Sound fundamentals justify offer price though Marudhar Food’s experience may cast shadow on promoters’ image.
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TEGA INDUSTRIES OFFER AT A GLANCE |
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Offer Type |
Book Built |
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Platform |
Main Frame |
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Offer Size |
Rs 619 Cr |
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Fresh Issue |
Nil |
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Offer for Sale |
1,36,69,478 equity shares (Rs 619 Cr) |
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Face Value |
Rs10 |
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Price Band |
Rs 443–453 |
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Mkt/Bid Lot |
33 Nos. |
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Implied M-Cap |
Rs 3,003 Cr |
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Implied Equity Cap |
Rs 66 Cr |
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Free Float |
20.83% |
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Lead Manager |
Axis Capital and JM Financial |
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Registrar |
Link Intime |
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Listing |
BSE, NSE |
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INDICATIVE ISSUE SCHEDULE |
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Opening :1-Dec-2021 |
Closing :3-Dec-2021 |
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Allotment :8-Dec-2021 |
Refunding :9-Dec-2021 |
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Demat Credit :10-Dec-2021 |
Trading :13-Dec-2021 |
The Offer
The Kolkata-based Tega Industries Ltd (Tega) is entering the capital market with an offer for sale of 1,36,69,478 equity shares (valued Rs 619.23 Cr). The offer is being made through the book-building route with a price band of Rs 443-453 for Rs 10 paid-up share.
Applicants for the IPO should bid for a minimum lot of 33 shares and multiples thereof. The shares are proposed to be listed on the main frame of BSE & NSE on Monday, December 13, 2021. Axis Capital and JM Financial are the lead-managers to the offer. Link Intime is the registrar to the issue. The bidding opens on Wednesday, December 1, 2021 and closes on Friday December 3, 2021.
The objects of the IPO are to carry out the Offer for Sale by the Selling Shareholders and achieve the benefits of listing on the stock exchanges.
Lineage
Tega Industries may be new to investing public but, the promoters are not. Kolkata-based investors may recall the name Marudhar Food & Credit Ltd. This 1992 boom-time-registered company was listed on the Calcutta Stock Exchange and the promoters chose to go for a voluntarily delisting in October 2014. It seems now that the promoters had delisted Marudhar in order to maximize their return while unlocking the value of Tega. Marudhar directly holds 1.96% of Tega’s equity. It also holds 16.76% in the corporate promoter of Tega, namely Nihal Fiscal Services Private Ltd (NFSPL) which holds 55.14% in Tega. The promoters have now proposed to merge Marudhar with Tega’s holding company, NFSPL.
Tega’s individual promoters are Madan Mohan Mohanka, Manju Mohanka, Manish Mohanka and Mehul Mohanka. The 1976-incorporated Tega commenced operations in 1978 in India with a foreign collaboration with Skega AB, Sweden. The company entered into a joint venture alliance with Hosch (G.B.) Ltd in 1991. The Mohankas acquired the entire equity stake of Skega AB in 2001.
Tega acquired Beruc Equipment, South Africa in 2006. The company reportedly acquired Acotec S.A, Chile and Losugen Pty Ltd, Australia in 2010 and 2011. Also, in 2011 Tega received funding from Wagner Ltd, an entity affiliated to private equity firm TA Associates. In 2018 Tega Industries (SEZ) Limited was amalgamated with the company.
Key Management
Senior promoter, Madan Mohan Mohanka (78), who holds a bachelor’s degree in science (engineering) and a post graduate diploma in business administration from Indian Institute of Management, Ahmedabad is the Chairman and Executive Director of the company. He has more than four decades of experience in the industry.
Main promoter’s son Mehul Mohanka (46) is the Managing Director and Group CEO of the company. He holds a bachelor’s degree in commerce and a master’s degree in business administration from the University of Pittsburgh. He has been involved in the company’s business for the last 18 years, and has led the business as Managing Director and Group CEO for the last 5 years.
Tega’s Executive Director Syed Yaver Imam holds a bachelor’s degree in civil engineering and has reportedly completed a short-term course in mineral processing. He has been associated with the company since 2005.
Stakeholders
Currently there are five shareholders under the Promoter Group, collectively holding 85.17% of the equity of which the corporate promoter NFSPL alone holds 55.14%. There are 31 non-promoter shareholders holding 14.83% of which 14.62% is held by Wagner alone. Post-offer for sale, the promoter group would hold 79.17% and the public will have 20.83%.
Business
Tega is a leading manufacturer of specialized and recurring consumable products for the global mineral beneficiation, mining and bulk solids handling industry. Globally, it claims to be the second largest producer of polymer-based mill liners. The company offers comprehensive solutions through a wide product portfolio of specialized abrasion and wear-resistant rubber, polyurethane, steel and ceramic based lining components.
