If Covid-19 changed your eating habits, stock market is loving it

The stock market knows what you ate last summer and what has changed this season! Hard to believe?

A smallcap food processor, owned by the US giant Mars, has shown a lot of resilience through the market disruption caused by Covid-19.

Reason? The company boldly handled the changes that the pandemic brought about in the eating habits in much of urban India. The stock is up 57 per cent this year, and 58 per cent from March lows. indicating it was largely unaffected during the market mayhem in early March.

The company is Tasty Bite Eatables.

In its annual report released on Monday, Chairman Ashok Vasudevan said he saw a few megatrends emerge, threatening some businesses and posing serious challenges for some others.

“There has been heightened awareness about the correlation between food and wellness in last few months, which will lead to explosive growth in plant-based natural foods,” Vasudevan said.

Besides, de-globalisation is changing food habits of people. “It’ll be a bumpy road ahead, but I am confident that the company would emerge stronger coming out of these turbulent times,” Vasudevan said.

Analysts say the growth trajectory for the evolving ready-to-eat market remains bright.

“There is no reason for the company to not grow at 20 per cent every year. After its takeover by Mars, the company would be able to leverage the parent firm’s strength. The runway is huge and the base is small. Growth is not at all a challenge for this business,” said Jatin Khemani, CEO at Stalwart Advisors, an independent equity research firm.

Khemani said he made good money on the stock, buying it at Rs 500-600 and selling at Rs 6,000. He does not hold the stock currently.

Tasty Bite reported about Rs 450 crore sales and Rs 41 crore net profit for last financial fiscal. The company continued to deliver returns on capital employed (RoCE) in excess of 30 per cent for the fifth year.

“It sells essentials, so the pandemic may not have affected it much. People were stuck and were cooking at home. Plus they have this sausage and processed food business, which supplies to Domino’s, Subway and Pizza Hut. This would have taken a hit, but bulk of their revenue comes from the US and that should be doing well,” Khemani said.

In FY20, the company generated 45 per cent of its revenue from the US, 34 per cent from India and rest from other regions. Food services business (QSR chains) brought in over one-third of its revenue.

Along with Tasty Bite Eatable, shares of other food processors have also surged in the latest market rally. Stocks of Kwality, LT Foods, Modern Dairies, Chaman Lal, Kohinoor Foods, ADF Foods and Tirupati Starch have all more than doubled from their March lows.

“Valuations wise, one can have different views but as far as profitability and sales are concerned, food processing companies are on a good wicket. Nestle and HUL seem immune to category shocks and remain well positioned,” said Deepak Jasani, Head of Retail Research at HDFC Securities.

He added that demand for packaged essentials to be consumed inhouse like coffee, noodles, biscuits and breads have gone up during the pandemic and are likely to be maintained in the near future.