IGI Logo

Tega Industries reported a beat on our estimates. Net sales grew 37% YoY to INR3.8bn (JMFe: INR 3.5bn), EBITDA grew 51% YoY to INR817mn (est: INR 635mn) and EBITDA margin expanded 210bps YoY to 21.6% (JMFe: 18.2%). PAT grew 34% YoY to INR 474mn. Tega maintained its outlook of 15% revenue CAGR across both the consumables and equipment segments. Within this the Dynaprime range is expected to maintain 25% CAGR and other products are likely to grow at slower pace. The implied ask rate for 2H at 20% YoY for consumables is high but can be achieved with incremental revenue from customer additions especially with addition of cINR 1.2 pa revenue from new 5-year service contract wef Jan-24. We estimate 14% EPS CAGR over FY23-26E with return ratios recovering after an initial dip in FY24E due to impact of consolidation of McNally business. Maintain Buy with price target of INR 1145 (30x Sept’25 EPS).

* Healthy volumes and pricing drives growth: Net sales stood grew 37% YoY to INR INR3.8bn (JMFe: INR 3.5bn) with consumables segment growing by 20% YoY to INR3.3bn and equipment revenue at INR469mn (INR 443mn in 1QFY24). Revenues spilled over from 1Q24 were INR200mn adjusted for which consumables revenue grew 13% YoY. During 1HFY24, consumables revenue growth was 6% with volume growth of 3- 4%, price increase of 1.5-2% and forex gain of 2%. Growth in underlying minerals continues with copper at 3% YoY, Gold at 1% YoY while iron remains flat.

* Margin expansion led by strong growth: Gross margins for the company remained stable at 57.5% (57.8% in 2Q23) despite inclusion of McNally Sayaji business. Blended EBITDA margin came in at 21.6% up 200ps YoY above est of 18.2% largely on account of robust margins in consumables segment (23.3% vs 19.6% in 2Q23) and equipment segment (9.6% vs 8.8% in 1Q24). During 2QFY24, EBITDA grew by 51% YoY (low base) to INR817mn where EBITDA for consumables grew by 43% YoY to INR772mn.

* Maintains outlook; Chile capex on track: Tega continues with its outlook of 15% CAGR in both the consumables and equipment business with EBITDA margin of 20-22% for consumables and 10-12% for equipment. The guidance implies ask rate of 20% for consumables in 2H which is high but the company expressed confidence in the same with continued conversions and incremental contribution from new multi-year contract from 4QFY24. Expansions in Chile should commence in 4QFY24 with likely completion in 1QFY26 at capex of USD20mn.

* Maintain BUY with TP of INR 1145: Mill Liners and other mineral processing products are highly engineered and customised products which act as entry barriers and give a strong moat to an established player like Tega. We forecast sales/EPS CAGR of 20%/14% over FY23-26E for Tega led by a 16% CAGR in the consumables business and incremental contribution from MSEL (acquired in Feb-23). EBITDA margins are likely to decline from FY23 levels due to addition of MSEL business. Return ratios after falling in FY24 are likely to inch up going forward. Maintain BUY with TP of INR1145, at 30x Sept’25E EPS. Key risk: Global disruptions leading to supply chain constraints and surge in freight rates.

Please refer disclaimer at https://www.jmfl.com/disclaimer

SEBI Registration Number is INM000010361