I don’t think I have written about any IPO that was about a company that was in the cattle / poultry feed business, so I was really intrigued with the Tara Health Food IPO.
Tara Health Foods is actually about cattle feed?
Well sort of.Â The company does both.
Tara Health produces edible oil, and cattle / poultry feed, and sells it in the states of Punjab, Delhi, Haryana, Uttaranchal, Bihar and Jammu and Kashmir.
It was known as Tara Olive Oil just before it was renamed to Tara Health Foods, and the company has actually gotÂ a patent pending for the invention and method of manufacturing a blended oil. It is a blend of olive and rice bran oil, and is supposed to have all the benefits of these oils. It has two products calledÂ – Tara Unique and Zaitoon Tara, and although I have never heard of them before, I’d be interested to know if you have heard or used these products and how good they are. These blended oils are cheaper than olive oil, but are meant to have some of the same qualities.
The company also sells more conventional products like pure refined oils – Rice bran oil, cottonseed oil, and olive oil. The oil business contributes 40% of the revenues, while the cattle feed contributes the remaining 60%. And even though the cattle feed business is not as sexy as the blended oil one – it is the higher margin one, and contributes more in terms of revenues as well as profits.
The company has grown revenues spectacularly from Rs.69.92 million in 2006 to Rs.1,951.75 million in 2009. Despite these run-away numbers – Fitch has graded them 2 out of 5, and we will come to those reasons later. Let’s take a look at how long the company has been around first. Although the company itself has been existence since 1977, the present management has only took over since the last 4 years. The present management of Mr. Balwant Singh, Mr. Jaswant Singh, and Mr. Kulwant Singh were in the poultry feed business prior to that in a partnership structure, and in order to scale up their business they got hold of this company with a private structure.
The company wants to raise money from this IPO to set up a new edible oil plant, and expand its existing cattle feed plant as well. The issue price itself is ranged between Rs. 180 – 190, and the diluted EPS for period ended December 2009 was Rs. 18.48. For the year ended March 2009 this number was Rs.8.89, and was Rs.5.76 the year before. I glanced over the cash flow numbers and unfortunately the company has negative cash flows from operations for the last three years. This means that in conducting its day to day business the company lost cash consistently in the last three years.
Let me hop back to the Fitch rating now. I went through the rating document and the concerns raised in that document were about the company’s ability to manage operations at a larger scale because they are growing so fast, the negative cash flow, company’s policies regarding working capital and inventory management. The last point was especially interesting because the company procures inventory for its entire year at once, and then stores it throughout the year to manage volatility.
I was surprised to see that the Fitch Rating didn’t talk about the two pending criminal cases against the company, and no mention of the other civil cases as well, but I think that is because the money involved is relatively small. The criminal cases were with respect to motor vehicle accidents, and the amount involved is Rs.6.82 million, and the two civil cases are just worth Rs.0.28 million.
All in all, this was an interesting company to look at, and although I will not be investing in the IPO – I will be keeping an eye out on the company to see how it does in the future.
This is not a buy or sell recommendation, just a summary of the company details based on its prospectus and grading document, which I hope will help you make a final decision.