencing a steady increase
in the share of urban population, emergence of new cities/ towns underpinned by
growth in population, rural to urban migration and reclassification of rural areas in to
urban.

Policy initiatives and Government support

Food processing segment has been a key focus area of the Government considering
the fact that around 70% of Indias population depends on agricultural activity.
Government has formulated and implemented several schemes covering
financial assistance for creating infrastructure, support for research and
development and human resource development to encourage growth of
processed food sector.
The government is facilitating expansion and technology up-gradation through
schemes like Mega
Food Park and cold chain, value addition and preservation infrastructure
scheme. Imaginative and targeted policies such as Food Parks are designed to
address weaknesses throughout the value chain.
By 2017, 50 Food Parks are expected to be built across the country, providing
accessible transport

and processing facilities to even small farmers.

Tax incentives, direct as well as indirect tax, are given to the players in form of
income tax deductions, excise duty wave off, 100% foreign direct investments
through automatic route, full repatriation of profits & capital and duty
exemptions for export-oriented units

Global and domestic economic analysis

Global Economic Analysis:
The Global Economy is constantly under slowdown due to one event after another
impacting the growth cycles. Major markets for TastyBite like US, Canada and Australia
are hence undergoing slowdown, which might hamper the demand cycle in the near
term and now with Brexit it might hamper it further.
Domestic Economic Analysis:
According to the Economic Survey 2015-16, Food processing Industry has
seen a sharp decline in growth of credit in 2014-15. It has drastically fallen from
31% in the FY 13-14 to 12.1% in FY 14- 15.Thus not enough economic activity
has taken place in this sector and the growth has slowed down in this sector
The Union government in this budget levied a Krishi Kalyan Cess of 0.5% on
all taxable services .The proceeds of Krishi Kalyan Cess would be exclusively
used for financing initiatives relating to improvement of agriculture and welfare
of farmers. This will help the farmers and might reduce the input cost for Tasty
Bite Eatables.
The inflation in India has been under the 2-6% bracket as envisaged by the
Urjit Patel Committee. Thus it means a larger disposable income in the hands of
people and would spur the consumption cycle.
The slow advancement of South West Monsoon and the widespread drought this
season might push
the input prices and affect the final prices of the goods for this Industry.
The Make in India initiative by government is encouraging the Food
processing industry in India and creating the food processing export cluster.

SWOT Analysis of Symphony

StrengthsOpportunities
Presence ofHaving
distribution
network in brand
urban in
and
rural areas
well established
domestic
and export markets, company can leverage its brand
Strong brand
Dueequity
to globalization, increased opportunity to tap foreign markets
Global scale
operations
Huge
domestic potential
Flexible production system
Innovative technology

Threats
Weaknesses
Heavy
competition
fromsummer
local and unorganized sector
Demand is seasonal and is high during
festive
seasons and
Low purchasing power of customers Demand of air coolers is subject to vagaries of summer
Fluctuation
Infrastructure gaps in terms of power,
transport in raw material price - Plastic

Porters Five Forces Analysis

Bargaining power of suppliers Low
Moderately differentiated offerings
+
Relevance of product in final assembly
No real threat of forward integration

+ +

- -

Bargaining power of Buyers Low

Peer group Analysis:
Volume purchased by a single buyer is very-less
No switching
costand Presence
Company Analysis: Business
Model
S No

Competitor Name

Low ability to backward integrate

+
Ideal
substitute
products
not
available
Product Segments
Recent Happenings which could impact Tasty Bite Impact on Tasty Bites

Major Countries of
Operation

Key Stone Foods

Threat
of

US, Asia and Oceania

substitutes

Direct substitutes not available

4

McDonald's has ended its partnership in China

with OSI after an expired-meat scandal .Yum has Yum has cut ties with OSI
globally. McDonald's cut ties with OSI globally. McDonald's China and China
Retaiand Commercial
and Hong Kong are no longer sourcing any Hong Kong are no longer
OSI group Vista China
segment,QSR
foods
products from OSI companies in
Industry Rivalry
High
China, and sourcing any products from OSI companies in McDonald's in
Japan has moved its sourcing to China, and McDonald's in Japan has
Threat of new entrants
High
High concentration of competitors
Thailand.
++
Seasonal nature of the products
Opened new facilities
in house
Northern
India,
which
Distribution
companies
carry
multiple
will
fresh
vegetable
processing
lines.
TheTasty
+
+
This mightbrands
impact
plants
would
be
located at
Low
control
on
raw
materials
Bite's business
in thisthe strategic location of the
Maharashtra,
location
considering
Vista Processed
India
Retail segment
+
of Bangalore and
wereand Vista's aggressive
Economies
of Punjab.
scaleThese productsplants
+ strategy
Foods
establishing national
footprint
being
supplied
to
MacD
and
other
QSRs
Low brand loyalty

GITS Foods

India, US

QSR, retail and

Low
commercial
and
consumer products

Less capital requirements

+
Opened 13 further proceessing plants and have a
diversified product portfolioThey
consisting
of both around
have achieved
16.8% CAGR and have
+
presence across all geographies
veg and non-veg.

