The company went public on February 6th. I had analyzed it in detail at the beginning of February and taken some notes for myself. Returning to the same company nearly eight months later provided a great opportunity to see how it performed over this period and test how accurate my initial assessments turned out to be. Frankly, while I remembered the general big picture, I had forgotten many of the details. This reminded me once again how crucial it is to keep regular notes when analyzing companies. With hundreds of listed companies, dozens of balance sheet line items, and many similar business models, even a few months are enough for details to get blurred.

By an interesting coincidence, the stock hit its daily upper circuit limit on the exact day I started re-examining the company. However, I want to clarify that my decision to review it had nothing to do with this price movement. I had organized listed companies on Borsa Istanbul by sector into a weekly review schedule, and this company was simply next in line. I only noticed the price action when I sat down to start the analysis. Now, let’s revisit the notes I took eight months ago and compare those initial assessments with today’s picture.

What Caught My Attention Most During the IPO: Indebtedness

In the notes I took back in February, three key points stood out:

  • Around 1.1 billion TRY in fresh funds flowing into the company’s coffers from the IPO,
  • A sharp rise in inventory levels,
  • Remarkably high short-term liabilities.

At the time, I viewed the company’s debt levels as a significant risk. Looking at the IPO proceeds allocation plan makes it easier to understand why the company chose a capital increase.

According to the use-of-proceeds plan, the funds were allocated as follows:

  • 45% to bolster working capital,
  • 40% to reduce financial debt,
  • 15% for lease payments related to the pasta factory.

Therefore, all the capital raised from the IPO was directed toward strengthening the financial structure and working capital rather than driving new growth investments. I don’t necessarily see this as a negative on its own. On the contrary, for a company carrying a heavy debt load, reinforcing the balance sheet through a capital raise can be a rational move. Moreover, it’s worth noting that there was no secondary share sale by existing partners—the IPO was conducted entirely via a primary capital increase.

The IPO was offered at roughly a 36% discount, and the company went public with a 20% free float. With the recent price rally, the stock is now trading about 30% above its IPO price. However, what matters to me isn’t the short-term stock price fluctuation, but how effectively the capital raised has improved the balance sheet.

What Does the Company Do?

The company’s core business is flour production. Alongside flour tailored for bread, baklava, pastries, and other specialized uses, it produces, stores, and markets semolina and various bakery additives. In early 2026, the company also launched pasta production. This is a key investment because it has the potential to transform the business from a pure flour producer into a broader food manufacturer. To evaluate the company properly, however, we first need to understand the shift in the flour and pasta industry over the past few years.

Why Did the Industry Accumulate So Much Debt?

In recent years, we have seen multiple flour and pasta producers go public, and analyzing them reveals a common pattern. During the pandemic—particularly in 2020 and 2021—demand for staple foods surged dramatically. Expecting this elevated demand to persist, companies moved toward capacity expansions and new facility investments. However, the financial footprint of large industrial investments doesn’t materialize overnight. Decisions, financing, facility construction, and launching production can take several years. As a result, the debt burden of investments kicked off in 2021–2022 became far more visible on balance sheets in 2023 and 2024.

Right around that time, interest rates in Turkey rose rapidly, creating a second major headwind for the sector. As the cost of debt taken on during lower-interest periods escalated, financing expenses began squeezing corporate profitability heavily. We have seen a similar pattern in other industrial companies that expanded capacity during past demand booms. The critical point here is that high debt today cannot be blamed entirely on poor management. While some companies made overly aggressive or miscalculated investments, for others, refraining from investing could have meant forfeiting long-term market share. The real issue lies less in the decision to invest and more in the financing structure used—and how prepared the company was for the high-interest environment that followed.

The New Pasta Investment

The company carries out its flour production across four facilities in Adana, Mardin, and Mersin. Its new growth driver, however, is pasta. Management reported an investment of roughly €33 million in the pasta facility. The fact that the project falls under an investment incentive scheme worth approximately 1.4 billion TRY also supports its financial feasibility. Management targets a ~15% contribution to total revenue from pasta operations. For 2026, total revenue is projected at around 9.4 billion TRY, with roughly 1.4 billion TRY expected from pasta.

