The rising popularity of Zomato IPO has faded the expected introduction of specialty chemical manufacturing player: Tatva Chintan Pharma. Along with Zomato, the month of July has seen a lot of IPOs such as G R Infraprojects and Clean Science and Technology. Both have received tremendous response from investors. Tatva Chintan pharma is another specialty chemical manufacturer after Clean Science with the potential of gaining higher subscription from investors. With the intentions of raising fresh issue from the markets to augment its capital expenditure requirements, the issue deserves serious attention.
Tatva Chintan Pharma Details:
- Issuer Company: Tatva Chintan Pharma Ltd.
- Industry: Specialty Chemicals
- IPO Size: 500 cr.
- Price Band: 1,073-1,083
- Issue Open Date: 16 July, 21
- Issue Close Date: 20 July, 21
- Listing Date: 29 July, 21
- Minimum Lot Size: 13 shares
- Face Value: 10 Re. Per share
- Employee Discount: NA
- Retail Allocation: 35%
- Listing Exchange: NSE, BSE
Composition of Issue Size
The issue size of 500 crores is a mix of fresh issue of Rs. 225 crores and offer for sale of Rs. 275 crore at the upper price band.
Offer for Sale: The object of the Offer for Sale is to allow the shareholders to sell an aggregate of up to 25,39,242 equity Shares held by them. The company will not receive any proceeds from the Offer for Sale.
Fresh Issue: The company has planned to raise fresh capital comprising an aggregate of 20,77,562 equity shares having Face Value ₹10 aggregating up to Rs. 225 Cr at the upper price band of Rs. 1,083. Out of the net proceeds
- 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.
About the Company
Tatve Chintan Pharma is a specialty chemicals manufacturing company which is engaged in the manufacturing of a diverse portfolio of structure directing agents, 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. SDA and PTC products have various applications in green chemistry, which is pertinent considering the growing focus on green and sustainable technologies.
Considering the wide application of products, the company serves customers across various industries, including the automotive, petroleum, pharmaceutical, agro chemicals, paints and coatings, dyes and pigments, personal care and flavour and fragrances industries. Apart from our customers in India, Tatva Chintan is an also exporter to over 25 countries, including the USA, China, Germany, Japan, South Africa, and the UK.
Industry Growth Drivers
- As the progress trend of population in India and their dependency on FMCG and pharmaceuticals is growing faster the specialty chemicals industry is in a rising trend.
- India is becoming a central manufacturing hub for various specialty chemicals due to increasing restrictions in China to combat pollution. This has made us a leading exporter.
- China used to be the manufacturing hub but shift to India due to rising restrictions in China has opened various opportunities for Indian specialty chemicals.
- Average labor cost of China is growing at a CAGR of 19-20% while a 4-5% CAGR has been recorded in India. This accounts for higher operating margins in domestic companies.
- Indian Government has taken a lot of initiatives to push specialty chemicals industry such as ‘Make In India’ program and ‘Productivity Linked Incentives’ Scheme.
- 100% Foreign Direct Investment (FDI) has been permitted by the government to support the production capacities.
- Currently, the India’s specialty chemical industry accounts for $70 billion and studies from various institutions believe that $100 billion valuation is not so far.
The company will face tough competition from PI Industries, Aarti Industries, Navin Fluorine, Atul Limited, Fine Organics, Alkyl Amines and SRF Limited. Listed peers have been the top performers in the last bull run. Out of the listed peers, Navin Fluorine has highest net profit margins at 38% among the listed peers. Whole sector is trading at high valuations and a similar behavior is expected for Tatva Chintan pharma.
|Income Statement (In Millions)||FY21||FY20||FY19|
|Gross Operating Income||3062.92||2646.22||2068.01|
|Cost of Employee & Inventory||1735.23||1532.96||1305.54|
|Profit Before Tax||606.96||475.97||273.93|
|Profit After Tax||522.62||475.97||205.43|
- Company has delivered a growth in revenues by 21.7% in last two years.
- EBITDA margins of the company stood at 23.38%.
- Company has a long term liability of 26.76 crores which is manageable.
- Cash flows of the company are negative that can pose risk of raising funds for working capital requirements.
- More than 60% of total cost is allocated to cost of raw materials.
- Return on Equity is 31.49% while Return on Capital Employed is 33%
- Considering the upper price band at Rs. 1,083 and FY21 Earning Per Share (EPS) of Rs. 26.02, the company is demanding a P/E multiple of 41.65x, much lower than the Industry P/E of 59.39x.