Tara Health Foods IPO Analysis

Serving cattle and humans

Gets 60% of sales from cattle and poultry feed and 40% from edible oil

Promoted by Balwant Singh, Jaswant Singh and Kulwant Singh, Tara Health Foods is among the few organized players in the oil and animal nutrition industry in India catering to the needs of both human and animal nutrition. The company's products are divided into edible oil and cattle feed. These are marketed in north India through different points of sales set-up in Punjab, Delhi, Haryana, Himachal Pradesh, Uttranchal, Bihar and Jammu & Kashmir.

Presently, Tara Health Foods has a 500-tonne per day (tpd) capacity of cattle and poultry feed plant, with a 250-tpd unit in Malerkotla in Punjab and another 250-tpd unit at Sitarganj in Uttaranchal. The Uttaranchal plant was set up in 2007 to capture the northern market, rationalise logistic cost, to make available unhindered raw materials, and to take up the incentives and concessions offered by the Uttaranchal government. The company has a 250-tpd solvent extraction plant at Malerkotla. This was backward integration for continuous supply of raw materials, i.e., de-oiled cakes, a key ingredient of compounded cattle and poultry feed formulation. It also has a 120-tpd edible oil refining capacity at Malerkotla.

Tara Health Foods sells its products under various brands. Edible oils like rice bran oil, olive oil, and cottonseed oil, and a blend of rice bran oil and olive oil are sold under brands Tara Gold, Tara Lite, Tara Kotton, Zaitoon Tara, Tara Olive, and Tara Unique. For cattle feeds, the company has brands like Tara Feed, Rath Gold, Rath No. 1, Rath Panjiri, Rath Feed and Tara MIN (mineral mixture).

Growing at the CAGR rate of 130% since the last four years, Tara Health Foods recorded net sales of Rs 231.10 crore in the nine months ended December 2009, crossing the sales of Rs 195.18 crore achieved in fiscal ended March 2009 (FY 2009). About 60% of its sales are from cattle and poultry feed and 40% from edible oil. The operating profit margin (OPM) has also improved over the last four years. OPM stood at 15.6% in FY 2009 and increased to 24.1% in the nine months ended December 2009. Net profit was Rs 36.29 crore, thus enjoying a net profit margin of 16%, in the nine months.

Tara Health Foods intends to enter the capital markets to raise money in the range of Rs 180 crore to Rs 190 crore by issuing one crore equity shares of face value Rs 10 each in the price range of Rs 180 to Rs 190 per share. The funds are to be used to set up a Rs 125.32-crore 300-tpd edible oil refining plant at its existing location of Malerkotla, expand the existing 250-tpd cattle feed plant at Rs 4.52 crore, and augment the long-term working capital requirement of Rs 38.96 crore.

Strengths

The cattle/poultry feed is exempted from excise duty and value-added tax. Entitled to capital subsidy of Rs 0.5 crore from the ministry of food processing industry for manufacture of refined edible oil. The Uttaranchal plant enjoys tax benefits like 100% excise exemption, 100% income tax exemption for the first five year, and 30% tax deduction from income tax liability for the next five years, capital investment subsidy at 15% subject to a minimum of Rs 0.3 crore, and exemption of entry tax on plant and machinery.

Has filed for patent of its unique blend of refined rice bran oil and olive oil sold under the brand, Zaitoon Tara. This can be considered nutraceutical oil and has ideal combination of fatty acids and is anti-diabetic and anti-obesity.

Weaknesses

Operates in a price-conscious segment facing stiff competition from other organized and un-organized players.

The two-promoter group companies, Tara Feed Factory and Tara Heart Care Products, and one associate company, Tara Life Care Products, are in similar line of business.

Had negative operating cash flow of Rs 18.32 crore in the nine months ended December 2009, Rs 30.85 crore in FY 2009, Rs 19.12 crore in for FY 2008, Rs 6.52 crore in FY 2007, Rs 3.32 crore in FY 2006, and Rs 0.3 crore in FY 2005

Valuation

Tara Health Foods has set a price band of Rs 180 to Rs 190 per equity share of Rs 10 face value. At the lower band of Rs 180 per share, the P/E would be 11.2 times the annualised EPS of Rs 16.11 (on post-IPO equity) in the nine months ended December 2009 and 31.8 times the EPS of Rs 5.66 (on post-IPO equity) in FY 2009. At the upper price band of Rs 190 per share, the P/E would be 11.8 times the annualised EPS of Rs 16.11 in the nine months ended December 2009 and 33.6 times the EPS of Rs 5.66 in FY 2009. There is no comparable listed company.

via BL