Tara Foods - Not Nutritious Enough

DSIJ Intelligence / 29 Apr 2010

Tara Health Foods (Avoid)
Tara Health Foods (THF) is a company based in Punjab tapping the equity markets with its IPO to raise Rs 180-190 crore on the lower and upper price bands of Rs 180-190 respectively. THF is amongst a few organized players of the oil and animal nutrition industry in India, catering to the needs of both human and animal nutrition through their products. Their offerings to customers can be divided broadly into categories of edible oils and cattle feed. The company not only produces these products but also markets them in the northern part of the country through different points of sales setup in the states such as Punjab, Delhi, Haryana, Himachal Pradesh, Uttaranchal, Bihar and Jammu & Kashmir that it has developed over a short period of time.

Objects of the Issue

Objects	Amount (Rs Cr)
Setting up new edible oil refining plant & 5 MW cogeneration power plant	125.32
Expansion of cattle feed plant at existing location	45.2
Augmenting long-term working capital requirements	38.96

THF trades at a P/E of 11.18-11.80x for its FY10E earnings at its lower and upper price bands respectively on its post issue equity as compared to P/E of 27.19x for Agro Tech Foods on TTM basis and 17.07x for Sanwaria Agro Mills for FY10.
We feel the margins of 15 per cent at the net profit levels enjoyed by the company for nine months ended December 2009 are not sustainable going forward, as most of the peers are able to maintain their net profit margins above 5 per cent.
The company has failed to generate positive cash flows for the last five years and also for the nine months ended December 31, 2009 at operating levels and the figures stand at Rs 183 crore on the negative side.
We also feel that the market capitalization of Rs 540 crore and market capitalization to sales of 2.33x is not justifiable and looks quite expensive.
While the capacity utilization has increased from 26 per cent in FY2009 to 86 per cent for nine months ended December 2009, the inventory levels have also swelled up from Rs 91 crore in FY2009 to 129 crore for nine months ended 2009. There is a lot of money stuck with account receivables, which have increased from Rs 22 crore in FY2009 to Rs 66 crore for nine months ended December 2009. We feel going forward the company may face difficulty in managing such working capital. Therefore, we suggest our readers to refrain from the issue.

Issue Information	Rating: 30
Issue Opens on	28-Apr-10
Issue Closes on	30-Apr-10
Issue Size (No. of Shares)	100 lakh equity shares
Price Band (Rs.)	Rs 180-190.
Issue Route	Book Building
Promoters	Balwant Singh
Post Issue Equity	300.44 lakh equity shares
Minimum Bid	30 equity shares
Lead Managers	Atherstone Capital Markets
Listing	BSE, NSE
Retail Portion	35 lakh equity shares
QIB Portion	50 lakh equity shares
Non Institutional Portion	15 lakh equity shares

Financial Performance (Rs/Cr)
Particulars	9M FY10	FY09
Total Income	231.10	195.18
Operating Expenses	186.50	167.79
Operating Profit	44.60	27.39
Interest	9.43	7.64
Depreciation	2.37	2.71
Tax	8.62	3.11
Net Profit	36.29	17.00