Last updated: 15 Jul, 2021 | 11:49 pm
Tatva Chintan Pharma IPO, which opened for subscription this morning, has been subscribed by about 4 times so far. The company is looking to raise Rs 500 crore through the public issue.Here are the details:
About Tatva Chintan Pharma Chem Limited:
The company has over 154 products as of 31 March 2021 which is divided into four categories:
Tatva Chintan operates has competitors both in India as well as globally. The listed peers of the company are Aarti Industries Ltd, PI Industries Ltd, Fine Organic Industries Ltd, Delta Finochem, Dishman group, and Pacific Organics Pvt. Ltd.
Acquiring customers globally at an accelerating rate: The varied applications for their product portfolio have helped them build a wide customer base across many sectors. Of their entire customer base as of March 31, 2021, 46.86% of these customers have been their customers for less than 5 years and 53.14% of these customers have been their customers for over 5 years. Their exports accounted for 69.57%, 76.74% and 70.58% of their revenue from operations for FY19, 20 and 21,respectively.
Modern, clean and green manufacturing facilities: They have successfully converted their Ankleshwar Manufacturing Facility into a ‘zero liquid effluent discharge’ facility from January 2020. The company, over the years, has focused on sustainable supply chain solutions by managing the entire value chain. Currently, each of their manufacturing facilities has accreditations including the ISO 14001:2015 and ISO 9001:2015 certifications for quality management, environment and health & safety systems.
Leading manufacturer of SDA and PTC with consistent quality: With very few players in the Indian and global market, tatva Chintan is the largest and only commercial manufacturer of SDAs for zeolites in India. It also enjoys the second largest position globally. Tatva Chintan operates in a market that is expected to grow at over 7% CAGR through 2020-25F with Korea and China dominating the market. However, with just 2-3 players in the domestic market, Tatva Chintan has an opportunity to expand and explore the global market. Opportunities in the automotive industry continue to grow, as compliance with the regulations regarding the emission control in commercial vehicles becomes a mandate worldwide. On a domestic level, the company is the only manufacturer in India.
R&D capabilities: Tatva is heavily focused on R&D. The company R&D capabilities have enabled them to expand product offerings from 72 products as at March 31, 2011 to more than 154 products as at March 31, 2021. The company is also going to use Rs 24 cr of their IPO proceeds to upgrade their Vadodara R&D facility. They are also aiming to develop technologies to produce conventional products using new-age technologies such as continuous flow chemistry and electrolysis processes.
Extract more business from existing customers and expand customer base:
Expanding production capacity: Company’s aggregate manufacturing capacity has increased at a CAGR of 20.59%. The company plans to spend Rs 147 cr of the IPO proceeds to expand their facility at Dahej. They will look to add capacity in a phased manner to ensure that they utilize their capacity at optimal levels.
Failure to comply with the quality standards and technical specifications: Given the nature of the products, customers have high standards for product quality as well as delivery schedules. Adherence to quality standards in the given time limit is a critical factor in the manufacturing process. Any lack of quality, not being able to meet technical requirements or late delivery in the products may lead to cancellation of the orders.
Increase in the cost of raw materials: The company does not have long term agreements with most of their raw material suppliers and acquire such raw materials pursuant to purchase orders from suppliers as a result of which, they are required to forecast supply and demand.
Significant portion of revenue from a few customers: The company depends on a limited number of customers for a significant portion of revenue. Their top 10 customers accounted for 59.99% of revenue from operations in FY21 up 1300 bps from 46.99% in FY19.
About the issue:
Issue open: 16 July – 20 July 2021
Price band: Rs 1,073 -1,083 per share
Issue Size: Rs 500 cr (Fresh equity shares worth Rs 225 crore and offer for sale by promoters and shareholders worth Rs 275 crore.)
Reservation: QIB 50%, Retail - 35%, NII 15%.
Employee Reservation: NA
Bid lot: 13 shares, and in multiples of 13 shares
The company will be using Rs 147 cr of the proceeds for the expansion of the Dahej manufacturing facility and Rs. 24 cr for upgradation at the R&D facility in Vadodara in the upcoming financial years.
Tatva Chintan Pharma IPO: INDmoney recommendation
Tatva Chintan Pharma has reported a good growth in topline (CAGR of 26%) over the last three years, backed by expansion in its product portfolio due to R&D initiatives. The company’s net profit has also expanded at a healthy run-rate of 57.4% over the last three years. The company has also reported healthy margins and return ratios. Tatva Chintan’s margins have also expanded over the last three years. It is the largest and only commercial manufacturer of SDAs for zeolites in India. It also enjoys the second-largest position globally.
At the higher end of the price band, Tatva Chintan is reasonably priced at a P/E ratio of 49.5 times FY21 EPS (on a fully diluted on post-issue basis). This is lower as compared to peers such as Fine Organics (75 times), Vinati Organics (77 times) and Navin Fluorine (73 times). Tatva Chintan has also reported higher RoNW numbers than these peers.
Given factors such as good growth in bottomline, healthy margins, robust return ratios, good growth visibility, leadership position, and reasonable valuations, we remain positive on the prospects of this issue.