Tasty Bites India - BQ1

Strategic Assets Distinctive Architecture

Large category of product profile with established relationship with
major MNC QSR brands - These tend to be sticky relationships. Already has Domestic (B2B) - All major QSR brands including:
an 8+ year relationship with McDonalds McDonalds, TacoBell, KFC, Burger King, Subway ..

R&D Center (TBRC) – Constantly evolving product line, keeping up with taste Customers KFC every single veg product is from Tasty Bite ( preferred
patterns and targeting new opportunities. Emphasis on research drives supplier). Only manufacturer of Pizza McPuff (McDoanlds).
product quality and new product development. Only veg supplier to Burger King.

Acquisition by Kagome opens new possibilities with respect to distribution/ International (B2C) - US, Australia, UK - Cater to Major US
channel partnerships and even shared manufacturing retailers - Costco, Whole Foods and Others

Infrastructure in place for quality monitoring from sourcing to manufacturing to Own a 25 acre farmland on which they grow some of their
delivery. The company uses new techniques in irrigation and farming to own produce - and introduce new forms of irrigation / farming
ensure increae in yield per acre etc.

Its Ready to eat (RTE) is a very well known brand focused on mainstream Suppliers/ Vendors They source from several frozen food manufacturers as well.
American customers and available at all major Super market chains. Offers This allows them to counteract price fluctations in
Indian RTE products and Thai Sauces. vegetables.
Its emphasis on organic produce has given it a unique plank to market its Source from local farmers - Work with them in developing
products in International markets and in particular to unique segments - Eg:
Competitive know-how and also for areas social development.
expectant moms (Australia) Forces/ Establishing a long term relationship
Bargaining
Power In the US Sell through PBI (Distributor - that owns a
substantial stake in TBI) - at 30% of MRP. Need to check if
this is the norm in the sector?
Dealers/ Distributors/
Disproportionate Future? Marketing With Acquisition by Kagome in Japan access to new markets
and sales channels.

Partnership with Kagome will open up new markets - Kagome MAY look to
expand manufacturing partnerships with TBI (Outsource manufacturing to In Australia sell through Preferred Brand Australia (100%
India?) owned by Preferred Brand International - PBI)

Local competitors include Del Monte, Vista (customer also),

McCain, Kohinoor

Industry/ Competition Vista foods growig rapidly at 25% a year. - Caters mainly to
chicken and Egg - TBI only does vegetarian produce
What can go wrong? Mitigation? RTE has several brands doing well - with Gits doing well with
Indians abroad. Students / Expats etc. Imports not a real
threat to the QSR business

Food price volatality. Specifically onion, tomatoes, Frozen food storage ↗ Strong new product innovation with QSR partners. Supplying multiple varieties of
potatoes. Margins have been hit hard in the past capacity expanded. Re- patties (KFC Zinger and other patties, patties to Burger King, subway green
due to this. look at agreements? peas/chatpata chana). Sauces to dominoes, HUL, Pizza Hut.

Emphasis on product
quality and R&D very
Quality issues can cause steep drop in business high
Use new solutions to
drive down costs
As seen from the past price rise cannot be passed (farming/ logistics
onto the user - Margins will be under pressure. techniques)
↗ Looking at introducing Thai focused product range based on user demand and
tastes. Asia Noodles - a new category has generated very positive reviews in markets
New of launch and is growing rapidly
Products/
Innovation/
Branding ↗ RTE business is branded. But brand is owned by the parent company (Preferred
foods). No scope of brandng elsewhere

Focus on growth and

A customer base that is relatively concentrated to an expansion of the RTE
industry - slowdown in QSR business can hurt future business - with new ↗ Kagome impact could lead to TBIs expansion into product lines familiar with their
prospects product lines business - Juices, branded sauces as an example
Tasty Bites India - BQ2
EBITDA Capital Invested EPA/Sales - future value creation lead indicator
Growth Rates Margin Turnover ROIC Capital EPA/Sales

3 Year Average 61.51% 8.59% 1.83 7.98% 61.57 -3.42% The company has invested heavily in
Business Value Drivers capex in last four years. Yet to
demonstrate sustainable value creation -
5 Year Average -11.22% 9.29% 1.88 9.60% 52.38 -2.92% TTM figures are more encouraging
though again, sustainability needs to be
Current Year* questioned.
(Annualized Data) 20.04% 14.05% 2.69 19.16% 65.05 2.29%

Global RTE Industry growth rate pegged at between 6%-7% (5 years). QSR industry in
India growing at 25% for 5 years at least. Organized large scale players are absent
Nature of Industry: Competitive Intensity? Industry Growth rates? (B2B). Fewer players. Sticky partners.

India RTE market size – 2000 Cr. Global market size – US$ 300 Billion . QSR
Business - India Market Size US$ 1 billion - Very fast growing domestic market. Major
investments plans of all QSR. A minimum of 10 years runway of growth potential
Opportunity Size: How big is the runway? How many years out? ahead.

Capital Allocation: Able to invest large Capital at high ROIC?
Predictability: How many variables in the Business?
BQ Bottomline
Sustainability: How hard is it to dislodge from its perch?
Operating leverage will come in with better capacity utilization. Asset turnover is the
key - while it has improved yet to be seen if it can be sustained. The management is
consistently looking to move up the value chain.
Major variable is the price of inputs. In certain years Onion and tomato prices have
moved 2x to 4x from mean. Consumer discretionary spends - reflective of macro
economic factors the other variable
Very difficult due to quality, trust and long relationship with customers. Customer's own
contribution to recipe development

Disprotionate Building blocks in place for disproportionate
Future: future? Do multiple Optionalities exist?
Business Strategy
& Planned Is the company likely to grow efficiently &
Initiatives: emerge stronger in next 2-3 years?
Expansion into new markets and categories. Kagome relationship can prove to be a
trump card
Capacity additions will be likely to aid growth. Capacity and ability to supply un-
interrupted is also key to retaining customers. Company moving to higher value added
products like speciality sauces.

Next 2-3 years – what are the key monitorables, 1. Continued rapid growth in domestic QSR business. 2. Expansion into new markets
Key Monitorables: key health indicators? (Japan/ NZ). 3. launch of new products and their uptake. 4. Capacity addition
Near Term
Visibility: Next 2-3 years – how strong is the visbility? Strong visibity of 30% CAGR

High chances of success. Dependent to a large extent on the trends and growth of the
Long Term Visbility: 5-10 years on - how likely to survive & prosper? QSR/ HOECR market

BQ Category: Laborious? Or Disproportionate Smarts? Great Opportunities Ahead : Laborious, Category B+

Valuation Spotlight?
Business Transition Managed significant business transition to its Company moved from RTE business (low growth) to QSR very efficiently + Size of
Track Record: advantage? What impresses most? opportunity
CMP: 890: 30/04/2015 Stable PE
Performance vs Current P/E or Perception captures business Trailing Range : 18x -
Perception GAP: quality/performance? How big is the GAP? PE: 25x 22x Perception/Expectation