27/03/2024
Mar 27, 2024
The Organic Meat Company Limited
Expanding Horizons, Nourishing Futures: TOMCL - Pioneering Growth through Diversification and Market Expansion
Executive Summary
The Organic Meat Company Limited (‘’TOMCL’’) is amongst the best pick in our stock universe. It boats a diversified product portfolio, has ventured into high-margin businesses, is earning dollarized revenue thus being insulated from fluctuations in PKR/US Dollar parity and has access to multiple export destinations. We have employed a blend of P/E and DCF methods to arrive at a December 2024 target price of Rs. 45.39 per share for ‘’TOMCL’’. The stock is currently offering a potential upside of 46.85% to our target price. It is currently trading at a FY25 forward P/E of 3.6x and P/S of 0.28x. With its strong market positioning and growth potential, TOMCL is poised to deliver significant returns to investors in the listed food space._
The preference for TOMCL arises from its status as one of the leading processors of red meat and associated by-products in Pakistan. Recognized for its wide-ranging product portfolio, TOMCL has established a renowned reputation for delivering high-quality offerings, catering to both domestic and international markets.
Recently, TOMCL reached noteworthy milestones by venturing into new markets such as Canada for premium pet chews, which command prices of approximately USD $200/kg based on our channel checks, and Uzbekistan for frozen beef.
TOMCL achieved a significant landmark by becoming the exclusive Pakistani meat company authorized to export cooked beef to China. In China, they employ a cost-plus-fixed-margin pricing strategy, and yielding impressive margins for TOMCL.
Additionally, TOMCL capitalized on its offal product line, particularly the popular Offal Omas, catering to Southeast Asian markets and commanding premium prices.
The company experienced significant growth in its private labelling business mainly from the Saudi Arabia, Kuwait and UAE, alongside market acceptance of pet chews in the US and Canada, reflects TOMCL's market pe*******on efforts. Additionally, TOMCL achieved its inaugural sale of self-fattened animals in local markets during Eid ul Azha and enhanced road access to the CIS region, resulting in reduced transit times.
The company has achieved impressive 5-year compound annual growth rates (CAGRs) of 25% and 38% for revenue and profit in PKR, and 6% and 17% in USD, respectively, from 2018 to 2023. We anticipate this strong growth trend to persist, particularly following TOMCL's recent milestone of obtaining approval to export cooked/heat-treated frozen beef to China, further fuelling its upward trajectory. According to management estimates, current run rate of sales stand at USD $4mn per month, with projections indicating an increase to USD $7.5 to $8 mn per month post-expansion in November 2024.
Furthermore, the majority of TOMCL's revenue is denominated in USD, serving as an inherent hedge against PKR devaluation and effectively minimizing currency risks.
The company's immediate goal is to reduce its debt load on the balance sheet, coupled with effective management of its working capital cycle. Notably, they receive advance payments from China, Kuwait, CIS, and Oman, along with a credit cycle of 7 days from Saudi Arabia and 45 days from the UAE. On average, their credit cycle spans 35 days.
Best Regards
Deepa Jeswani
AHCML Research
