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Management meet – key takeaways

Tega Industries’ (Tega) senior management hosted analyst meet on June 15, 2022. Management highlighted global steel mill liner market (ex-China) currently stands at US$900mn (Tega’s market share is 5%) and composite mill liner market size is US$400mn (Tega’s market share is 16%) which is likely to grow at 2-3% CAGR. According to management, DynaPrime Mill Liner (25% of FY22 sales) acceptance is increasing and the segment is likely to grow at a CAGR of 25-30% (33% growth in FY22) in near to medium term mainly on account of key benefits like higher throughput, lower power consumption and manpower cost over steel mill liners. Non-mill liner segment will grow at 10-12%, as per Tega. During FY22, EBITDA margin contracted 400bps YoY to 19.2%. Management is confident that with steady RM cost pass-through and easing of logistical challenges, EBITDA margin should improve to 21-23%. It expects RoE to touch 20% in FY24 from 17% in FY22. Management intends to focus on product innovation with target to increase R&D spend to ~3% of sales from current <1%. The stock is currently trading at 27x FY22 EPS. We note i) Tega is the market leader of specialised products; ii) has recurring revenue (~75-80% repeat business); iii) its revenue growth is insulated from mining capex cycles; and iv) is expanding capacity in Chile to drive volume growth.

Key highlights

* Tega is the 2nd largest player in polymer based mill liners after Metso Outotec.

* Tega has a JV with the UK branch of Hosch Group, Germany which is engaged in products for precision conveyer belt cleaning and caters to various industries in India.

* Company's 75% revenue in FY22 was from mill liner products, out of which 25% of the revenue was from its flagship product DynaPrime, which is a rubber steel composite mill liner, while 50% of the revenue was from polymer based mill liner. Balance 25% of the revenue was from non-mill liner based products like trommel screens, hydrocyclone pumps, etc. for applications in mineral benefaction process.

* Nearly 72% of revenue is from gold and copper ore benefaction customers. Around 75% lining business is concentrated in copper and gold. For non-mill liner products, company caters to iron ore, steel plants, power and cement segments.

* Currently, global steel mill liner market is US$900mn and composite market is US$400mn. Collectively, it is the addressable market for the company as it aims at replacing the steel mill liners.

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