Jatin Khemani’s last stock pick was Amrutanjan Health Care, the FMCG micro-cap. He recommended the stock in November 2014 when it was languishing at Rs. 288. Soon, Vijay Kedia, the stock wizard, stormed the counter and grabbed a huge truckload of the stock, sending the price spiraling up. Today, Amrutanjan is at Rs. 462, reflecting massive gains of 60% since Jatin’s buy call.
Jatin’s latest stock pick is ‘Tasty Bite Eatables’, a micro-cap with a market capitalisation of only Rs. 314 crore.
The surprising aspect about Tasty Bite is that despite its puny size, it boasts of having marquee clients like Dominos, Pizza Hut, Subway, Burger King, McDonalds etc as its customers. It supplies frozen foods, sauces, patties, etc to these behemoths.
Jatin points out that Tasty Bite is a proxy play for investing in big-ticket and fast growing companies like Dominos and McDonalds and the entire QSR sector. Jubilant Foodworks, for instance, intends to add 150 new Domino’s stores and 25 new Dunkin Donuts’ stores over the next three years. Likewise, Yum India, which operates KFC, Pizza Hut and Taco Bell stores, intends to have 2000 stores in India by 2020, which is three times its current number of stores.
Jatin explains that Tasty Bite enjoys some sort of a “moat” because its customers are wary of going anywhere else owing to concerns of hygiene, quality etc. A newcomer to the business will not win the trust of these behemoths except after a trial by fire. So, so long as Tasty Bite manages to keep its facilities ship-shape, the orders from the behemoths will continue to flow in, Jatin surmises.
Jatin also emphasizes that Tasty Bite has been on an expansion spree in the recent past. The impact of this would be seen in incremental revenues (Rs. 80 to 100 crore), gross margins of 35% and operating margins of 13-15%, he says. He adds that the QSR sector will continue on the high growth trajectory of 30-40% CAGR, throwing up more opportunities for Tasty Bite.
Now, to the immense good fortune of Jatin and the subscribers of Stalwart Advisors, as soon as he put out a buy call for Tasty Bite at Rs. 640 on 14th April, Kagome, a leading food company of Japan, bought a majority stake in Preferred Brands International (PBI), the ultimate holding company of Tasty Bite Eatables. This sent Tasty Bites’ stock price soaring to Rs. 1400+, giving gains of 100%+ in just the couple of weeks since Jatin’s buy call. The CMP is Rs. 1227.
Talking about the future, Jatin emphasizes that Kagome’s investment augers well for Tasty Bite because the former, with its immense financial and marketing muscle, will be able to send Tasty Bite soaring into a higher trajectory. He also surmises that the ‘MNC’ tag that Tasty Bite now sports could lead to a bit of re-rating for it from both, the customers as well as the investors.