Tatva Chintan Pharma Chem IPO – Profitable play on specialty chemicals

2 1 Tatva Chintan Pharma Chem IPO – Profitable play on specialty chemicals

Tatva Chintan IPO is another play on the specialty chemicals space. This space has been growing at a rapid pace, especially after the pandemic. In the last couple of years, the specialty chemicals has been anyways seeing sharp global demand traction. In addition, China imposed strict environment restraints on domestic chemical manufacturers, which significantly impacted the supply chains. As a result, most of the global chemical consumers were forced to look at India as a viable alternative to procure specialty chemicals. That trend is expected to get accentuated in the coming years. It is in this background that the IPO of Chintan Tatva needs to be evaluated.

Key terms of the IPO issue of Tatva Chintan Pharma Chem

The Rs.500 crore fresh issue will consist of a fresh issue component of Rs.225 crore and an offer for sale to existing shareholders to the tune of Rs.275 crore. Tatva Chintan currently operates through 2 manufacturing facilities located at Ankleshwar and Dahej in Gujarat.

%name Tatva Chintan Pharma Chem IPO – Profitable play on specialty chemicals

Data Source: IPO Filings

Product and business profile of Tatva Chintan

Here are some of the key highlights of the business model and the product and customer profile of Tatva Chintan Pharma Chem.

  • Tatva Chintan manufactures a diverse range of structure directing agents (SDA) and phase transfer catalysts (PTC), with leadership positions in most of them.
  • Apart from the SDA and PTC products, the product portfolio includes a smaller portion of electrolyte salts and pharmaceutical intermediates.
  • Tatva is among the top-2 manufacturers of PTCs, which have major applications in green chemistry and sustainable technologies, which is the new paradigm.
  • Apart from a strong India franchise, Tatva also exports to over 25 countries including the US, China, Germany, Japan, South Africa and the UK.

Tatva Chintan – Quick look at the financials

Let us look at the top line first. Between FY19 and FY21, the operating revenues grew from Rs.206 crore to Rs.301 crore. The company has sustained CAGR growth of over 20% in last 2 years. EBITDA in FY21 more than doubled over FY19 to Rs.72 crore resulting in the EBITDA margins expanding from 16.63% to 23.85% in FY21.
For the Jun-21 fiscal year, the net profits of Tatva Chintan grew 2.5 times over 2 year to Rs.52.3 crore, resulting in net margins almost doubling from 9.96% to 17.40% during this period. The ROE or return on equity was at 31.49% in FY21 while the return on capital employed or ROCE was at 32.98%. Both ROE and ROCE are up over 600 bps in the last 2 years.

Is there an investment case for Tatva Chintan
Here are some key points to consider before investing in the Tatva Chintan IPO.

  • The fresh portion will be used for capex to expand manufacturing capacity at Dahej plant and for upgrading R&D facility at Vadodara. Both are likely to be revenue accretive.
  • Among its product lines, both SDA and PTC have robust global and domestic demand and the China hedge bet on chemicals looks like a medium to long term structural story, which should sustain for the next 8-10 years. That is a positive.
  • Over the last 2 years, the revenues from PTC and pharma intermediates have been flat while the revenues from SDA has gone up sharply by almost five-fold.
  • In terms of valuation, the stock is valued at over 40X P/E ratio based on FY21 EPS. But EPS has grown at CAGR of 60% in last 2 years, in which case, the P/E may not look too expensive. Investors can look at the issue purely as a macro play on specialty chemicals.

    Investors can take a positive view considering the positive macros of the industry and the financial performance. Of course, investors have to be prepared for stiff competition in this industry.

Related Post

Add a Comment

Your email address will not be published.