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Fully focused on recovery; Gradual ramp up to aid growth!

Tarsons Products (Tarsons) reported its highest ever standalone quarterly revenue of ?866 mn in Q4FY24, driven by a 12% YoY and 40% QoQ increase in exports. Consolidated revenue, EBITDA and PAT were ?1,057 mn ?302 mn and ?103 mn respectively reflecting YoY changes of +29% -23% and -55%. Sequentially revenue, EBITDA and PAT increased by 71%, 32% and 3% respectively, with a domestic versus export split of 68% and 32%. For FY24, consolidated revenue was ?2,964 mn aligning with estimates. We expect a swift recovery in margins as industry conditions stabilize. Positive export market developments and the acquisition of Nerbe, projected to contribute mid-double-digit margins (14-15%), are key drivers. Management’s strategy to introduce new product categories and expand its customer base remains strong with signs of market recovery and decreasing inventory levels. With the full commissioning of the ?6 bn capex in FY25, Tarsons is poised for significant operating efficiencies. We maintain our ‘BUY’ rating with a revised target price of ?560 (34x FY26E EPS of ?16.6) down from our earlier estimate of ?631 owing to a big miss on operating and PAT margins (earlier EBITDA/PAT margin estimates for FY25E/26E were 45%/25% & 45%/34% vs revised FY25E/26E 35%/17% & 37%/22% respectively).

Review of standalone performance

Tarsons reported its highest-ever standalone quarterly revenue of ?866 mn in Q4FY24, driven by a significant improvement in exports, which increased by 12% YoY and 40% QoQ. Despite the ongoing slowdown in the life science industry and inventory destocking, Tarsons continued to see revenue growth. However, on the operational front, EBITDA was ?376 mn down 4% YoY but up 48% QoQ. The EBITDA margin dropped by 440 bps to 43% compared to 48% in Q4FY23, primarily due to changes in product mix and higher revenues from Original Design Manufacturer (ODM) sales. The split for Branded and ODM sales stood at 27:73 versus 35:65 for FY24. Standalone Profit After Tax (PAT) was ?188 mn down 18% YoY from ?228 mn in Q4FY23 but up 87% QoQ. The PAT margin was 22% in Q4FY24, compared to 28% in Q4FY23, a decrease of 600bps due to a one-time inventory provision of ?37 mn. As of FY24 inventories stand at ?1,053 mn.

Consolidated (including recent acquisition Nerbe’s financials) performance

Tarsons Products reported consolidated Revenue, EBITDA and PAT of ?1,057 mn, ?302 mn and ?103 mn representing YoY changes of +29%, -23% and -55% respectively. However, on a sequential basis the company showed some recovery with Revenue, EBITDA and PAT increasing by 71%, 32% and 3% respectively driven by improvements in both the export and domestic businesses.

The domestic versus export split from its standalone business was 68% and 32% respectively, showing growth of 2% and 12% YoY (Domestic/Export-?590/?280 mn in Q4FY24 vs ?580/?250 mn in Q4FY23). Operating profit fell nearly 23% during the quarter due to certain one-time expenses amounting to ?56 mn incurred in the Singapore subsidiary for acquisition related costs. Gross EBITDA and PAT margins were 69%, 29% and 10% in Q4FY24 compared to 75%, 48% and 28% in Q4FY23. This decline was due to the consolidation impact of Nerbe’s operating margins which were around 10% the one-off expenses of ?56 mn in the Singapore subsidiary and the knock-off of ?31 mn in interest income and guarantee commission on a loan given to the Singapore subsidiary during consolidation. Tarsons board announced final dividend of ? 2/- per share on fully paid-up equity for FY24.

FY24: A forgettable year for the company but acquisition of Nerbe a key takeaway

For the Full Year FY24, Tarsons reported consolidated revenue of ?2,964 mn which aligned closely with our estimates of ?2,950 mn representing a modest 0.5% quarter-on-quarter increase. Despite achieving revenue targets the company faced challenges in maintaining its high operating and profit margins, resulting in an overall disappointing performance for FY24. This decline in margins was primarily attributed to a shift in product mix and several one-off expenses. We anticipate a swift recovery in margins once industry conditions stabilize. Positive developments in the export market are expected to be significant drivers of both earnings and margin improvement for the company. Furthermore, Tarsons recent acquisition of Nerbe is projected to contribute positively with expected margins in the mid-double-digit range (14- 15%) moving forward. We remain optimistic that the company’s strategic initiatives including expanding its export business and integrating Nerbe’s operations will enhance its financial performance and support sustained growth in the coming years.

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