Despite unappealing financials and 33% correction from all-time high, this small-cap firm stock holds promise; here's why

Share market today: Tasty Bite Eatables is a small-cap company engaged in the manufacturing and selling of prepared foods under the brand name Tasty Bite and Frozen Formed Products (FFP). After notching an all-time high of Rs 21,487 on July 8, 2021, the stock of Tasty Bites descended by over 33 per cent to Rs 14,330 on January 8, 2024

Being from the FMCG industry, the company, despite the dismal overall performance, reported an increase in net profit in Q2 FY24 to Rs 11.4 crore from Rs 9.5 crore in the same period last year.

Omkar Kamtekar, Research Analyst, Bonanza Portfolio, is of the view that Tasty Bite Eatables has a portfolio that caters to the urban population at scale. The analyst added that the company manufactures ethnic and natural vegetarian packaged and ready-to-eat/serve (RTE) food products under the Tasty Bite brand. The product portfolio is bifurcated into

1) Retail, which is an RTE line of products,

2) Food Service, wherein TASTYBITE is a partner of choice for leading QSR, cloud kitchens, and HORECA (hotels, restaurants, and caterers),

3) Xculsive: snacks exclusively crafted for the pubs, bars, clubs, lounges (PBCL), and HORECA segments.

As regards the company's financials, the analyst noted that the performance of Tasty Bite has been underwhelming. The revenue has grown at a meagre 3.7 per cent CAGR from FY21 to FY23. 

Further, the EBITDA margin has also remained stagnant at 14 per cent. However, CY23 was a year that marked sustained recovery in both the topline and EBITDA margin.

What can drive the stock higher?

The company, with effect from September 1, 2023, appointed Dilen Gandhi as MD, who has a rich experience of 20 years with blue-chip FMCGs like Gilette, P&G, and Pepsi Co. across different product categories for India and abroad. 

As per Kamtekar, the broader expectation is that Gandhi will lead the company in expanding its presence and creating a strong franchise of the company that will be recognised at the global level.

Valuations

“Currently, TASTYBITE is trading at TTM PE/EBITDA of 82x/39.1x against the 5-year median of 93.5x/45.7x, which indicates a discount, but when compared to the average PE/EBITDA of 48.9x/21.9x, there appears to be a significant premium. In our view, the company should continue to show earning momentum in FY24, marking double-digit growth in the topline with a robust EBITDA recovery. However, at the current valuation, we suggest investors buy on dips,” says Kamtekar.

Technicals also signal a bullish bias

Jigar Patel, Sr. Equity Manager, Anand Rathi, said that the stock's trading range for the month lies between Rs 13,000 and Rs 17,000. The analyst noted that support for the FMCG counter will be at Rs 13,000 and resistance at Rs 15,500. A decisive close above the Rs 15,500 level may trigger a further upside to Rs 17,000.

Avdhut Bagkar, Derivatives & Technical Analyst, StoxBox, says support should be placed around its 200-SMA, with the relative strength index (RSI) beholding a bullish bias in the oversold territory, as per the daily setup.

“While the shares of Tasty Bite Eatables see accumulation around its 200-simple moving average (SMA), the price must overcome the selling pressure emerging around the Rs 15,000 level, its 50-SMA. 

When this sell-off is captivated, the trend may rally in the direction of Rs 16,000, the next key hurdle. Sustainability over Rs 16,000 could elicit a medium-term upside to Rs 18,000–Rs 19,000 levels,” the analyst added.