Strong fundamentals versus steep pricing
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TARSONS OFFER AT A GLANCE |
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| Offer Type | Book Built |
| Platform | Main Frame |
| Fresh Issue | Rs 150 Cr (22,65,861 equity shares) |
| Offer for Sale | 1,32,00,000 equity shares (Rs 874 Cr) |
| Face Value | Rs 2 |
| Price Band | Rs 635 – 662 |
| Mkt/Bid Lot | 22 Nos. |
| Implied M-Cap | Rs 3522 Cr |
| Implied Equity Cap | Rs 10.64 Cr |
| Free Float | 52.7% |
| Lead Manager | ICICI Sec, Edelweiss Sec and SBI Cap |
| Registrar | KFin Technologies |
| Listing At | BSE, NSE |
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INDICATIVE ISSUE SCHEDULE |
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| Opening :15-Nov-2021 | Closing :17-Nov-2021 |
| Allotment :23-Nov-2021 | Refunding :24-Nov-2021 |
| DematCredit:25-Nov-2021 | Trading :26-Nov-2021 |
The Offer
The Kolkata-based Tarsons Products Ltd (TPL) is floating an IPO which comprises of a fresh issue of Rs 150 Cr (22,85,861equity shares) and an Offer for Sale of 1,32,00,000 equity shares (Rs 874 Cr).The offer is being made through the book-building route with a price band of Rs 635-662 for Rs 2 paid-up share. At the cap price, the value of IPO amounts to Rs 1024 Cr and the offer quantum works out to 1,54,65,861 equity shares.
Applicants should bid for a minimum lot of 22 shares and multiples thereof. The shares are proposed to be listed on the main frame of BSE and NSE on November 26, 2021. ICICI Securities, Edelweiss Financial Services and SBI Capital Markets are acting as lead managers to the offer and KFin Technologies has been roped in as the registrar to the issue. The bidding opens on Monday, November 15 and closes on Wednesday, November 17, 2021.
The company has proposed to utilize the fresh issue proceeds towards re-payment/prepayment of the company’s borrowings (Rs 78.54 Cr), capital expenditure of the proposed expansion at Panchla, West Bengal (Rs 62 Cr) and general corporate purposes (balance amount).
Lineage
Promoted by the Kolkata-based Sehgals, TPL was incorporated in the year 1983 for the manufacture of reusable plastic products. The company reportedly commenced production of pipette tips in 1984 and centrifuge tubes in 1987. TPL claims to have pioneered the fully robotic clean room plant for manufacturing of molecular biology consumables in the year 2002. The company received funding from Clear Vision Investment Holdings, Singapore, by offering 49% stake in the equity capital.
With over three and a half decades of experience in this space, the promoters have built Tarsons into a leading Indian company in the plastic lab ware market. The company believes its end customers associate the brand ‘Tarsons’ with quality lab ware and bench top equipment that incorporates quality, reliability and value.
According to the company, its engineering team has invested considerable time to find the adequate resin formulation which has led to exceptional liquid handling performance across its liquid handling products. Its ability to offer differentiated, user friendly, reliable quality and cost-effective products has enabled the company to develop strong brand recognition and consumer loyalty in key domestic and overseas markets.
TPL claims to supply its products to over 40 countries across both developed and emerging markets through a blend of branded and ODM sales. Its overseas sales in fiscal 2021 accounted for over Rs 75 Cr representing 33% of its revenue. In an industry historically dominated by the global MNCs, TPL claims to have won the trust of the scientists’ community in India by offering differentiated, user friendly, consistent quality, and cost-effective products, thereby providing an alternate for high-cost imports.
Key Management
Promoter and original signatory to the MoA, Sanjive Sehgal (60), is the Chairman and Managing Director of TPL. He holds a bachelor’s degree in science and has over three decades of experience in the line of business. The CMD’s son, Rohan Sehgal (33), is a Whole-Time Director. He holds a bachelor’s degree in science (management) and has 7 years of experience in TPL.
Gaurav Podar (38) is the Non-Executive Nominee Director representing Clear Vision Investment Holdings. He holds a master’s degree in management studies and has been working as an investment professional in ADV Advisors India Private Ltd since September 16, 2016. He had previously worked with Tata Capital Financial Services Ltd, AION India Investment Advisors Private Ltd and Boston Analytics Private Ltd. He has also worked with the affiliate companies of Apollo Global Management Inc – AGM India Advisors Private Ltd and AIP Investment Advisors Private Ltd. He has over 10 years of experience in the finance industry.
Stakeholders
Of the company’s present equity of Rs 10.18 Cr, the two promoters collectively hold 50.75% and Clear Vision Investment Holdings has 49%. The promoters’ average cost of holding works out to Rs 1.02 a share and Clear Vision’s cost is Rs 51.83 a piece. Post offer for sale, the two promoters will hold 47.28% of the enlarged equity of Rs 10.64 Cr at a negative cost. Clear Vision will have 23.42% at an average cost of Rs 44.24 per share as compared to the IPO cost of Rs 662.
