Detailed Note on Tasty Bite Eatables Ltd.

Hi Folks!!

Here is the Fundamental report on Tasty Bite. I know, there is lot of things would be missing in this report but still you can have a look in that for some refreshment.

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Tasty Bite Eatables Ltd.

History

Tasty Bite Eatables (TBE) is a Frozen specialty food manufacturing company and incorporated in 1985 in India. The company is mainly into Ready-to-eat food. This idea was going through the time when India was not ready for that. Sometimes a great idea may fail because it is ahead of its time, true with Tasty Bite too. By that time they realized the market for Ready to eat food is overseas. In 1996, they started their 1st export consignment with Preferred Brands International Inc (PBI) which is now their Parent Company. PBI owns ~74% stakes in Tasty Bite. PBI is also the fellow subsidiary of Mars, Inc. Mr. Ashok Vasudevan is the Founder and Chairman of The Company, who has more than 3 decades of experience in food industry.

Business Vertical 1

The company has its brand ‘Tasty Bite’ in the global market. One of the business verticals is Consumer Business which has 190+ products variants available over US, UK, Canada, Australia, New Zealand, Japan and Germany. The products don’t have any artificial colours, artificial ingredients, no preservatives and 100% vegetarian in all markets. They have uniquely designed multi-layer retort pouch in which products remain fresh for 18 months. This segment has range of ready-to-eat and ready-to-cook Entrees, ready-to-cook sauces, organic rice and whole-grain preparations.

US is the largest market for Consumer business vertical where ready-to-eat Entrees continue their dominant position with over 50% market share in US & Canada. In FY 2021, ~65% revenue came from Consumer business vertical in which ~45% revenue came from US alone. The Consumer Business has achieved the milestone of over 19000 MT annual production volume in FY 2021.

Business Vertical 2

In 2006, they again vouched new opportunity in India but only in institutional segment catering to top QSR players. The 2nd vertical of the company is Tasty Bite® Food Service (TFS) which has 160+ products variants over India, Sri Lanka, Kenya, Maldives etc. This product range also don’t use any artificial colours, ingredients and preservatives. This segment is now a Preferred choice of leading QSR, Cloud-Kitchen & HORECA (Hotels, Restaurants & Caterers) brands in the foodservice industry. They deliver unique and innovative solutions in the sauces, meals & frozen food categories to Customers such as Dominos, McDonald’s, Pizza hut, KFC, Subway, Burger King, Faasos, Rebel, Unilever, eat.fit, CCD, Taco Bell etc. India is the largest market for Food services vertical which contributes ~35% of the total revenue and the Indian market contributes to ~34% of total revenue. Food services vertical accounted over 8000 MT annual production volume in FY 2021. Apart from India and USA, the remaining ~20% revenue comes from rest of the world.

Xclusive Vertical

The company recently launched new vertical which contains starter and Patty segment. These also have variety of snacks and burger patties. This has a very less contribution in business.

Industry overview

 Food is the necessity for human life. If one thing becomes necessity of all consumers, then demand will be increasingly high in all ways. Consumers have now become extremely experimental with flavours, taste and convenience which will lead to an increase in demand in all food segments. The global fast-food market is projected to grow from USD 972.74 billion in 2021 to USD 1,467.04 billion by 2028 at a CAGR of 6.05% during forecast period1. QSR market in India is growing rapidly from last couple of years. During the FY 2016 - FY 2020 period, the QSR market increased at 17.27% and is expected to reach INR ~827.63 Bn by FY 20252. There are some major QSR players operating in the Indian QSR market such as Burger King India Pvt. Ltd., Jubilant FoodWorks Limited, Burman Hospitality Private Limited, Jumboking Foods Private Limited2. Another segment, Cloud kitchen, is also expected to expand its market at a higher growth rate of ~18% during FY2021-FY2025 period2.

 The basic reason of all the food segment expanding in India is because of increasing per capita income. According to the IMF World Economic Outlook (April - 2021), GDP (nominal) per capita of India in 2021 is projected at $2,191(in Rs. terms ~1,70,000) at current prices3.

 Same-store-sales-growth (SSSG) is also resuming on growth path. Jubilant Foodworks Ltd. (JFL) has franchise business of Domino’s and Dunkin Donuts. Jubilant currently operates 1,500 Domino’s restaurants in India. Last year, the company management had said it could open over 3,000 restaurants as of 04 Feb 20224 and JFL has 29 Dunkin’s restaurants as on 31 Dec 20215.

 Yum! India which operates Pizza Hut, KFC and Taco Bell franchise business has 500 restaurants of Pizza Hut6, over 480 restaurants of KFC7, and Taco Bell planning to open 600 restaurants over 10-year period8.

 On the other hand, Mc Donald’s and Subway have about 4809 and around 70010 restaurants across India.

 The industry should continue to grow at high rates. Above all, these QSR players are the customers of Tasty Bite and if they grow their presence in India and southeast Asia, Tasty Bite will also grow together.

Management’s Insights

 The company has 2 main verticals: Consumer business and Food Services. Consumer business is distributed and marketed by Preferred Brands International Inc. which focuses on North American market and Mars, Inc focuses on non-US and non-Indian markets. Food Services vertical is marketed by Tasty Bite Eatables itself in Indian market.