Having pioneered the convenience

packaged food sector in India, GITS
Ready meals and instant was also the first one
mixes
to
establish
very
similar atofood
Tastyproduct manufacturing

Having a business model

Bites, GITS is a major

company
ininIndia.
It offers
wide meals
varietyand
of instant mixes. It generates 60%
competitor
the
market
withaready
similar product
portfolio.
of its sales from India and 40% from exports.

Financial Analysis of Peers

Company
Kohinoor
Foods
ADF Foods
Hatsun Agro
TBEL

P/E

P/BV

P/S

Profi
EV/EBIT t/
CMP
Mcap(C EPS(In Rs.)
DA
r)
Sale
9.19
2.55%
71.4
251.61
1.08

8.73

0.61

0.22

32.83

1.36

1.04

9.36

3.16%

98.65

217.03

83.4

17.98

1.41

18.06

1.68%

333.65

5077.1

43.46

11.62

3.36

21.48

7.74%

2726

700.58

62.72

Major Risks and Concerns for Tasty Bite Investors

Low free float The biggest concern while investing in TBE is low trade volumes. Out
of the total of
25.66 lacs shares, promoters own 19.05 lac, whereas ~2.6 lac is in the hands of
big investors (as indicated by shareholding pattern). This leaves only 6.61 lac
shares as real free float in the markets. Anyone looking to accumulate bigger
chunk would have to keep patience and do it.

Globally tough business Due to the commoditized nature of the product,

the competition in the industry is very intense, making it difficult to cross
10% profit margin.

Single distributor In the biggest export market (USA), the entire S&D is handled by
only one player,
i.e. PBI. This might pose operational and concentration risk in future

Distribution by Parent Co. From the first impression of the Promoters new
arrangement, where holding company will distribute the products abroad, could
be negative due to transfer pricing concerns. However, there seems enough
indicators pointing out to the contrary; promoters have diluted stake in holding
company and hence its not 100% owned, promoter holding in TBE at 74.2% is
close to maximum allowed by SEBI and looking at the track record of the
promoters, chance of any adverse move against minority shareholders looks
remote.

Volatility in factors of production Being an industry heavily dependent

on Agri-Produces for its raw materials, the cost prices are subject to the
vagaries of nature and drive up the input costs.

Foreign exchange variations Due to the volatile nature of global

economy and increased fluctuations in flight of capital, the top and
bottom lines are subject to increased volatility.

VALUATION
Our valuation is based on a three-stage FCFE model (E
Model) in which it is
assumed that the company will exhibit three
different growth trends.
In the first stage, since the company is developing its
market both overseas and in India, as well as building
up capacity to cater to these markets, it will exhibit a
high growth during next four years.
In the second stage, the growth will start to decline due
to consolidation within the Industry. This stage will start
from 2021 as per our expectation. As the company is
already posting high growth from 2013, we have taken a
conservative stance by assuming that it will not continue
the rapid growth after 2020. The growth rate will decline
continuously and will reach a stable state of 7.5% growth
by 2024, which will be close to the expected GDP growth
rate of the country.
In the third stage, it will grow at 7.5% as
going concern We used Expanded CAPM
method to calculate our cost of equity
Stage

High
Growt
h
Transitio
n
Stable
Growt
h

Year

20172020
20212023
2024onward
s

Grow
th
rate

Bet
a

25%
25%7.5%

1.7

7.5%

1.4
7
1

Marke
t Risk
Premi
um
2.75
2.5

Small
Cap
Premiu
m
2.
5
2

2.25

Illiquid
ity
Premi
um
1
0.7
5
0.5

Cost
of
Equi
ty
0.154
3
0.136
8
0.11

Key Assumptions:
Beta has been calculated using regression of return of
TBEL stocks against Nifty 500 index
Adjusted Beta has been used in Transition stage as the
Industry is maturing
In the stable growth stage Beta is one to reflect that
Industry has matured
The risk free rate is equal to the coupon rate on
government bond with 10 year maturity
Market risk premium is taken from IBEF research paper
MRP is adjusted for the later years as the Industry matures
Small cap premium was added to take into account
the risk of small market stocks
Illiquidity of the stocks of the firm was taken into
account through Illiquidity premium

TB will not take further debt

The growth rate of FCFE was taken to be equal to the
CAGR of last 5 year. Given the 55% CAGR of sales, 54%
CAGR in PAT and 22% expected CAGR of the industry for
next five years (BCG Report), a 25% growth can be
sustained for the next five years.