The company’s product portfolio comprises more than 55 mineral processing and material handling items. In the last three Fiscals i.e., 2021, 2020 and 2019, sale of products constituted about 95% of its revenue, while sale of services and other operating revenue accounted 2.15% and 2.77%, respectively.
The company’s revenue from operations outside India was Rs 696 Cr, Rs 588 Cr and Rs 544 Cr in the fiscals 2021, 2020 and 2019, respectively, amounting to about 86% of its total revenue. Tega has manufacturing facilities located in the major global mining hubs of Chile, South Africa and Australia. In fact, the company has a significant size of global operations which are undertaken through 13 foreign Subsidiaries and 18 global sales offices.
Financial Track
In recent years Tega has posted a steady growth. Revenue has increased from Rs 634 Cr in fiscal 2019 to Rs 806 Cr in fiscal 2021. EBIDTA has surged from Rs 108 Cr to Rs 241 Cr, margin vaulting from 16.7% to 28.1% during this period. Net profit zoomed from Rs 33 Cr to Rs 136 Cr. This has been achieved on a modest capacity utilization of about 58%.
For fiscals 2021, 2020 and 2019 its Return on Capital Employed was 24.76%, 11.17% and 11.12% respectively. The company’s net worth stood at Rs 614 Cr at the end of March 2021. Return on Equity has vastly improved from 8.14% in 2019 to 22.23% in 2021.
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Tega Industries Consolidated Financials (in Cr) |
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Period Ended |
Jun-21 |
Mar-21 |
Mar-20 |
Mar-19 |
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Months |
3 |
12 |
12 |
12 |
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Revenue |
173.21 |
805.52 |
684.85 |
633.76 |
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Operating Profit |
23.50 |
187.48 |
106.53 |
96.75 |
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OPM% |
13.6 |
23.3 |
15.6 |
15.3 |
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Other Income |
6.18 |
51.16 |
10.7 |
9.26 |
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EBIDTA |
30.30 |
241.32 |
119.04 |
107.81 |
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EBIDTA % |
16.8 |
28.1 |
17.1 |
16.7 |
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Interest |
3.61 |
17.28 |
21.44 |
23.6 |
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Depreciation |
10.50 |
40.18 |
38.36 |
37.76 |
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Net Profit |
11.88 |
136.41 |
65.50 |
32.67 |
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Equity |
57.60 |
57.60 |
57.60 |
57.60 |
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Reserves |
564.86 |
547.43 |
396.2 |
334.81 |
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Borrowing |
184.24 |
166.28 |
232.14 |
188.23 |
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Fixed Assets |
237.20 |
235.20 |
216.00 |
225.50 |
Valuation
Tega has fixed a price band of Rs 443-453 for Rs 10 paid up share. The upper price band discounts the company’s fiscal 2021 earnings about 19 times which is quite reasonable. As a matter of fact, Tega compares well with its industry peer AIA Engineering in Price-Earnings, Price-Book Value, Price-EBIDTA, Price-Revenue, Price-Net Block, etc.
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HOW TEGA COMPARES WITH INDUSTRY PEER |
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Financials |
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(Amount in Cr) |
Tega Industries |
AIA Engg |
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Market Cap |
2609 |
17506 |
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Borrowing |
166 |
185 |
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Fixed Assets |
235 |
950 |
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Revenue |
806 |
2881 |
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Other Income |
51 |
172 |
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EBIDTA |
241 |
827 |
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Interest |
17 |
4 |
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Net Profit |
136 |
566 |
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Equity Cap |
58 |
19 |
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Reserves |
565 |
4225 |
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Stock Features |
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Current Price (Rs) |
453 |
1856 |
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Face Value (Rs) |
10 |
2 |
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Book Value |
108 |
450 |
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Promoter Stake % |
79.17 |
58.47 |
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Debt/Equity |
0.28 |
0.04 |
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Profitability |
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OPM % |
23.3 |
22.7 |
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Net Margin % |
15.9 |
18.5 |
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Cash EPS |
30.66 |
69.93 |
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Earnings Per Share |
23.68 |
60.02 |
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Return |
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RONW % |
21.9 |
13.3 |
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ROCE % |
25.5 |
16.6 |
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Discounting |
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Price/Earnings |
19.1 |
30.9 |
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Price/Cash EPS |
14.8 |
26.5 |
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Price/Book Value |
4.2 |
4.1 |
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Price/EBIDTA |
10.8 |
21.2 |
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Price/Revenue |
3.2 |
6.1 |
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Price/Fixed Assets |
11.1 |
18.4 |
Concern
Tega scores poorly on the corporate governance front. There have been inadvertent lapses with regard to RBI related filings for ESOPs granted between 2011 and 2015 to certain non-resident employees. Also, the company is not able to trace some records of RoC filings, share allotments/transfers and board resolutions.