Tega Industries Ltd has launched its three-day initial public offering (IPO) today— December 1. The Kolkata-based company is taking advantage of the recent IPO boom, and its investors are diluting their stakes. In this article, learn more about the company and its IPO.

Company Profile – Tega Industries Ltd

Tega Industries Ltd (TIL) is one of the leading manufacturers and distributors of specialised ‘critical to operate’ and recurring consumable products for the global mining and mineral processing industry. It offers comprehensive solutions to marquee mining clients in mineral beneficiation (the first step in extraction of metal from natural resources), mining, and bulk solids handling industry. TIL commenced operations in 1978 in India, with a foreign collaboration with Skega AB, Sweden.

The company’s product portfolio consists of specialised abrasion and wear-resistant rubber, polyurethane, steel, and ceramic-based lining components. These products are used across different stages of mining and mineral processing, screening, grinding, and mineral handling. It ultimately helps mining firms increase productivity and maximise operational efficiency. They also have in-house research and development (R&D) capabilities, with a strong focus on quality control.

TIL has manufacturing facilities in Dahej (Gujarat), Samali and Kalyani (West Bengal), Chile, South Africa, and Australia. The company had a presence in 479 installation sites across 70 countries in the previous financial year (FY21). For the quarter ended June 2021 (Q1 FY22), it was present in 212 installation sites. TIL’s primary end-customers are mineral processing sites involved in gold and copper ore beneficiation, accounting for 34.92% and 27.25%, respectively, of the total sale of products in Q1 FY22.

About the IPO

Tega Industries’ public issue opens on December 1 and closes on December 3. The company has fixed Rs 443-453 per share as the price band for the IPO.

The IPO is entirely an offer for sale (OFS) of 1.36 crore shares by promoters and early investors, aggregating to Rs 619.23 crore. Individual investors can bid for a minimum of 33 equity shares (1 lot) and in multiples of 33 shares thereafter. You will need a minimum of Rs 14,949 (at the cut-off price) to apply for this IPO. The maximum number of shares that can be applied by a retail investor is 429 equity shares (13 lots). 

The main objective of the IPO is to provide an exit strategy (or liquidity) to TIL’s shareholders. Thus, the company is not raising any funds through the public issue. It aims to achieve the benefits of listing the equity shares on NSE and BSE. The total promoter holding in the company will decline from 85.17% to 79.17% post the IPO.

Financial Performance

Tega Industries has posted consistent growth in revenues and profits over the last three financial years (FY19-21). On a consolidated basis, the company posted revenues of Rs 856.68 crore in FY21 against revenues of Rs 695.54 crore in FY20, a growth of 23% YoY. Meanwhile, net profit jumped 108% YoY to Rs 136.41 crore in FY21. Earnings before interest, tax, depreciation, and amortisation (EBITDA) rose 76% YoY to Rs 187.47 crore during the same period. The company derived ~86.42% of the total revenue from its overseas operations last year.

TIL generates recurring revenues as mining processes include regular operational expenses. Nearly 75-80% of the company’s revenue comes from repeat orders from its clients.

Risk Factors

  • TIL’s global manufacturing facilities, sales, and operations expose the company to the risks (social and geopolitical) of doing business in foreign countries.
  • The failure to expand or effectively manage its sales and distribution network in India and overseas could have an adverse effect on its business.
  • The company is dependent on third-party logistics and support service providers for the delivery of raw materials and finished products. Any disruptions in their services can severely impact TIL’s overall operations.
  • Any shortfall or delay in the supply of raw materials or an increase in input costs could adversely impact the pricing structure and supply of the company’s products.
  • TIL is dependent on a few suppliers of certain raw materials. It does not have long-term contracts or exclusive arrangements with these suppliers. A significant reduction in supply by vital suppliers could harm its business operations.
  • Depreciation of the Indian rupee and exchange rate fluctuations in currencies in which it does business or have outstanding borrowings may impact business.
  • There are outstanding legal proceedings involving Tega Industries, its directors, and promoters.

IPO Details in a Nutshell

The book-running lead managers to the public issue are Axis Capital and JM Financial Consultants. Tega Industries had filed the Red Herring Prospectus (RHP) for its IPO on November 23. You can read it here. Out of the total offer, 50% is reserved for Qualified Institutional Buyers (QIBs), 15% for Non-Institutional Investors (NIIs), and 35% for retail investors.

Ahead of the IPO, Tega Industries Ltd raised Rs 185.76 crore from 25 anchor investors. The marquee investors include Goldman Sachs, BNP Paribas Arbitrage, Kuber India Fund, SBI Mutual Fund (MF), ICICI Prudential, Axis MF, etc.

Conclusion

Tega Industries manufactures highly specialized and critical to operate products that have high barriers to replacement or substitution. The cyclical nature of the mining sector does not impact the company. According to reports, the global crushing, screening, and mineral processing equipment market was estimated at $20 billion in 2020. This market is expected to grow at a CAGR of 6.3% to reach $37 billion by 2030. Moreover, the mining sector would continue to grow due to the high demand for metals such as copper, iron, gold, and silver.

Tega Industries will be directly competing with AIA Engineering Ltd (AEL) once it gets listed. AEL is a leading manufacturer of high chromium wear, corrosion, and abrasion resistant castings in India.

TIL’s IPO shares are trading at a premium of ~Rs 385 in the grey market today. Before applying to this IPO, we will wait to see if the portion reserved for institutional investors gets oversubscribed. As always, consider the risks associated with the 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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