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Tatva Chintan Pharma opens its Rs 500-crore public issue on July 16 .
Vadodara-based Tatva Chintan is a specialty chemical manufacturing company. The company exports most of its products to over 25 countries, including the US, China, Germany, Japan, South Africa and the UK.

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1) About:

Incorporated in 1996, Tatva Chintan Pharma Chem Limited is a chemical manufacturing company that manufactures structure directing agents (SDAs), phase transfer catalyst (PTCs), pharmaceutical and agrochemical intermediates, and other specialty chemicals. It is among the largest manufacturer of SDAs for zeolites in India.

The company serves customers across industries i.e. automotive, petroleum, agrochemicals, dyes and pigments, paints and coatings, pharmaceutical, personal care, and others. Its products are not only sold in India but also export to 25+ countries all over the world such as the USA, Germany, South Africa, China, and the UK. In FY 2020, total export contributed to 76% of total revenue from operations.

2) IPO Details:

The IPO comprises fresh issuance of equity shares worth Rs 225 crore and an offer of sale to the tune of Rs 275 crore by existing promoters and shareholders. The offer for sale size has been increased to Rs 275 crore from Rs 225 crore earlier mentioned in the draft papers.

IPO Date: Jul 16, 2021 – Jul 20, 2021
Face Value: ₹10 per equity share
IPO Price: ₹1073 to ₹1083 per equity share
Market Lot: 13 Shares
Listing At: BSE, NSE
Finalisation of Basis of Allotment: Jul 22, 2021
Initiation of Refunds: Jul 26, 2021
Credit of Shares to Demat Acct: Jul 28, 2021
IPO Shares Listing Date: Jul 29, 2021

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Half of the issue has been reserved for qualified institutional buyers (QIBs), 35% cent for retail investors and the remaining 15% cent for non-institutional investors.

3) Business

The company manufactures structure-directing agents (used to make absorbents) and phase transfer catalysts, electrolyte salts for super capacitor batteries and pharmaceutical and agrochemical intermediates and other specialty chemicals at its two manufacturing units at Ankleshwar and Dahej in Gujarat.Tatva Chintan, according to a Frost & Sullivan report, is the largest and only commercial manufacturer of structure-directing agents for zeolites in India, and the second-largest globally.

It’s also one of the leading global producers of an entire range of phase transfer catalysts.The company’s electrolyte salts are used to make super-capacitor batteries, used in automobile and other batteries. During the fiscal ended March 2021, revenue from the sale of structure directing agents was Rs 120.24 crore. While that accounted for 40.03% of the company’s revenue from operations, sale of phase transfer catalysts formed 27.17%.

4) Financials

Tatva Chintan’s revenue grew at an annualised rate of 21% in the last three financial years.

  • The company’s profit after tax has seen a compounded annual growth rate of 59.50% in the last three years.
  • It earns 70.6% of its revenue from exports, with Germany, the U.S. and China together accounting for 54.20%.Its top 10 customers constitute 59.9% of revenue.

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

5) Peers comparison:

Tatva Chintan competes with Aarti Industries Ltd., Navin Fluorine International Ltd., Alkyl Amines Chemicals Ltd. and Vinati Organics Ltd.

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6) Valuation

The company is going to list at PE of 41.62X with a market cap of Rs 2,400.47 crore.

7) Grey Market premium:

(As on July 16) The grey market premium of Tatva Chintan Pharma Chem stood at Rs 690, or about 64% above the IPO price band.

8) Objective of IPO:

Tatva Chintan plans to use Rs 147.10 crore from the proceeds to fund capital expenditure requirement for its Dahej manufacturing plant, and Rs 23.97 crore to upgrade a research & development facility at Vododara.

The new facility is expected to be completed by the end of FY23. After completion of the capital expenditure, manufacturing capacity is expected to double for the company.

9) Pros

  • Diversified product portfolio.
  • Leading manufacturer of structure directing agents and phase transfer catalyst.
  • Global market presence with customer base across industries.
  • Strategically located manufacturing facility in Gujarat with close proximity to Hazira Port.
  • Experienced promoters and managers team.
  • Strong financial performance track record.
  • Merck, Bayer AG, Ipox Chemicals, Laurus labs, Navin Fluorine International Limited, Atul Limited, Otsuka Chemicals, SRF Limited, Hawks Chemical Company, Firmenich Aromatics Prod Pvt Ltd, and Divi’s laboratories are a few of customers of the company. Currently, it has two manufacturing facilities at Ankleshwar and Dahej in Gujarat.

10) Cons

  • Unplanned slowdown or shutdowns of manufacturing may impact business, operations and financial conditions.
  • Increase in raw material costs or loss of suppliers could materially impact operations as it does not have long-term contracts with suppliers.
  • Country concentration could impact operations as three countries — Germany, the U.S. and China account for 54% of the total revenue.
  • Inability to complete the capex on time could impact future revenue.
  • All manufacturing facilities located in Gujarat — Ankleshwar and Dahej —any social or natural disruptions can impact operations.Does not have long-term contracts with most of its customers.
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Data source: Bloombergquint, LiveMint, moneycontrol, chittorgarh

Akshay Seth
Research Analyst (SEBI Regd.)
Linkedin | akshay.equity@gmail.com

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Akshay Seth is a SEBI Registered Research Analyst. Has taken sessions on 'Equity Analysis' in IIT Madras, IIT Delhi, IIT Guwahati, IIT Mandi, NMIMS Mumbai. Can be contacted for Stock Advice and Learning Stock Analysis (Fundamental & Technical). +91 8826423141 | info@equityboxx.com
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