Because of this, I view the pasta plant as a key turning point. While surging wheat prices squeezed profit margins last year, more stable raw material prices in the current period could help margins recover. If the new facility operates at high capacity utilization and the company manages to lower its debt, the pasta investment could favorably transform its profitability profile over the next few years. That said, the underlying reality remains unchanged: the flour and pasta sector is fiercely competitive with relatively low value-add. Simply scaling capacity may not be enough to build a durable, long-term competitive moat.

80% of Sales Come From the Domestic Market

Roughly:

  • 80% of sales come from domestic markets,
  • 20% come from international markets.

On the export side, Middle Eastern and African markets dominate, followed by Europe. I view an increasing export share as a positive development. Given the intense competition in Turkey’s flour and pasta market, expanding exports can help diversify revenue streams and reduce reliance on domestic demand.

However, export growth isn’t just about volume—destination markets and product mix matter equally. Expanding in strictly regulated, higher-standard markets like Europe would serve as a strong seal of product quality and brand power. In the current export mix, Middle Eastern and African markets still carry the heaviest weight.

The Industry’s Biggest Advantage Is Also Its Biggest Disadvantage

Staple foods like flour, wheat, and pasta are far more resilient during economic downturns compared to many other sectors. People can delay purchasing a new car, home appliances, or electronics, but they cannot stop buying basic food items. This inelasticity helps companies preserve sales volumes to a degree. Yet, this very advantage breeds the sector’s main drawback: steady demand lowers barriers to entry, drawing numerous players into the market.

The result:

intense competition, weak pricing power, and razor-thin profit margins.

That is why, when evaluating the flour and pasta industry for long-term investment, top-line growth alone is insufficient. What matters far more is where and how a company truly differentiates itself from competitors.

Ownership and Governance Structure

The company’s shareholding structure is highly concentrated. Most shares are held by the İlhan family and distributed among family members. Post-IPO, the free float stands at roughly 20%. One detail worth noting is the 1-year lock-up commitment given by existing shareholders as part of the IPO. As of today, this lock-up period has not yet expired. Consequently, whether the major shareholders will sell shares once the period ends remains unknown. For this reason, keeping an eye on potential changes in insider shareholding after the lock-up expires will be critical. From my perspective, however, the more important issue is the composition of the Board of Directors.

Five out of the seven board members belong to the family. While founder Orhan İlhan’s ~25 years of industry experience is a clear asset, the limited representation of non-family professional and independent board members raises corporate governance questions for me. Being a family business is not inherently negative—there are remarkably successful family businesses both in Turkey and globally. However, when ownership and executive management are heavily concentrated within the same family, strong independent governance oversight becomes vital for minority shareholders. I prefer seeing robust corporate governance mechanisms in place—especially regarding strategic oversight, capital allocation, related-party transactions, and minority rights protection. Thus, I wouldn’t call the governance structure strong by my investment criteria.

Operational Strengths

There are operational highlights I like about the company as well. One is that the facilities operate on a three-shift basis. For industrial firms, high capacity utilization is crucial for spreading fixed costs across a larger volume of output.

Another noteworthy point is the company’s energy infrastructure. According to company disclosures, its self-generated energy capacity covers roughly 115% of the electricity consumed across its plants. In other words, not only can the company cover virtually all of its power needs, but it can also generate excess power during certain periods. For an energy-intensive manufacturer, I view this as a meaningful cost advantage. Especially during periods of rising energy prices, investments like these bolster competitiveness.

Latest Picture in the Financial Statements

When the company went public, my evaluation was primarily based on full-year 2025 financial statements. We now have fresh figures for the first half of 2026. Comparing these two periods provides a clear view of how the company has evolved since the IPO.

Looking at the balance sheet, the most immediate change is on the cash side. Cash and cash equivalents rose from roughly 250 million TRY during the IPO period to around 600 million TRY in H1 2026. Naturally, the fresh capital injected from the IPO accounts for a big chunk of this increase, so treating this rise purely as operational cash generation would be misleading. While IPO proceeds improved liquidity, what matters most is how this capital translates across other balance sheet items.

