Another day, another IPO! Tatva Chintan Pharma Chem has launched its three-day initial public offering (IPO) today— July 16. It will be the fourth public issue to hit the markets this month. Let us learn more about the company and its IPO.

Company Profile – Tatva Chintan Pharma Chem

Tatva Chintan Pharma Chem Limited (TCPC) is a chemical manufacturing company based in Gujarat. Established in 1996, it manufactures structure directing agents (SDAs), phase transfer catalysts (PTCs), pharmaceutical and agrochemical intermediates, and other specialty chemicals. They also produce electrolyte salts, which are used to make super-capacitor batteries. The company supplies essential chemicals to the automobile, petroleum, agrochemicals, pharmaceutical, dyes and pigments, and paint industries

They have a diverse portfolio of ~154 products as of March 31, 2021 (FY21). TCPC is the sole commercial manufacturer of SDAs for zeolites in India. [Zeolites are used in air/water purifiers and as drying agents in detergents. It is also used extensively in the petrochemical, automotive, and pharmaceutical industries]. The company’s strong Research & Development (R&D) capabilities have helped them maintain and increase market share over the years. TCPC makes regular investments in R&D to expand product offerings and streamline manufacturing processes.

The company exports its products to more than 25 countries, including the United States, Germany, South Africa, China, and the United Kingdom. Exports contributed ~70.5% to the company’s total revenue from operations in FY21. Prominent customers of the firm include Merck, Bayer AG, Asian Paints, Laurus Labs, Navin Fluorine International, Atul Limited, SRF Limited, and Divi’s Laboratories.

Currently, TCPC has two manufacturing facilities at Ankleshwar and Dahej in Gujarat. These facilities are strategically located near Hazira Port. The company has a dedicated R&D center in Vadodara as well.

About the IPO

Tatva Chintan Pharma Chem’s public issue opens on July 16 and closes on July 20. The price band for the IPO has been fixed at Rs 1,073-1,083 per share. 

The fresh issue of shares (of the face value of Rs 10 each) aggregates to Rs 225 crore. The IPO also includes an offer for sale (OFS) of ~25.39 lakh shares, aggregating up to Rs 275 crore. Individual investors can bid for a minimum of 13 equity shares (1 lot) and in multiples of 13 shares thereafter. You will need a minimum of Rs 13,949 to apply for this IPO. A retail investor can bid for a maximum of 182 equity shares (or 14 lots). 

The company will utilise the net proceeds from the IPO for three main purposes:

  1. To meet capital expenditure (capex) requirements for expansion of its manufacturing facility in Dahej. An amount of Rs 147.1 crore will be set aside for this objective.
  2. The company aims to invest Rs 23.97 crore for the upgradation of its R&D facility in Vadodara.
  3. The remaining amount will be used for general corporate purposes.

The total promoter holding in the company will decline from 100% to 79.17% post the IPO

Financial Performance

The company has posted robust financial performance over the last three years. From FY19-21, total revenue has grown at a CAGR of 21.70%, whereas profits have grown at 59.5%. Their total exports stood at Rs 211.99 crore in FY21, an increase of 5% over the previous year. Thus, the Covid-19 pandemic seems to have no impact on TCPC’s financial results as such. There continues to be high demand for their diverse portfolio of products across multiple sectors.

Its Return on Net Worth (RoNW) stands at 31.49%, which is high compared to its peers (except Alkyle Amines). RoNW shows how well the company uses shareholders’ capital to generate profits. TCPC’s Earnings Per Share (EPS) has more than doubled from Rs 10.23 in FY19 to Rs Rs 26.02 in FY21.

Risk Factors

  • The continuing impact of the Covid-19 pandemic could have a significant effect on the company’s operations and revenues. Unplanned slowdowns or shutdowns of its manufacturing operations may lead to delays in supplies or new product launches.
  • TCPC’s operations are subject to regular inspections and audits by its customers. The failure to meet quality standards and technical specifications prescribed by institutional customers may lead to loss of business. This could negatively impact its reputation and financial results.
  • They depend on a limited number of suppliers for essential raw materials (such as tertiary amines, general solvents). Moreover, they do not have long-term contracts with suppliers. The loss of one or more suppliers may have a severe impact on the company’s operations.
  • A further hike in the cost of raw materials also poses a threat to its financial performance.
  • Around 59.9% of the company’s overall sales income is derived from its top 10 customers (as of FY21). The loss of any one of these customers or even a reduction in their purchases will negatively affect financial results.
  • TCPC has to comply with strict regulations of various international markets where they sell their products. Thus, its global operations are subject to regulatory risks that could adversely affect its overall performance.

IPO Details in a Nutshell

The book-running lead manager to the public issue are ICICI Securities and JM Financial Tatva Chintan Pharma Chem Ltd had filed a Red Herring Prospectus (RHP) for its IPO on July 10, 2021. You can read it here.

Conclusion

Tatva Chintan Pharma Chem has a global presence and wide customer base. They have consistently maintained the quality of their products. With a strategic upgradation of its R&D facility, the company will further diversify its product portfolio to ensure better growth and profitability. It aims to double manufacturing capacity and capitalise on evolving trends in the industry. Their focus on green chemistry looks rather interesting as well. It is the design of chemical products and processes that reduce or eliminate the use/generation of hazardous substances.

Once its shares get listed, TCPC will be directly competing with leading chemical manufacturers such as Aarti Industries, Navin Fluorine, Alkyl Amines, Vinati Organics, Fine Organic Industries, and many more. They will be the fourth specialty chemical manufacturer to go public in 2021, after Anupam Rasayan India, Laxmi Organic Industries, and Clean Science & Technology. As we can see, the industry is highly competitive.

There is high demand for the company’s shares in the grey market (the unofficial market for unlisted shares). The Grey Market Premium or GMP stood at Rs 690 or 64% above the IPO price band (as of July 16). As always, do consider the risks associated with this company and come to your own conclusion.

What are your opinions on this IPO? Will you be applying for it? Let us know in the comments section of the marketfeed app.

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