Add Tarsons Products Ltd For Target Rs.590 - ICICI Securities
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Tarsons Products
Building capacities to diversify offerings
Tarsons Products (Tarsons) offers a range of plastic labware products. Over the years, it has gained ~25% market share (Source: Company) in a segment which was historically dominated by MNCs. Its network consists of over 150 distributors and more than 500 sub-distributors which provide pan-India visibility to its products. Besides, it has built a sizeable presence in the export market (~33% of revenue) through a mix of branded and ODM sales. The company is now spreading its wings in niche areas like cell culture and is adding two new plants at Panchla and Amta (both in West Bengal) which we believe may double its available capacities by CY24E. Excessive inventory in the system and overheads of new plants may keep a check on growth in the near term. We re-initiate coverage on the stock with ADD rating and target price of INR 590 on 22x FY25E EV/EBITDA
Diversified product set caters to multiple end-users
Tarsons’ portfolio consists of a number of consumables (~56% of FY23 revenue) and reusable (~39% of FY23 sales) products. These cater to a wide range of industries including research organisations, academic institutions (32% of market), pharmaceutical companies, CROs, diagnostic companies and hospitals. The end-use industries of pharmaceuticals and diagnostics are set to grow ~10-11% and ~24% over FY22-FY27E (Source: IQVIA, Netscribes)
Capacity addition to support growth
Tarsons is incurring capex of INR 5.5bn for two new plants at Panchla and Amta in West Bengal which may double its capacities by CY24E. Panchla plant may lead its foray in cell culture. Cell culture and PCR product represent ~42% of overall domestic labware market and market size estimated at over INR 5bn as of CY20(Source: Company RHP). The plant can generate revenue of ~INR 5bn at its peak utilisations levels (~0.9x). At Amta, it is setting up capacities for other new products and it may also have a fulfilment centre with in-house sterilisation capabilities
Overheads may curb margins
We expect revenue to grow at 10.7% CAGR with EBITDA / PAT CAGR of 4.2% / (6.7) %, respectively, over FY23-FY25E. Margins may contract 520bps to 40.6% in FY25E due to commissioning of new plants. We expect RoE and RoCE of 10.6% and 9.8% in FY25E, respectively.
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