Trade receivables stand at approximately 1.1 billion TRY, but what catches my attention more is inventories. Inventories expanded from around 3 billion TRY at the time of the IPO to 4 billion TRY in H1 2026. Such a substantial inventory buildup ties up a significant portion of working capital. For a company already burdened with high debt, a longer inventory conversion cycle can drive up funding needs, making this line item one to watch closely in upcoming quarters.

Non-current assets increased from roughly 4.6 billion TRY to 5.1 billion TRY over the same period. Evaluating this gain requires taking inflation accounting into consideration alongside actual capital expenditures. Consequently, reading this nominal increase strictly as new operational growth would be inaccurate.

The debt side remains the single most critical section of the balance sheet for me. Short-term financial debt dropped slightly from around 2.86 billion TRY during the IPO to roughly 2.755 billion TRY. At first glance, there is a decline, but considering that ~1.1 billion TRY of fresh cash entered the company, the net debt reduction appears remarkably modest. Meanwhile, trade payables climbed from roughly 1.1 billion TRY to 1.4 billion TRY, signaling that working capital pressures persist. In short, while the IPO cushioned liquidity, balance sheet deleveraging hasn’t progressed to the degree I had hoped for.

The Key Area to Watch: Inventories

The company’s Days Sales Outstanding (DSO) is around 53 days, and Days Payables Outstanding (DPO) is roughly 54 days. Having these two metrics closely matched is a plus for working capital management. The inventory side, however, tells a different story. Days Inventory Outstanding (DIO) jumped from about 77 days in 2022 to nearly 148 days today. That is almost a twofold increase, and it is a major red flag for me.

Inventory isn’t just finished goods sitting in a warehouse—it is locked-up cash. As the inventory conversion cycle stretches, the company requires more working capital. If that working capital requirement is funded through debt in a high-interest environment, financing costs escalate further. That is why tracking inventory trajectory will be one of my top priorities in upcoming financial releases.

Income Statement Shows Recovery

The income statement presents a brighter picture than the balance sheet. Revenue increased from around 4 billion TRY in H1 2025 to roughly 6.5 billion TRY in H1 2026, marking clear top-line growth. While this surge reflects operational recovery, top-line growth alone is not enough for me; what matters is how effectively that revenue translates into operating profit and, ultimately, real cash flow. Given the company’s hefty financing expenses, top-line expansion needs to yield enough profit to relieve debt pressure on the balance sheet.

Current margins are approximately:

  • Gross profit margin: 13%
  • EBITDA margin: 9%
  • Net profit margin: 1%

Key metrics for H1 2026 stand as follows:

  • Gross profit: 820 million TRY
  • Operating profit: 461 million TRY
  • Financing expenses: 539 million TRY
  • Net monetary gain: 235 million TRY
  • Net profit: 84 million TRY

These figures highlight the company’s biggest vulnerability crystal clear: core operations generate profit, but financing expenses consume almost all of it. Operating profit of ~461 million TRY overwhelmed by ~539 million TRY in financing expenses demonstrates how heavily debt continues to weigh on profitability.

The net profit recorded at period-end was buoyed significantly by a net monetary gain of roughly 235 million TRY (from inflation accounting). It is vital to note that while net monetary gains boost accounting net profit, they do not represent actual cash flowing into the bank. Thus, when analyzing this business, I focus far more on operating profit, EBITDA, and cash generation capability rather than bottom-line net profit.

What Does Cash Flow Tell Us?

There is a positive signal on the cash flow front. The company generated approximately 400 million TRY in positive operating cash flow in Q1 2026. This matters because, for debt-laden companies, actual cash generation—rather than accounting profit—is my single most critical metric. Given the existing debt pile, however, a couple of positive quarters won’t solve the problem on their own.

