IPO Analysis: Tatva Chintan Pharma Chem

It is the largest and only commercial manufacturer of SDAs for zeolites in India. It also enjoys the second-largest position globally.

IPO rating: Invest for listing gains  

 About the issue:  

Tatva Chintan Pharma Chem Limited is a chemical manufacturing company, which is engaged in speciality chemical manufacturing. The company is coming out with its initial public offering (IPO) of equity shares of the face value of Rs 10 per equity share. The issue size of the company is 500 crore with a fresh issue, comprising Rs 225 crore while the remaining include the sale of shares worth Rs 275 crore by existing investors, according to its red herring prospectus.   

The price band of the issue has been fixed at Rs 1,073 to Rs 1,083 per equity share. The IPO opening date is July 16, 2021, while it will be closing on July 20, 2021. The issue will be listed on the exchange on July 29, 2021. The IPO market lot size is 13 shares. A retail-individual investor can apply up to a maximum of 14 lots (182 shares or Rs 1,97,106). The net proceeds generated from the IPO will be utilised towards funding capital expenditure requirements for the expansion of manufacturing facilities and upgradation of R&D facilities as well as for meeting other general corporate purposes.   

 Tatva Chintan Pharma IPO details:  

About the company:  

Incorporated in the year 1996, Tatva Chintan Pharma Chem Limited is a chemical manufacturing company that manufactures structure-directing agents (SDAs), phase transfer catalyst (PTCs), pharmaceutical & agrochemical intermediates, and other speciality chemicals. It is the largest and only commercial manufacturer of SDAs for zeolites in India. It also enjoys the second-largest position globally. It is among the largest manufacturer of SDAs for zeolites in India. These chemicals are used across various industries mainly automotive, petroleum, agrochemicals, dyes and pigments, paints & coatings, pharmaceutical as well as personal care. As of December 2020, the company had an installed production capacity of 280 kl and 13 assembly lines at its manufacturing facilities. It has two manufacturing facilities located at Ankleshwar & Dahej (both in Gujarat). While 76 per cent of the revenue comes from exporting to more than 25 countries including the USA, Germany, South Africa, China, and the UK, the remaining 24 per cent comes from domestic operations.  

Competitive strengths:  

Leading manufacturer of structure-directing agents and phase transfer catalysts.  

Diversified product portfolio.  

Global market presence with a customer base across industries.  

Strategically located manufacturing facility in Gujarat with close proximity to Hazira Port.  

Experienced promoters and managers' teams.  

Strong financial performance track record.  

Financials:  

For FY2021, the company reported revenue of Rs 306.20 crore against Rs 264.62 crore, a year ago. Net profit stood at Rs 52.26 crore versus Rs 37.78 crore. Sales have been growing at a CAGR of 21.68 per cent while PAT grew at a CAGR of 59.57 per cent. ROE and ROCE are above 31 per cent and have gained nearly 600 bps in the last two years.  

Recommendation:  

The global chemicals market is valued at around USD 4,738 billion with China accounting for major market share (37 per cent) in the segment, followed by European Union (17 per cent) and United States (14 per cent). India accounts for approximately 3.5 per cent market share in the global chemicals market, which is expected to grow at 6.2 per cent CAGR, reaching USD 6,400 billion by 2024. Going forward, the APAC is anticipated to grow at the fastest rate of 7-8 per cent during the forecast period (2019-24F). The chemicals markets in Western Europe, North America & Japan are relatively mature and hence, would record slow growth rates of around 3-4 per cent. The COVID-19 pandemic has had an unprecedented impact on the global economy. Chemical companies in North America and Europe have specifically started focussing on operational efficiency, asset optimisation, and cost management. Given that the companies are now transitioning their operations away from China to other geographies like India & Vietnam among others, India’s strategic advantage in this regard will definitely help them grow at a faster rate, going forward. The company, as per its proposed expansion, intends to enhance the installed capacity at its manufacturing facilities by 200 kl and 14 assembly lines, which will help them to work at 70 per cent more capacity from the current levels. It also seeks to continue to strengthen its existing product portfolio and intends to further diversify into products with prospects for increased growth & profitability. It plans to continue to increase offerings in its current business segments as well as diversify into new products by tapping into segments, which in the view of the company’s management have attractive growth prospects. The company’s major competitors include Aarti Industries Limited, PI Industries Limited, Fine Organic Industries Limited, Delta Finochem, Dishman group, and Pacific Organics Private Limited while its major clients include Merck, Bayer AG, Ipox Chemicals, Laurus labs, Navin Fluorine International Limited, Atul Limited, Otsuka Chemicals, SRF Limited, Hawks Chemical Company, Firmenich Aromatics Production Pvt Ltd, and Divi's laboratories. Looking at the above positives, we believe that the company will keep growing its business, and hence, you can invest for a listing gain.  

----