Strong Fundamentals versus Steep Valuation.
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TATVA CHINTAN OFFER AT A GLANCE |
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Offer Type |
Book Built |
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Platform |
Main Frame |
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Fresh Issue |
Rs 225 Cr |
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Offer for Sale |
Rs275 Cr |
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Face Value |
Rs 10 |
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Price Band |
Rs1073 – 1083 |
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Mkt/Bid Lot |
13 Nos. |
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Implied M-Cap |
Rs 2,400 Cr |
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Implied Equity Cap |
Rs 22.16 Cr |
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Free Float |
20.83% |
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Lead Manager |
ICICI Securities , JM Financial |
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Registrar |
Link Intime |
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Listing At |
BSE, NSE |
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INDICATIVE ISSUE SCHEDULE |
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Opening :16-Jul-2021 |
Closing :20-Jul-2021 |
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Allotment :26-Jul-2021 |
Refunding :27-Jul-2021 |
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Demat Credit :28-Jul-2021 |
Trading :29-Jul-2021 |
The Offer
Ankleshwar (Gujarat)-based Tatva Chintan Pharma Chem Ltd, which has completed 25 years this June, is going public with an IPO of Rs 500 cr. The offer consists of a fresh issue of Rs 225 cr and an offer for sale valued Rs 275 cr. The offer is being made through the book-building route with a price band of Rs 1073-1083 for Rs 10 paid-up share. At the cap price, the quantum of offer works out to about 46.17 lakh shares.
Applicants should bid for a minimum lot of 13 shares and multiples thereof. The shares are proposed to be listed on the main frame of BSE & NSE on July 29, 2021. ICICI Securities and JM Financial are acting as managers to the offer and Link Intime has been roped in as registrar to the issue. The bidding opens on Friday, July 16 and closes on Tuesday, July 20, 2021.
The company proposes to utilize the net proceeds towards funding of expansion of its Dahej manufacturing facility (Rs 147 Cr) and upgradation of R&D facility in Vadodara (Rs 24 cr). The balance is earmarked for general corporate purposes. However, the company has not yet entered into any definitive agreements or specific commitments towards the projects. Also, the project cost and related fund requirements have not been appraised by any bank or financial institution.
Lineage
The 1996-registered Tatva has been promoted by Chintan Shah, Ajay Patel and Shekhar
Somani, who individually claims to have over 24 years experience in the specialty chemicals industry and have established strong business relationships with domestic as well as overseas customers.
Tatva is a specialty chemicals manufacturing company having a diverse portfolio of structure directing agents (SDAs), phase transfer catalysts (PTCs), electrolyte salts for super capacitor batteries and pharmaceutical and agrochemical intermediates and other specialty chemicals (PASC). Tatva is said to be the largest and only commercial manufacturer of SDAs for zeolites in India. It also claims to enjoy the second largest position globally. In addition, the company is one of the leading global producers of an entire range of PTCs in India and one of the key producers across the globe.
Tatva has a dedicated R&D facility that is recognized by the Department of Scientific and Industrial Research, Government of India, with state-of-the-art research and development infrastructure.It has reportedly developed 53products during the last three fiscals.
Tatva’s customers include Merck, Bayer AG, Asian Paints, Ipox Chemicals, Laurus Labs, Tosoh Asia, SRF, Navin Fluorine, Oriental Aromatics, Atul, Otsuka Chemical, Meghmani Organics, Divi’s Laboratories, Hawks Chemical Company, Firmenich Aromatics, Jade Chem, etc.
Unlike many other high profile IPOs, Tatva has not resorted to venture capital or private equity funds. Also, the company does not have any financial or strategic partners. What’s more, the company has never collected any share premium. It has issued four bonus issues in last twenty years out of earned reserves which is indeed commendable.
Key Management
The three core promoters are on the company’s board as full time directors. Chintan Nitinkumar Shah (48), who holds a bachelor’s degree in engineering, with a specialization in computer science from the Maharaja Sayajirao University of Baroda, is the Managing Director responsible for business development, finance and information services.
Ajaykumar Mansukhlal Patel (49) who holds a bachelor’s degree in engineering from the Maharaja Sayajirao University of Baroda is designated as Whole Time Director responsible for project engineering and the development & implementation of new technology. He was previously associated with Sun Pharmaceutical.
