Tasty Bite Eatables: Hold/Avoid fresh exposures

Recommendation: Hold/Avoid fresh exposures

Aarati Krishnan

With an established consumer franchise in the US natural foods market and a recent debut with Ready To Serve Foods in major Indian cities, Tasty Bite Eatables (TBEL), a Pune-based processed foods manufacturer is undoubtedly in a business that holds much promise.

But this is yet to translate into a sustained financial performance from the company.

After its turnaround in 1998-99, the company's financial performance has been inconsistent from quarter to quarter. The scrip has been subject to speculative surges. At the Rs 50 now, the stock may still lose out on relative valuations at this juncture.

Companies such as Henkel SPIC, or Agrotech Foods (formerly ITC Agro Tech), whose stocks trade at similar market prices, are better placed than TBEL in terms of their financials. Therefore, investors with an investment horizon of more than three years can hold the TBEL stock on account of the bright prospects for its business. Fresh investments in the stock can, however, be postponed for the present.

Tasty Bite Eatables has a chequered history. The company's earlier attempts to enter the Indian market with Ready To Serve foods in 1990 was unsuccessful. A tie-up with Pepsi, to fulfil the latter's export obligations, also failed. After a restructuring under the BIFR in 1996, the company underwent a change in management. In 1997, Preferred Brands India, an arm of Preferred Brands International, a US-based NRI-promoted food marketing company, acquired a 67 per cent stake in TBEL. After debuting with Ready To Serve Foods in the US market, the company managed a turnaround and came out of the BIFR purview.

TBEL's Ready to Serve Foods are mainly vegetarian, contain no preservatives and are pre-cooked. They have a shelf life of 18 months and can be stored without refrigeration. Though the range is presently restricted to North Indian specialties such as palak paneer, alu chole, dal makhani, navratan kurma and chana masala, the company plans to include South Indian fare as well.

The company invested substantially in owned facilities. It has a 5,000 tonne per annum (tpa) plant to turn out Ready To Serve Foods, incorporating state-of-the-art processing and packaging technology. It also has 10,000 tpa of capacity for individual quick freezing (IQF) of agricultural products such as peas and corn. It also owns a 2,000-tonne cold storage facility to store ice-creams, pulp and vegetables. Each of these operate as profit centers.

While the IQF facilities are being used for processing by MAFCO and NDDB, the cold storage facilities are leased out to players such as Hindustan Lever and Tropicana. To tie up its backward linkages, the company has also made a foray into contract farming of vegetables. The sale of intermediate products, such as garlic paste to hotels and institutions, is also underway.

The company has aggressively expanded its distribution presence in the foods market. Its Ready To Serve brands originally available in just five states, are now available in 28 states in the US. Increased distribution through natural food stores and mainstream super markets has made Tasty Bite a leading natural food brand in the US. With the increasing preference for vegetarian food and the growing health consciousness, the natural foods market in the US is expected to sustain healthy double-digit growth in the near future. TBEL is also looking to supplement its export revenues through a foray into the domestic market as well. TBEL products are already available in major metros and are proposed to be expanded into other cities. Both the range and target markets have been continually expanded.

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However, the financial performance over the past three years has been inconsistent. Gross sales improved from Rs 2.08 crore the year ended March 1997 to Rs 4.79 crore in the nine-month period ended December 1999. However, the profitability performance failed to show sustained improvement. The company reported a small net profit of Rs 0.47 crore in the nine months ended March 1999, followed by net profits of Rs 0.36 crore in the next nine months ended December 1999. In the first nine months of 2000, the company managed net profits of Rs 1.03 crore on sales of Rs 7.41 crore. However, in each period, `other income' made a substantial contribution to revenues contributing Rs 1 crore, Rs 0.51 crore and Rs 1.63 crore respectively over the three nine-month periods. The per share earnings based in the first nine months of 2000 totalled Rs 5.15.