About the company:
Issue Details:
Dates: July 16, 2021 to July 20, 2021
Price Band: Rs. 1,073 to Rs. 1,083 per share
Minimum Lot: 13 shares
Minimum Application Amount: Rs. 13,949 to Rs. 14,079
Total Issue Size: Up to Rs. 500 Crs (Fresh issue Rs. 225 Crs and OFS Rs. 275 Crs)
Objects of the Offer:
The fresh issue proceeds are expected to be utilised towards funding of
1) Capital expenditure requirements for expansion of Dahej manufacturing facility worth Rs. 147.10 Crs;
2) Capital expenditure requirements for upgradation at the R&D facility in Vadodara worth Rs. 23.90 Crs; and
3) General corporate purposes.
Samco Research’s Stance:
This IPO is a ‘SUBSCRIBE’ from a listing gains perspective only, although given the size of other larger IPOs which cloud this smaller Rs. 500 cr issue size, there is definitely a slight hint of caution that comes along with this listing.
Corporate Profile:
Tatva Chintan Pharma Chem (Tatva Chintan) is a specialty chemicals manufacturing company engaged in the manufacture of a diverse portfolio of structure directing agents (SDAs), phase transfer catalysts(PTCs), electrolyte salts for super capacitorbatteries, pharmaceutical and agrochemical intermediates and other specialty chemicals (PASC).
Company is known as the largest and only commercialmanufacturer of SDAs for zeolites in India and enjoys the second largest position globally. It is one of the leading global producers of an entire range of PTCs in India and one of the keyproducers across the globe.
Tatva Chintan currently operates through two manufacturing facilities situated at Ankleshwar and Dahej in Gujarat, both of which are strategically located very close to the Hazira port with annual installed reactor capacity of 280 KL and 17 Assembly Lines, as on March 31, 2021.
Business Overview & Competitive Advantages:
Tatva Chintan caters to varied industry applications from automotive, petroleum, pharmaceutical, agrochemicals, paints and coatings, dyes and pigments to personal care and flavour and fragrances industries. Because of its strategically located manufacturing facilities and robust and technically sound R&Dcapabilities, thecompany is ableto maintain the quality of its products. Itslarge manufacturingcapacity, consistent growth, experienced management, global footprint, and high-quality products makes them areliable supplier of SDAs and PTCs.
Apart from their customers in India, Tatva Chintan also exports their products to over 25 countries, including the USA, China, Germany, Japan, South Africa, and the UK. During the fiscal year ended March 2021, exports of products amounted to Rs. 211.99 Crs which accounted for 70.58 percentof revenue from operations.
Its customers include Merck, Bayer AG, Asian Paints, Ipox Chemicals KFT, Laurus Labs, Tosoh Asia Pte Ltd, SRF, Navin Fluorine International, Oriental Aromatics, Atul, Otsuk Chemical, Meghmani Organics, Divis Laboratories, Hawks Chemical Company, Firmenich Aromatics, Jiangsu Guotai Super Power New Materials and Jade Chem Co. Of the entire customer base as of March 31, 2021, 46.86 percent of these customers have been their customers for less thanfive years and 53.14 percent of these customers have been customers for over five years which is a big advantage in the long term.
During FY19-21, Tatva Chintan’s revenue/EBITDA/PAT grew at a CAGR of 21.70 percent/44.52 percent/59.50 percent. Its EBITDA margins are steadily improving and stood strong at 23.85 percent in FY21. Their financial position illustrates not only growth of operations over the years, but also effectiveness of administrative and cost management protocols that they have implemented. Further, the company also has a track record of over two decades and has a strong balance sheet with stable cash flows.
Risks:
• Tatva Chintan’s primary raw materials include tertiary amines, alkyl halides, general solvents and other general and fine chemicals and these represented 50.24 percent of revenue fromoperations in FY21. It would be imperative to note that currently the business relieson a limited number of suppliers to provide certain raw materials i.e. top 10suppliers collectively contributed 48.64 percentof the total purchases of raw materials and components.In absence of long-termagreements with such suppliers, company may run a risk of supplier concentration and loss of one or more suppliers would directly impact its margins.
• It does not have firm commitment long-term supply agreements with most of customers and instead rely on short term purchase orders to govern the volume and other terms of sales of products from customers. Any failure to meet customers’ expectations and specifications could result in the cancellation or non-renewal of contracts or purchase orders.
• In order to remain competitive, company develops, test and manufacture new products, which must meet regulatory standards and receive requisite regulatory approvals. However, ongoing investments in research and development for new products and processes may result in higher costs without a proportionate increase in revenues. Delays in any part of the process, inability to obtain necessary regulatory approvals for products or failure of a product to be successful at any stage could adversely affect its business.
Valuation:
Upon successful listing, Tatva Chintan will join the likes of Aarti Industries, Navin Fluorine, Alkyl Amines Chemicals, Vinati Organics, and Fine Organics Industries.Considering the upper price band of Rs. 1,083, company is available at price toearnings ratio of 41.20 times on FY21 earnings, which is believed to be slightly expensive when compared to peers.
Now, Tatva Chintan seeks to capitalize on the industry tailwinds in the specialty chemicals industry to grow further with itssmooth operations and healthy book.
However, taking into account the liquidity which has already flown into Zomato’s IPO which coincides with this issue, we advise investors to maintain a cautious stance before subscribing to this IPO for listing gains.
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