IPO Note - Tatva Chintan Pharma Chem Ltd By Nirmal Bang
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BACKGROUND
Company Overview
Incorporated in 1996, Tatva Chintan Pharma Chem Ltd (TCPC) is a specialty chemical manufacturing company engaged in the manufacture of 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”). TCPC is the largest and only commercial manufacturer of SDAs for zeolites in India. It also enjoys 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.
The Company, currently operates through two manufacturing facilities situated at Ankleshwar and Dahej in Gujarat, both of which are strategically located very close to the Hazira port. It has also a dedicated R&D facility at Vadodara, Gujarat that is recognized by the DSIR, with state-of-the-art research and development infrastructure. The company has developed 82 products since March 31, 2011, contributing 23.2% of FY21 revenues.
Objects of the Issue
The issue of Rs 500 cr consists of Rs 275 cr offer for sale and Rs 225 cr fresh issue to fund the capex at Dahej facility and upgrading R&D facility.
Investment Rationale
* Leading manufacturer of SDAs and PTCs
* Wide customer base across various industries having high entry barriers
* R&D backed products
* Healthy Financials
Valuation and Recommendation
The company has grown at a CAGR of 30% over FY18-21, despite facing Covid related restrictions in 1HFY21. Due to increase in gross margins, favorable product mix and overall control on costs., EBITDA grew at higher CAGR of 42% over same period. EBITDA margins improved from 16.9% in FY18 to 21.9% in FY21. The management believes that there is no one-off in these margins, and are likely to continue in future as well. Considering the healthy balance sheet, robust revenue growth and strong business moat we have a positive view on the company. At upper band of Rs 1083, the PE comes to 45.9x FY21 earnings, which looks attractive. We recommend “Subscribe”
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