Shekhar Rasiklal Somani (47) who holds a bachelor’s degree in pharmacy from the Maharaja Sayajirao University of Baroda is also designated as Whole Time Director responsible for business development, production controlling, quality and supply chain management.
The company has three low profile independent directors. The senior most director Manher Chimanlal Desai (67) is a technical Consultant. Subhash Ambubhai Patel (61) is a practicing Chartered Accountant associated with Dreams Stock Brokers (P) Ltd. The third independent director, Avani Rajesh Umatt (49), is a Teacher.
Stakeholders
The entire present equity of Rs 20.09 cr is held by the promoters and their associates. Post-IPO, public will hold 20.83% of the enlarged equity of Rs 22.17 cr. Promoter group will control a big junk of 79.17%. Since the promoter and associates’ average cost of holding is only Rs 2.56 a share, and as they collect huge premium through the offer for sale, their cost of residual holding will become negative after the public issue.
Business Track
Even though incorporated in 1996, Tatva received licence to manufacture certain drugs from the Food and Drugs Control Administration, Gujarat only in 2004. The company commenced commercial manufacturing of SDAs in 2011 and attained turnover of Rs 50 cr in 2013. The company’s top line reached the Rs 100 cr mark in 2015. Same year, it formed a subsidiary in the US and a warehousing facility in Netherlands. The company’s Dahej manufacturing facility was set up in 2017 and its R & D was established in 2018 at Vadodara. Its European subsidiary was incorporated in 2019.
Tatva currently operates through two manufacturing facilities situated at Ankleshwar and Dahej, both of which are strategically located very close to the Hazira port. These manufacturing facilities have an annual installed reactor capacity of 280 KL and 17 Assembly Lines at the end of March 2021. The company exports most of its products to over 25 countries, including the USA, China, Germany, Japan, South Africa and the UK. During the fiscals 2019, 2020, and 2021, exports amounted to Rs 143.52 cr, Rs 202 cr and Rs 211.99 cr which accounted for 69.57%, 76.74%, and 70.58%, of the revenue from operations, respectively.
During the fiscals 2019, 2020, and 2021, Tatva’s revenue from sale of SDAs was Rs 25.38 cr, Rs 101.65 cr and Rs 120.24 cr, respectively, which accounted for 12.3%, 38.6% and 40% respectively. Revenue from sale of PTCs was Rs 86.41 cr, Rs 74.91 cr, and Rs 81.61 cr, respectively, which amounted to 41.9%, 28.5% and 27.2%, respectively. Revenue from sale of electrolyte salts for super capacitor batteries was Rs 3.20 cr, Rs 4.63 cr and Rs 3.03 cr, respectively, which accounted for 1.5%, 1.8%, and 1.0% respectively. Revenue from sale of PASC was Rs 87.46 cr, Rs 76.49 cr, and Rs 91.22 cr, respectively, which accounted for 42.4%, 29.1%, and 30.47% respectively.
Financial Track
The 25-year-old Tatva has put up impressive performance in last three fiscals. The company’s top line has seen a compounded annual growth rate of 30% and its EBIDTA has grown at a higher rate of 43%. Of the company’s equity capital of Rs 20 cr, as much as Rs 14 cr (more than 70%) is of bonus shares. In last fiscal, its return on capital employed was around 27% and return on net worth was more than 31%. As compared its net worth, debts are relatively low. The hitherto non-dividend paying company has joined the dividend list in its silver jubilee year, that is, on the eve of the IPO. Considering the company’s current profitability, it can distribute even higher dividends in the coming years.