 The strategy management is using by taking advantage of wide presence of Mars, Inc and PBI in global market to expand its consumer business outside India and targeting new B2B customers (QSR chains and HORECA) in domestic market.

But there are some attributes which have raised concerns for the Management:

 Consumer market must compete not only with other Indian ready-to-eat cuisines but also with country’s regional cuisines. The market outside India is very competitive for the products and they may not get listed in supermarket shelfs.

 For domestic market, other players have the technology and capacity to manufacture similar products so there will be no differentiation, many of them have extensive distribution networks that the company may not have.

Covid Impact:

In the period 2020-2021, the entire food service market plunged by 80% YOY in H1FY2021 because all QSR and restro were shut down but the recovery was fast by the end of the year at 70-80% of pre-covid levels. The company was affected in short term, sales down by ~11%, but this will not have sustainable impact because dine-in may have lower footfalls now but cloud kitchen or home delivery are on the pace.

Financials (FY2015-FY2021)

 Company’s sales have been growing annually at the rate of 12% over the last 7 years along with pre-tax earnings growing compounded at 18%. Material cost has been maintained at 60%.

 Pre-tax earnings margin has been maintained at the rate of 12% over the same period. EPS CAGR is growing at the rate of 21% from 42 to 159 in FY2021. It is indeed the wealth creator earnings.

 Net worth has grown up by 24% over 12% growth of sales annually over the same period.

 CFO (pre-tax) has touched upon 21% of annual growth same as EPS growth, which means every single rupee of earnings gets converted into cash flow from operations. On an average basis of 7yrs CFO to earnings ratio is 100%.

 Free cash flow growth was 34% annually (FY15-FY19) and post-covid it became negative. It may improve in couple of years. Cumulative 7yrs of free cash flow is 36.5 crore.

 Aggregate CFO is higher than pre-tax earnings by 11 crores over the period of 7yrs, which means company is able to convert its earnings into operating cash.

Competitive Advantage

 B2B Advantage – Tasty Bite is enjoying customers’ engagement with leading QSR players (Mc Donald’s, KFC, Dominos Burger King etc). Customer is becoming quality and taste conscious so it’s hard to switch from these brands because they have already set quality standards.

 Preferred supplier – There is a double advantage for Tasty Bite, because they are focusing on quality and now qualifies as a Preferred supplier for leading QSR chains which is a wide moat.

 Parent’s hand on Head – PBI and Mars, Inc have wide presence in global market which support Tasty Bite for distribution networking and marketing. They are continuously approaching big supermarkets.

 Management efficiency – I am a bit concerned about their major capex plannings which they have not done over the last 7 yrs. 50 SKUs are constant from last 7yrs without a single increment and they are keeping raw materials on third party warehouses instead of investing in own land. Apart from capital allocation decision, management has proved to make the business as a moderate cash generating machine.

Risk and Concerns

 There is only 1 manufacturing unit which produces over 27000MT volume and any untoward incident can impact overall production.

 In FY 2021, ~75-80% business is dependent on export which can be impacted by foreign exchange risk.

 Cost of inputs and services in India are rising while retail prices of the products remain relatively stable and the management may not be able to pass on cost increases to the customers.

 The shocking thing is that the Company doesn’t have any long-term contracts with the QSR and they can stop purchasing products with no notice period.

Conclusion

The company is indeed a wealth creator business in terms of earnings growth but on the basis of earnings growth it will be risky to invest. The management should focus on capital allocation for new manufacturing plants and increasing revenue contribution of domestic market. Based on future capex plan and strategy, Free cash flow picture will be somewhat clear.

Reference links:

1. https://www.fortunebusinessinsights.com/fast-food-market-106482

2. https://www.researchandmarkets.com/reports/5306317/quick-service-restaurant-qsr-market-in-india?utm_source=BW&utm_medium=PressRelease&utm_code=b8q426&utm_campaign=1586501+-+India+Quick+Service+Restaurant+(QSR)+Market+Report+2021&utm_exec=chdo54prd

3. https://statisticstimes.com/economy/country/india-gdp-per-capita.php#:~:text=The%20per%20capita%20income%20in,at%20%242%2C191%20at%20current%20prices.

4. https://www.livemint.com/industry/retail/60-home-deliveries-are-now-done-in-20-minutes-dominos-11643913123535.html

5. https://www.jubilantfoodworks.com/brands/dunkin-donuts

6. https://www.prnewswire.com/in/news-releases/pizza-hut-launches-its-500th-store-in-india-plans-aggressive-expansion-870814477.html

7. https://www.thehindu.com/business/strongly-believe-in-india-story-will-continue-physical-expansion-despite-covid-19-disruptions-kfc/article34182487.ece

8. http://timesofindia.indiatimes.com/articleshow/69350881.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst

9. https://www.campaignindia.in/article/blog-25-years-on-is-mcdonalds-a-success-in-india/472393

10. http://timesofindia.indiatimes.com/articleshow/87492283.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst

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Comments

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  Akshita

  10 July, 2022, 9:02 am
  Great work
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