This is not my original idea. I liked it when Om & Kiran explained me the business model of Tasty Bites.
Disclaimer: This is not a recommendation to Buy/Sell/Hold. I am not a SEBI registered analyst. See at the end for full disclaimer. It’s safe to assume that I have vested interest in the stock.
Tasty Bites [TB] is an indirect play on the rapidly rising QSR industry in
India, which is growing 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 India’s leading QSR players like Domino’s, Mc Donald’s etc. Tasty Bites is a market leading player of ready-to-eat foods in USA for Indian foods.
I started analyzing this stock during mid August 2014. By the time I attended AGM and got convinced of the story, price had already increased tremendously When I analyzed it, I thought it’s a long-term story [> 5 yrs] and price will remain flat for next few years as it will take time for the company to build scale. Nevertheless I decided to recommend my close relatives to buy their target quantity at then prevailing price. I had earlier tried my skills in timing the entry with another stock and failed miserably, ultimately ended up recommending the same at higher price.
On 15th April 2015 , Kagome, a leading food company of Japan, bought majority stake in Preferred Brands International (PBI), the ultimate holding company of Tasty Bite Eatables. Founders have not diluted their stake, Kagome bought the stake held by PE players in PBI. Kagome acquired PBI at ~ 700crs equity valuation compared to Tasty Bites current valuation 260crs [@ INR 1,000 per share]. One can argue that as PBI sources majority of its products from TB and do not have its own manufacturing facility, even TB should trade at similar valuations. I disagree with that. In my opinion TB should first demonstrate its performance by improving ROE and sales growth before it can command such valuations. Moreover, PBI business model is asset light with all the capital cost being incurred by TB. Nevertheless, for TB its tie up with Indian QSR companies can be game changing event, if its able to scale it up over next 3-5 years.
Kagome in its filing with exchange, has given guidance of doubling the revenues and profits of PBI over next two years compared to FY 15 forecast. As majority of purchases of PBI are from Tasty Bites, it implies that even Tasty Bites sales and profits should increase at high double digits.
Given below are the links to presentation & Mind map which I shared with few of my friends with whom I work closely [prepared long back and not updated since then]
Disclaimer: This is not a recommendation to Buy/Sell/Hold.
Registration Status with SEBI:
I am not registered with SEBI under SEBI (Research Analysts) Regulations, 2014. As per the clarifications provided by SEBI: “Any person who makes recommendation or offers an opinion concerning securities or public offers only through public media is not required to obtain registration as research analyst under RA Regulations”
Details of Financial Interest in the Subject Company:
Currently, my close relatives own stocks of Tasty Bites based on my recommendation. But their purchase price is substantially lower than current market price. Current price may or may not offer any margin of safety to fresh buyers. Please consult your financial advisors before taking any buy/sell/hold decision. I may change my opinion post publication of this note and may not be able to update because of time constraints.