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Tatva Chintan Consolidated Financials (in Cr) |
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Year Ended |
Mar-21 |
Mar-20 |
Mar-19 |
Mar-18 |
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Revenue |
300.36 |
263.24 |
206.31 |
135.81 |
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Operating Profit |
65.70 |
54.95 |
34.55 |
22.93 |
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OPM % |
21.9 |
20.9 |
16.7 |
16.9 |
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Other Income |
5.93 |
1.38 |
0.49 |
1.48 |
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EBIDTA |
71.64 |
56.34 |
35.05 |
24.41 |
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EBIDTA % |
23.4 |
21.3 |
16.9 |
17.8 |
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Interest |
4.21 |
3.95 |
3.63 |
2.43 |
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Depreciation |
6.73 |
4.79 |
4.02 |
2.95 |
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Net Profit |
52.26 |
38.45 |
20.42 |
12.74 |
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Equity (Implied) |
22.17 |
8.04 |
8.04 |
8.04 |
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Reserves (Implied) |
368.80 |
109.66 |
109.66 |
51.08 |
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Borrowing |
76.06 |
79.20 |
71.43 |
52.02 |
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Fixed Assets |
118.32 |
104.06 |
60.5 |
54.52 |
Valuation
Tatva has fixed a cap price Rs 1083 for Rs 10 paid-up share which discounts the company’s fiscal 2021 earnings more than 45 times. This may compare well with specialty chemical peers like Aarti Industries and Fine Organic. However, another peer, Alkyl Amines, whose financials are more impressive than Tatva, is discounted only at a moderate rate of 26 times its earnings.
Tatva’s qualitative factors viz. leading manufacturer of SDAs and PTCs with consistent quality; global presence with a wide customer base across various industries having high entry barriers; diversified specialized product portfolio requiring strong technical know-how; robust financial performance; scheduled commissioning of Rs 151 cr expansion project in the second half of 2022; etc. would, no doubt, defend the seemingly steep price.
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HOW TATVA COMPARES WITH SELECT INDUSTRY PEERS |
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Financials |
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(Amount in Cr) |
Tatva Chintan |
Aarti Ind |
Fine Organic |
Alkyl Amines |
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Market Cap |
2400 |
29842 |
9287 |
7769 |
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Borrowing |
76 |
2492 |
57 |
22 |
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Fixed Assets |
118 |
4890 |
222 |
565 |
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Revenue |
300 |
4506 |
1133 |
1242 |
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Other Income |
6 |
1 |
17 |
7 |
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EBIDTA |
72 |
982 |
215 |
436 |
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Interest |
4 |
86 |
6 |
6 |
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Net Profit |
52 |
535 |
120 |
299 |
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Equity Cap |
22 |
174 |
15 |
10 |
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Reserves |
369 |
3328 |
716 |
782 |
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Stock Features |
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Current Price (Rs) |
1083 |
856 |
3029 |
3806 |
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Face Value (Rs) |
10 |
5 |
5 |
5 |
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Book Value |
176 |
101 |
239 |
388 |
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Promoter Stake % |
79.2 |
46.8 |
75.0 |
74.1 |
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Debt/Equity |
0.19 |
0.71 |
0.08 |
0.03 |
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Profitability |
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OPM % |
21.9 |
21.8 |
17.5 |
34.5 |
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Net Margin % |
17.1 |
11.9 |
10.5 |
23.9 |
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Cash EPS |
26.62 |
22.00 |
54.50 |
160.57 |
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Earnings Per Share |
23.58 |
15.36 |
39.25 |
146.34 |
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Growth |
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CAGR 3Yr Sales % |
29.9 |
5.2 |
9.4 |
26.1 |
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CAGR 3Yr EBIDTA % |
43.2 |
11.6 |
7.2 |
53.9 |
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Return |
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RONW % |
31.5 |
15.3 |
16.5 |
37.7 |
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ROCE % |
26.8 |
12.5 |
21.4 |
50.0 |
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Discounting |
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Price/Earnings |
45.9 |
55.8 |
77.2 |
26.0 |
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Price/Cash EPS |
40.7 |
38.9 |
55.6 |
23.7 |
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Price/Book Value |
6.1 |
8.5 |
12.7 |
9.8 |
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Price/EBIDTA |
33.5 |
30.4 |
43.2 |
17.8 |
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Price/Revenue |
8.0 |
6.6 |
8.2 |
6.3 |
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Price/Fixed Assets |
20.3 |
6.1 |
41.9 |
13.7 |
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Distribution |
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Dividend % |
50 |
90 |
120 |
500 |
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Yield % |
0.5 |
0.5 |
0.2 |
0.7 |
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Pay-out % |
21.2 |
29.3 |
15.3 |
17.1 |
Concern
- Senior executives are leaving the company frequently. In less than three years the company has seen three Chief Financial Officers. Also, in less than two years, it has had three Company Secretaries.
- Scores poorly on corporate governance front. In the past, Tatva has failed to comply with certain statutes and rules. Also, there have been instances of erroneous disclosures in certain annual returns of the company filed with the RoC.