Tatva Chintan Pharma Chem IPO opens today: Should you subscribe?
The issue consists of a fresh issue of Rs 225 crore and an offer for sale of Rs 275 crore by the promoter and promoter group. The fresh issue proceeds will be utilised for expansion of Dahej manufacturing facility; and upgradation of R&D facility in Vadodara.
The price band for the offer, which will close on July 20, has been fixed at Rs 1,073 – Rs 1,083 per equity share.
“The company is going to list at PE of 41.62X with a market cap of Rs 2,400.47 crore, while its peers namely Aarti Industries and Navin Fluorine International is trading at a PE of 59.54X and 73.95X respectively,” said Marwadi Shares and Finance which recommend a subscribe rating for IPO.
“It is a niche global player in speciality chemicals with structure directing agents (SDAs) in centre stage, having a globally renowned clients list and reasonable valuation as compared to its listed peers,” the brokerage reasoned.
Choice Broking also feels at higher price band of Rs 1,083, Tatva Chintan is demanding a P/E valuation of 45.9x (to its restated FY21 EPS of Rs 23.6), which is at discount to the peer average of 57.2x.
Considering its niche product profile with diversified applications and dominant domestic production share, the brokerage believes the company would continue to post robust operating and financial performance in future.
“Also with the proposed expansion of its capacity, Tatva Chintan will be well positioned to capitalize on the growth opportunities in the specialty chemicals space. Thus we assign a ‘subscribe’ rating for the issue,” said Choice Broking.
Tatva Chintan Pharma Chem is a specialty chemicals manufacturer dealing with a variety of products including structure directing agents (SDAs), phase transfer catalysts (PTCs), pharmaceutical and agrochemical intermediates, and other specialty chemicals (PASCs).
It is the largest and only commercial manufacturer of SDAs for Zeolites in India (second globally). Its products, totalling over 154, have wide applications across automotive, petroleum, agrochemicals, dyes and pigments, paints and coatings, pharmaceutical and personal care.
FY2021 numbers were strong with revenues growing by 14 percent YoY and operating profit growing by 20 percent YoY (operating profit margin rose by 100 bps YoY at 22 percent). Reported PAT grew by 38 percent YoY to Rs 52 crore in FY21.
Tatva Chintan has a strong earnings track record with 60 percent PAT CAGR over FY19-FY21, and revenues have grown at a CAGR of 21.7 percent, and earnings before interest, tax, depreciation and amortisation (EBITDA) margin have improved by 600bps to 23 percent over the same period.
Return ratios have also been strong and rising with return on equity (RoE) and return on capital employed (RoCE) for FY21 at 31.5 percent and 33 percent respectively compared to 25.8 percent and 26.4 percent in FY19.
“The company has a robust earnings growth outlook with strong market share, consistent focus on research & development, greater control over cost and strong long-standing relationships with key customers,” said Sharekhan.
KR Choksey also believes Tatva Chintan’s growth prospects are bright owing to its leadership status in the various product categories of specialty chemicals and significant presence in export markets. “Also, given that it operates in segments which could see rise in environmentally sustainable products, the growth potential is further higher. Balance sheet is strong and well capitalised, with low external debt,” said the brokerage.
On account of strong growth potential, dominant manufacturer status, potential play on ‘green chemistry’ and discounted valuation compared to its peers, KR Choksey recommended a ‘subscribe’ rating for long term gains for Tatva Chintan IPO.
Mehta Equities also advised investors to ‘subscribe’ this IPO for long term, considering all the rationales like diversified product portfolio with high entry barriers in segments, global presence with a wide customer base focusing on ‘green’ chemistry processes and reasonable valuations.
Tatva Chintan exports to over 25 countries including the USA, China, Germany, Japan, South Africa and the UK, which contributed over 70 percent of total revenues from operations for FY21.
Its clientele includes Merck, Bayer AG, Asian Paints, Ipox Chemicals, Laurus Labs, Tosoh Asia, SRF, Navin Fluorine, Oriental Aromatics, Atul Ltd., Otsuka Chemical, Meghmani Organics, Divi’s Laboratories, Hawks Chemical, Firmenich Aromatics, Jiangsu Guotai Super Power New Materials and Jade Chem.
Tatva Chintan has two manufacturing facilities situated at Ankleshwar and Dahej in Gujarat, with an annual installed reactor capacity of 280 kilo liters and 17 assembly lines. In order to capitalize the growth opportunities in the specialty chemicals, the company is planning to add capacity at the Dahej facility, following which the installed capacity will enhance by 200 kilo liters and 14 assembly lines.
Mehta Equities assumes Tatva is well-positioned to tap the shifting global demand to India by having expertise in customized solutions in specialty chemicals. “We are optimistic about the sector and expect robust multiyear export opportunities ex-china as well as local demand in the current,” said the brokerage.
“With just 2-3 players in the domestic market, Tatva Chintan stands an opportunity to expand and explore the global market. Hence Tatva stands well to get the favourable and supportive Industry growth to drive sustainable business as well as profitable growth in the medium to long-term as it has well-diversified presence in pharmaceutical, agrochemical and automotive battery industry,” the brokerage added.