Saturday, June 13, 2015

Sandalwood Oil 100,000 INR or 1,500 USD / Kg TFS Corporation Australia

I spent 3 days researching on an idea after it passed several filters including excess of 30% return on equity and a niche business model. 

The idea was based on a rare commodity, due to lack of sustainable farming practices in India, the production has fallen 95% over past three decades in India. Regulation is decades far in India, even if regulation for sustainable farming were to be passed on 15th of June 2015, i.e. tomorrow, it will be 15 years before India would be back in the game.

India's loss was gain of an Australian listed entity, TFS Corporation which grew from a 20 Million AU$ company in 2004 to 620 Million AU$ company in 2014, 30 times.

I feel that the company will grow even larger in the time to come. They have backing of solid investors such as Harvard Foundation, Dubai Sovereign Fund, and HNIs.

Salary offered to employees is also pretty good for blue collared work, 60-90,000$ per annum.

TFS Corporation controls ~25,000  Acres of Land for farming Sandlewood tree which is ready after 15 years. ~7500 Acres land is freehold, rest is managed for other investors such as Harvard or HNIs. That much of land is not easily produced by any manufacturing organisation these days on the surface of earth, compounded with long arduous process of perfecting Sandalwood tree growth.

Company signed a deal of 500 Million USD with Nestle subsidiary Galderma (2 Billion USD revenues) to supply therapeutic oil, in 2014. Therapeutic Oil sells for more than Channel 5.

The company also acquired a niche FMCG company, Mt Romance that is a market leader, it produces creams, lotions, aftershave and other cosmetic products from Sandalwood.

http://mtromance.com.au/
 
All in all, hitting the right notes to scale big. Maybe it will scale big.

http://www.tfsltd.com.au/

Company is vertically integrated from Soil to Oil, rather Soil to Brand. Valuations are inexpensive at 6 times earnings.

 Meanwhile for the next 10 years this Australian company is the biggest grower of Indian Sandalwood Oil ! What an opportunity for TFS driven by India's absence of laws for sustainable farming of Sandalwood trees, which are now close to extinction in their native land.







India's Output


 

TFS Corporation, Hectares under cultivation









Advantage Australia

The biggest reason why this idea is a pass for now, is because the economics will transform very rapidly with more wheat growing land transposed by Sandalwood farming in Australia. The news is out and others will catch up in next five years.

An Urdu Poet wrote:



Dard-e-sar ke vaaste
chandan lagaana hai mufeed,
Uss ka ghissna aur lagaana
dard-e-sar yeh bhi to hai


[Sandalwood paste is the ideal cure for a headache,
(But) its preparation and application is a headache in itself!]