Tatva Chintan IPO has doubled the investor’s wealth. What investors should do now?

Tatva Chintan Pharma has become the star IPO of 2021 after listing with more than 100% premium gains. The specialty chemical player is 2nd IPO of 2021 that has debut with 100% listing gains after G R Infraprojects. Tatva Chintan Pharma is the 2nd most subscribed IPO of 2021 after MTAR Technologies. The IPO of Tatva Chintan Pharma is listed at Rs. 2,202, a premium of 104% on the upper price band of issue price at Rs. 1,083. The stock made a high of Rs. 2,534 and seems unstoppable despite high valuations. A bulk deal on Tatva Chintan pharma share has been recorded on the listing day in which Plutus Wealth Management LLP bought 0.65 million shares of the specialty chemical manufacturer at Rs. 2,174/share.

Earlier, the IPO of Tatva Chintan Pharma was subscribed 185.23 times. Retail participants were very much excited for the issue, which was clear in their response to the defined quota. The retail quota was subscribed 35.35 times while the Non-Institutional Investors and Qualified Institutional Buyers subscribed the IPO 512.22 times and 185.23 times respectively.

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The issue size of 500 crores was a mix of fresh issue of Rs. 225 crores and offer for sale of Rs. 275 crore. The specialty chemical player clearly stated that out of net proceeds from fresh issue:

  • An amount of Rs. 147.10 cr. will be allocated for capital expenditure requirements to expand the Dahej Manufacturing Facility.
  • An amount of Rs. 23.97 cr. will be utilized for upgradation at R&D facility in Vadodara.
  • Rest will be utilized for general corporate purpose.

Bumper listing from the specialty chemical players was reflected in the grey market premium of the IPO when it was trading in the unlisted market. The grey market premium of the issue was increasing day after day despite rising volatility in the equity markets. Market participants were aware with the potential of the IPO which is why the grey market premium of IPO didn’t see any sign of uncertainty.

As the IPO is rolled out now and investors have made much more than anticipated, market participants are unsure whether to hold it further or book bumper gains.

Tatva Chiintan Pharma is engaged in the manufacturing of a diverse portfolio of structure directing agents (SDA), phase transfer catalysts, electrolyte salts for super capacitor batteries and pharmaceutical and agrochemical intermediates and other specialty chemicals. As a B2B platform, the company focuses on application of their products which form a key ingredient for their customers’ manufacturing and industrial processes.

It is the sole commercial manufacturer of structure directing agents (SDA) for zeolites in India and second largest globally. The company has build strong relationship with its customers such as Merck, Bayer AG, Ipox Chemicals, Asian Paints, Navn Fluorine, Laurus Labs, SRF and Tosoh Asia.

Tatva Chintan is an also exporter to over 25 countries, including the USA, China, Germany, Japan, South Africa, and the UK. The company has delivered a decent growth in revenues by 21.7% in last two years. EBITDA margins of the company stood at 23.38%, similar to some of listed peers but lower than its major rivals Fine organics, Navin Fluorine and SRF. Return on Equity at 31.49% is similar to the listed peers. However, the valuations are stretched now. The company is spending heavily on capacity expansion that may increase their revenues further. At the issue price band of Rs. 1,073-1,083 and FY21 Earning Per Share (EPS) of Rs. 26.02, the company was demanding a P/E multiple of 41.65x. Now, the issue is trading at a P/E multiple of 88.2x, higher than the listed players.

It is worth-mentioning that the company is engaged in manufacturing of SDA and PTC products, which have applications in green chemistry and company is continuously focusing on green and sustainable technologies. This will keep valuations of the company high as it is maintaining the eco-friendly standards. Investors should keep holding this stock for longer horizon and stick to get more returns.

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