Calculation of FCFE
Heads

2012

2013

Net Income

1.66

6.33

Depreciation

2.12

2.7

FA+CWIP

31.43 44.14

Capex

7.54 12.71

Non-cash WC

5.58 14.84

Non- Cash WC

-6.61

9.26

Total Debt

19.12 39.57

2014

2015

2016

4.33 10.79

16.12

4.01

6.87

7.38

64.15 60.97

61.45

20.01

-3.18

0.48

5.15 15.14

22.82

-9.69

9.99

7.68

36.64 38.39

36.59

Net Borrowings

2.67 20.45

-2.93

1.75

-1.8

FCFE

5.52

-4.91

12.6

13.54

7.51

Valuation
Growth %
Year
Cash flow (Rs
Cr.)
T.V (Rs Cr.)
P.V (RS Cr.)
Price Per
share (Rs)

25%
2016 2017
13.54 16.9
3
717.96

25%
2018
21.1
6

25%
2019
26.4
5

25%
2020
33.0
6

19.3 13.4
7.5%
%
%
2021 2022 2023
39.44 44.7 48.09
3
1476.9
7

2797.
99

Japanese company Kagome Company Limited has acquired 70% holding in TBs parent
company Preferred Brands International in April 2015. As part of the deal Kagome holds
40% from the PE players while promoters will divest 30% of their stake. Taking into
account the possible synergies, Kagome valued Tasty Bites at Rs. 700 crore while TBs
total market value was about Rs 260 crore (about Rs 1000 per share). Now that TBs
share is trading at Rs 2726 in less than 18 months after the deal, Kagomes valuation is
more than justified.

FINANCIAL
ANALYSIS

Profitability Ratios
10.00%

30

80.00%

208.00%
1070.00%
0

60.00%

6.00%
4.00%
2.00%
0.00%

50.00%

20112012201320142015

NPMOPMROEROCE

Company has shown consistent growth in profitability

ratios over the last five years. Its Operating Profit Margin
has increases from 5.14% in 2011 to 14.04% in 2015. Net
Profit Margin has increased from 1.96% to 6.1% in the
same period.
The return ratios ROE and ROCE have shown
considerable rise. In the five year period of 2011-15,
ROCE has grown from 7.2% to 23.18%. Noteworthy is the
fact that company had average ROCE of less than 5% and
average ROA of less than 3 % between 2007 and 2009.
However, the concern is that companys ROE is driven by
high leverage as can be seen in the exhibits on the left.
This is because company has taken up debts for capacity
expansion. The D/E ratio is declining and it is below 1
barring years 2013 and 2014 when major capacity
expansion took place.
It availed INR 20 crore (USD 40m) through External
Commercial Borrowing route in 2013. Since company has
maintained a healthy Interest Coverage ratio considerably
above one over the last five years, its high debt is
sustainably backed by increased earnings.
Company
Kohinoor Foods
ADF Foods
Hatsun Agro
TBEL

Interest
Coverage
1.05
8.91
3.01
11.24

The share of its RTS (Exports) business is declining

compared to QSR (Domestic). Despite the fact that TB
was launched in Canada, Japan and Holland in 2000, US
and Australia have remained its major markets. The sales
in other markets have yet to peak. Also there has been no
price increase in RTS in last 10 years.
With CAGR > 25% and ROE > 20% in the next five years,
equity dilution is a possibility.
Greater capacity utilization has helped TB achieve
economies of scale which is reflected in it Expenses as
percentage of Sales, which has come down to 90% in
2015 from 96% in 2011.

Recommendation:

BUY

There has been a lot of global volatility off late which has slowed
down the global demand but sincew Tasty Bite is positioned as a
low price in such a way it has hardly imacted it and has played
into the hands of the company. The company is also increasing
its geographical reach and has ventured into Japan, New Zealand
. We believe in Japan the company will particularly benefit from
the Kagome.
Tasty Bites is known for customizing its products and making it
according to the need of the local pallet. In the light of present
Indian governments focus on economic reform like make in
India, Skill India and improving the ease of doing business with
taxation reforms like GST et al, the food processing Industry is
going to be a big beneficiary of all the reforms in the long term.
Also as GST is going to bring a lot of Supply Chain efficiency in
the food processing market.
The company is also run by an able and competent
management which has proved the
The company has shown continuous improvement in its capacity
utilization, supply chain management and retailing and branding
exercise which has resulted into improved profitability margins
and earnings multiples for the company
We see that company is well positioned to reap benefits of the
past investments and be at the forefront of making full use of
the future possibilities.
Considering our fundamental analysis of the company and the
Industry we recommend a BUY for the stock

Submitted By
DIVYANSHU JAIN
(PGP/19/312)
RAKESH KUMAR YADAV
(PGP/19/330)
SOURABH KUMAR
(PGP/19/349)
DHRUVI SANGHVI
(PGP/20/079)