Business Track
TPL is engaged in the designing, development, manufacturing of lab wares used in various laboratories across research organizations, academia institutes, pharmaceutical companies, contract research organizations, diagnostic companies and hospitals. The company manufactures a range of products which helps advance scientific discovery and improve healthcare. As of June 30, 2021 it had a diversified product portfolio with over 1,700 SKUs across 300 products.
TPL’s product portfolio is classified into three key categories: consumables, reusables and others. Consumables include products such as centrifuge ware, cryogenic ware, liquid handling, PCR consumables and petri dish, transfer pipettes, etc. Reusables include bottles, carboys, beakers, measuring cylinders and tube racks. Others include bench-top instrumentation such as vortex shakers, centrifuges pipettors, etc.
Some of TPL’s end users include Indian Institute of Chemical Technology, National Centre for Biological Sciences, Dr Reddy’s Laboratories, Syngene International, Molbio Diagnostics, Agappe Diagnostic, Metropolis Healthcare, Dr. Lal Path Labs, Mylab Life Solutions, etc. The company currently operates five manufacturing facilities located in West Bengal.
Financial Track
TPL’s profitability is highly impressive. On Rs 234 gross income, the company’s EBIDTA margin was as high as 46% in fiscal 2021. Until last year the company had a minuscule equity capital base Rs 19 lakh against which it posted a net profit of Rs 69 Cr in last fiscal. In the current fiscal, equity will leap to Rs 10.64 Cr and reserves will zoom to over Rs 450 cr thanks to the IPO premium of Rs 150 Cr.
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Tarsons Products Financials |
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| (AMT IN CR) |
CONSOLIDATED |
STANDALONE |
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| Period Ended |
Jun-21 |
Mar-21 | Mar-20 |
Mar-19 |
| Months |
3 |
12 | 12 |
12 |
| Revenue |
69.15 |
228.91 | 175.9 |
178.75 |
| Operating Profit |
36.76 |
103.44 | 69.25 |
71.67 |
| OPM% |
53.2 |
45.2 | 39.4 |
40.1 |
| Other Income |
1.98 |
5.38 | 4.15 |
5.97 |
| EBIDTA |
38.74 |
108.82 | 73.41 |
77.64 |
| EBIDTA % |
54.5 |
46.4 | 40.8 |
42.0 |
| Interest |
0.83 |
2.72 | 6.10 |
7.25 |
| Depreciation |
4.57 |
13.66 | 14.17 |
14.56 |
| Net Profit |
24.84 |
68.87 | 40.53 |
38.96 |
| Equity (Implied) |
10.64 |
0.19 | 0.19 |
0.19 |
| Reserves (Implied) |
408.32 |
244.15 | 197.37 |
135.08 |
| Borrowing |
64.43 |
26.35 | 24.65 |
55.04 |
| Fixed Assets |
159.9 |
135.2 | 106.9 |
91.1 |
Valuation
TPL has fixed a price band of Rs 635-662 for Rs 2 paid up share which looks very steep when compared to the cost of holding of the three major investors who control more than 70% of the company’s equity capital. Nonetheless, TPL’s current financials, specially its profit margin, deserves a premium discounting.
Though, medical device manufacturer Poly Medicure may not be directly comparable as a peer with TPL, both the companies predominantly cater to the healthcare sector. Compared to Poly Medicure, TPL looks cheaper in terms of Price to Net Earnings, Cash Earnings and Book Value. In a booming market like the present one, the IPO P/E of more than 50 may not look unreasonable. But, when the market takes a turn, this will give heart burn to investors.
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HOW TARSONS COMPARES WITH POLYMEDICURE |
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Financials |
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| (Amount in Cr) |
Tarsons Products |
Poly Medicure |
| Industry Segment |
Lab ware/Equipment |
Medical Devices |
| Market Cap |
3522 |
8683 |
| Borrowing |
26 |
102 |
| Fixed Assets |
135 |
389 |
| Revenue |
229 |
786 |
| Other Income |
5 |
18 |
| EBIDTA |
109 |
236 |
| Interest |
3 |
9 |
| Net Profit |
69 |
136 |
| Equity Cap |
11 |
48 |
| Reserves |
408 |
918 |
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Stock Features |
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| Current Price (Rs) |
662 |
906 |
| Face Value (Rs) |
2 |
5 |
| Book Value |
78.74 |
100.71 |
| Promoter Stake % |
47.3 |
44.8 |
| Debt/Equity |
0.06 |
0.11 |
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Profitability |
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| OPM % |
45.2 |
27.7 |
| Net Margin % |
29.4 |
16.9 |
| Cash EPS |
15.51 |
19.11 |
| Earnings Per Share |
12.94 |
14.16 |
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Discounting |
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| Price/Earnings |
51.1 |
64.0 |
| Price/Cash EPS |
42.7 |
47.4 |
| Price/Book Value |
8.4 |
9.0 |
| Price/EBIDTA |
32.4 |
36.8 |
| Price/Revenue |
15.4 |
11.0 |
| Price/Fixed Assets |
26.1 |
22.3 |