Known by its brand Prema, At-Tahur Limited has declared its plans to go public. With a face value of Rs10 per share, the company’s ordinary shares are being issued at a premium of Rs10 (floor price Rs20 per share) based on some of the growth potentials that the sector and the company enjoy. These include robust demand for quality milk and growing market for pasteurised segment, company’s modern automated dairy farm, its vertically integrated production process, its 100 percent Australian and a Dutch herd.
The issue consists of 36.6 million ordinary shares with a face value of Rs10 per share, which is 25 percent of the total post-IPO paid up capital of the company. The entire issue will be offered at a floor price of Rs20 per share through a book building process; and 75 percent of the issue size will be allotted to successful bidders, while 25 percent will be offered to retail investors.
While the robustness seen in the pasteurised milk segment is one reason why a certified quality milk brand would want to expand and raise capital, At Tahur Limited has some specific needs to fulfill with the proceeds from the IPO. The company has a total funding requirement of Rs945 million, out of which the IPO will generate 77.6 percent of the requirement i.e. over Rs730 million; the remainder constitutes debt financing from MCB Islamic Bank. The total funding will be utilized primarily for investment required in increasing the herd size (28.3 percent); working capital requirements (22.7 percent); farm civil works (21.8 percent), plant and machinery (14.1 percent); while the remaining will be utilized for milking parlours, utilities and other farm expenses.
The company is also planning to cater to the untapped market of Karachi, which requires additional logistical resources, a dedicated distribution center and investment in human capital in the region.
At-Tahur Limited founded in 2007, launched its Prema brand umbrella in 2008. The company’s product portfolio includes dairy product like milk and a wide range of kindred products like yogurt and other variants. Prema Milk has recently been declared as the only milk fit for human consumption in the pasteurised category.
It is true that Prema has gained wide popularity in Punjab and KP in a short time and despite low marketing efforts; the company’s sales over the last four years have had a CAGR of over 20 percent. Good balance sheet figures and improving fundamentals are reasons for a company planning to expand and raise finance. While the company’s sales and margins have improved over the years, the profitability dipped in 2016. This, according to the prospectus, was due to certain additional operational expenses incurred and some charges on death and sale of dairy livestock.
The company’s key competitors in the region include Anhar by Sharif Milk Products (Pvt.) Limited, Everfresh, Dairyland, Gourmet Foods and Haleeb Foods etc. However, it has no direct competitors in the listed sector that are solely in the pasteurised dairy business. The prospectus highlights Nestle, EFOODS, Fauji Foods, Murree Brewery and some others food companies that are not only engaged in UHT treated milk production but also other food products.
Comparing the valuation multiples like P/E and P/B of the food segment (see table) with those of At-Tahur Limited, one can see that the floor price offers a discount to the investors with P/E and P/B multiples lower than the industry average and the food sector players having milk segment including both UHT and pasteurised milk. Its floor price of Rs20 per share translates to a price to earnings (P/E) multiple of 14.41x based on last twelve months’ earnings, which is a discount 43 percent relative to the average food sector P/E. While the strike price setting above the floor price of Rs20 might not keep the stock very cheap, the changing market dynamics and the growth prospects of the milk sector make the stock a good bargain!
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