The company has largely completed its major capital expenditures. Going forward, I believe its top priority must be deleveraging. Undertaking new large-scale investments under the current balance sheet structure would be irrational anyway. The company needs to funnel operational cash flow toward debt reduction to ease interest expense pressures. No matter how strong an operational turnaround is, as long as elevated interest expenses persist, the pass-through to net profit will remain constrained.

My Overall Take on the Company

When evaluating companies, I don’t start with valuation multiples. Instead, I seek answers to three core questions:

  1. Is this a high-quality business model?
  2. Do management and capital allocation inspire confidence?
  3. Is the financial structure solid enough to support long-term growth?

Here are my answers for this company:

1. Business Model

Since flour and pasta are staple consumer products, demand remains resilient across economic cycles—a distinct advantage. However, the key flaw in the business model is low value-add paired with intense competition. With numerous producers in the market and limited product differentiation, achieving exceptionally high profit margins or strong pricing power over the long haul will be difficult. While the new pasta investment, expanding exports, and self-generated energy will help, I don’t expect them to fully erase the sector’s structural competitive hurdles.

2. Management

The company is backed by a family with decades of industry experience, which I view positively. However, the heavy family representation on the Board and the scarcity of independent professional directors represent a notable shortfall in my investment framework. In public companies, I prefer to see a board structured to represent minority shareholders alongside founding owners. As a result, I do not consider management and corporate governance to be among the company’s strengths.

3. Financial Structure

This is where the company’s primary vulnerability lies. Despite operational recovery, financing expenses remain high enough to swallow operating profits, proving that debt pressure continues to weigh heavily on the balance sheet. While declining interest rates would naturally provide relief, building an investment thesis solely on rate cuts is ill-advised.

The company also needs to:

  • Reduce inventory levels,
  • Manage working capital more efficiently,
  • Generate robust free cash flow,
  • Bring down financial debt.

If these operational fixes materialize, the balance sheet could improve significantly over the next few years. As things stand today, however, we aren’t there yet.

Conclusion

Revisiting the company eight months later, the primary concern from my initial review remains unchanged:

indebtedness.

That said, I don’t see this as a purely negative story either. The new pasta facility, high capacity utilization rates, self-generation energy infrastructure, revenue growth, and export potential represent genuine positives.

On the flip side, however, we have:

  • High financing expenses,
  • Expanding inventory levels,
  • Intense market competition,
  • A low value-add sector structure,
  • Limited corporate governance diversity.

At its current market capitalization of roughly 7.5 billion TRY, I find the company quite expensive. Even back during the IPO, I didn’t view its valuation as cheap. Although top-line revenue has expanded significantly since then, we have yet to see meaningful improvement in the underlying debt structure—the main issue in my eyes. Interest expenses continue to severely depress operational profitability, inventories keep climbing, and despite the influx of IPO capital, net financial debt reduction remains modest. Therefore, I don’t see the ~30% rise above the IPO price as something that makes the valuation more reasonable. On the contrary, a rising market cap without a matching improvement in financial health makes the company even more expensive in my view.

Beyond valuation, however, lies a more fundamental consideration for me. When evaluating a business, I don’t just ask whether it is cheap or expensive; I first determine whether it meets my investability criteria. With a low value-add, hyper-competitive business model, heavy family dominance on the board, and a balance sheet still laden with debt, I see significant red flags across all three pillars. As a result, I cannot classify this company as investable at this stage.

Determining an exact intrinsic valuation for the company is secondary for me. In my investment process, if a business isn’t investable to begin with, I won’t buy it simply because it gets cheap. The business model, management, and financial structure must first pass muster—only then does valuation come into play. Because the company fails to clear this initial hurdle in its current state, while I consider the 7.5 billion TRY market cap stretched, my primary issue is with the fundamentals of the company itself rather than its price tag alone.

LEGAL DISCLAIMER: This content does not constitute investment advisory services. Investment advisory is a personalized service provided based on an individual’s risk-return profile, financial standing, and investment objectives. The information, commentary, and assessments provided herein are prepared solely for general informational purposes and should not be construed as investment recommendations or guidance. This content may not align with the reader’s financial position or risk-return preferences; therefore, investing based solely on this information may not yield the expected outcomes.