Reblog: Tatva Chintan IPO review

• TCPCL is a niche global player in specialty chemicals with SDAs in centre stage.
• It has posted growth in its top and bottom lines for the past three years.
• The issue is priced reasonably compared to listed peers.
• Globally renowned client list with long term relations.

ABOUT COMPANY:
Tatva Chintan Pharma Chem Ltd. (TCPCL) 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 supercapacitor batteries and pharmaceutical and agrochemical intermediates and other specialty chemicals (“PASC”). The Company is the largest and only commercial manufacturer of SDAs for zeolites in India. It also enjoys the second-largest position globally. (Source: F&S Report)

In addition, TCPCL is one of the leading global producers of an entire range of PTCs in India and one of the key producers across the globe. (Source: F&S Report) As a manufacturer of specialty chemicals, it focuses on the application of its products which form a key ingredient to customers’ manufacturing and industrial processes. For instance, SDA and PTC products have various applications in green chemistry, which is pertinent considering the growing focus on green and sustainable technologies.

The company continuously strives to improve processes and infrastructure to help reduce its impact on the environment and has accordingly, undertaken various ‘green’ chemistry processes such as electrolysis. Considering the wide application of its products, it serves customers across various industries, including the automotive, petroleum, pharmaceutical, agrochemicals, paints and coatings, dyes and pigments, personal care and flavour and fragrances industries.

Apart from its customers in India, the company also exports products to over 25 countries, including the USA, China, Germany, Japan, South Africa, and the UK. During the Fiscals ended March 31, 2019, 2020, and 2021, exports of products amounted to Rs.  143.52 cr., Rs. 202.02 cr. and Rs. 211.99 cr. which accounted for 69.57%, 76.74%, and 70.58%, of its revenue from operations, respectively. As of March 31, 2021, its portfolio had 154 products in four categories i.e. SDAs, PTCs, Electrolyte Salts and Pharma/Agri intermediates.

TCPCL’s customers include Merck, Bayer AG, Asian Paints Ltd., Ipox Chemicals KFT, Laurus Labs Ltd., Tosoh Asia Pte. Ltd., SRF Limited, Navin Fluorine International Limited, Oriental Aromatics Ltd., Atul Limited, Otsuka Chemical (I) Pvt Ltd., Meghmani Organics Limited, Divi’s Laboratories Limited, Hawks Chemical Company Limited, Firmenich Aromatics Prod. (I) Pvt. Ltd., Jiangsu Guotai Super Power New Materials Co., Ltd. and Jade Chem Co. Ltd.

ISSUE DETAILS / CAPITAL HISTORY:

To part finance its need for funding capital expenditure for expansion of its Dahej facility (Rs. 147.10 cr.), up-gradation of its R & D facility (Rs. 23.97 cr.) and general corpus funds, TCPCL is coming out with a maiden IPO of Rs. 500 cr. comprising of fresh equity issue worth Rs. 225 cr. (2077556 shares) and an offer for sale (OFS) of Rs. 275 cr. (2539244 shares). The company will be issuing approx. 4616800 shares of Rs. 10 each on the basis of the upper price band. TCPCL has fixed a price band of Rs. 1073 – Rs. 1083 per share having a face value of Rs. 10. The issue opens for subscription on July 16, 2021, and will close on July 20, 2021. Minimum application is to be made for 13 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 20.83 % of the post issue paid-up capital of TCPCL. The company has allocated an IPO quota of 50% for QIBs, 15% for HNIs and 35% for retail investors.

Book Running Lead Managers (BRLMs) to this issue are ICICI Securities Ltd. and JM Financial Ltd. while Link Intime India Pvt. Ltd. is the registrar to the issue.

TCPCL’s entire equity is issued at par so far. It has also issued bonus shares in the ratio of 1 for 2 in March 2001, 1 for 1 in March 2006, 12 for 10 in March 2009 and 1.5 for 1 in March 2021.

The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 0.91, Rs. 1.11, Rs. 1.59, Rs. 1.65, Rs. 2.49, Rs. 2.69, Rs. 2.87, Rs. 3.06 and Rs. 4.00 per share. Post-IPO, TCPCL’s current paid-up equity capital of Rs. 20.09 cr. will stand enhanced to Rs. 22.17 cr. Based on the upper price band, the company is looking for a market cap of Rs. 2400.48 cr.

FINANCIAL PERFORMANCE:

On the financial performance front, TCPCL has reported turnover/net profits of Rs. 206.80 cr. / Rs. 20.54 cr. (FY19), Rs. 264.62 cr. / Rs. 37.79 cr. (FY20) and Rs. 306.29 cr. / Rs. 52.26 cr. (FY21). Thus it has posted growth in top and bottom lines for the past three fiscals. It has posted a CAGR of 21.70% in top lines and a CAGR of 59.50% in bottom lines. Its debt-equity ratio stood at 0.54 as of March 31, 2021.

For the last three fiscals, TCPCL has posted an average EPS of Rs. 20.99 and an average RoNW of 30.75%. The issue is priced at a P/BV of 13.11 based on its NAV of Rs. 82.62 as of March 31, 2021, and at a P/BV of 6.14 based on its post-IPO NAV of Rs. 176.39 (based on the cap price).

If we attribute FY21 earnings on fully diluted post issue equity, then the asking price is at a P/E of around 45.95 and thus the issue is reasonably priced as the industry composite is around 56 as per RHP data.

COMPARISON WITH LISTED PEERS:

As per the offer documents, TCPCL has shown Aarti Ind., Navin Fluorine, Alkyl Amines, Vinati Organics and Fine Organics as its listed peers. They are currently trading at a P/E of 60.43, 75.53, 65.61, 73.36 and 80.79 respectively (as of July 13, 2021). However, they are not truly comparable on an apple to apple basis.

DIVIDEND POLICY:

In the last three fiscals, TCPCL has paid a dividend of 50% (on pre-bonus equity) for FY21 only. It will adopt a prudent dividend policy post listing based on its financial performance and future prospects.

MERCHANT BANKER’S TRACK RECORDS:

The two BRLMs associated with the offer have handled 33 public issues in the past three years, out of which 11 issues closed below the issue price on the listing date.

CONCLUSION / INVESTMENT STRATEGY