Tarsons Products

about 12 days ago
Tarsons Products

Rs. 1,024 cr IPO:

  • 85% is offer for sale (OFS) by PE firm ADV (Clear Vision) to halve 49% stake
  • Rs. 150 cr is fresh issue for (i) Rs. 62 cr capex (ii) Rs. 79 cr debt repayment. 

Price band: Rs. 635-662 per share

Mcap: Rs. 3,518 cr, implying 29% dilution

IPO Date: Mon 15 Nov to Wed 17 Nov 2021, Listing: Fri 26 Nov 2021

Grey Market Premium (GMP): We are strongly against ‘grey market premium’ as it is an unofficial figure, against SEBI guidelines.

                                     

Company Overview:

After declining 2% YoY to Rs. 176 cr in FY20, company’s revenue grew 30% YoY in FY21 to Rs. 229 cr, as demand for plastic laboratory and testing products grew during covid, with 20% of FY21 revenue comprising covid sales. 3/4th revenue is domestic which is entirely branded sales, while export is majority contract manufacturing.

 

Strengths:

  1. High Margin of 40-50% at EBITDA level and 20-30% at net level for fiscal FY19-21. Also, business clocks high RoE of 28-29%
  2. Growth Visibility: Holds 12-13% market share in Rs. 1,200 cr domestic plastic labware industry, expected to grow in high-teens over next few years. Expanded capacity has potential to deliver Rs. 150 cr incremental annual revenue from H2FY24 onwards.

 

Concerns:

  1. Working capital intensive business, with outstanding inventory + debtors at ~5 months. Growth was funded by rising debt from Rs. 26 cr as of 31.3.21, to Rs. 106 cr as of 30.9.21, 80% of which will now be repaid from IPO proceeds. RoE is expected to contract to ~22% going forward.  
  2. Based on annualized Q1FY22 EPS of Rs. 4.9, IPO is priced at a PE multiple of 34x, on current year earnings, for B2B products business. PE fund is part-exiting investment, costing Rs. 52 per share, at over 120% CAGR or 12x return in 3 years, which is an eye-popping return, as company’s revenue has grown ~2x and profits ~3x during this period, making one wonder if IPO valuation is merely an influence of current bull market.

 

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