Tega Industries

IPO Size: Rs. 619 cr IPO - Entirely offer for sale (OFS)

• 71% by PE TA Associates (Wagner) completely exiting 15% holding
• 29% by promoters, to trim 85% stake to 79%. 

Price band: Rs. 443-453 per share

Mcap: Rs. 3,003 cr, implying 20.6% dilution

IPO Date: Wed 1^st Dec to Fri 3^rd Dec 2021, Listing: Mon 13 Dec 2021

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

Company Overview:

World’s 2nd largest polymer-based mill liner maker, used mainly for gold and copper ore beneficiation, with ~60% utilization of 24,560 MTPA installed capacity. Nearly 75% of FY21’s Rs. 800 cr revenue is from repeat business.

Strengths:

1. Healthy Revenue Growth: Despite global mill liner market declining, company’s revenue grew at a 13% CAGR between FY19-21, thanks to launch of a trademarked composite mill liner DynaPrime. Orderbook for DynaPrime has increased from 23 target sites, as of 31.3.21 to 28, as of 30.6.21.
2. Margin Expansion from 18% in FY19 to 24% in FY21, on an adjusted EBITDA basis, as DynaPrime is a higher margin product. FY21 reported PAT stood at Rs. 136 cr, while normalised PAT (excluding other income) is close to Rs. 100 cr.
3. Scores over AIA Engineering: Tega is a net debt-free company, with enterprise value (EV) of Rs. 2,935 cr, implying FY22E EV/EBITDA multiple of ~15x over 18x for AIA. Despite AIA’s 3.9 lakh MTPA capacity, Rs. 2,800 cr annual topline and higher net margin, Tega has better outlook:

1. Historic revenue and PAT growth of 13% and 53% CAGR respectively over flat performance for AIA Engineering over past 2 fiscals.
2. Stronger Fundamentals: Superior realization of Rs.5.5 lakh/MT over AIA’s Rs. 1.25 lakh, Higher Asset Turnover ratio of 4x against 3.2x, current Order book at 39% of FY21 revenue over 27% for AIA
3. Not impacted by import duty on Indian grinding media imposed by Canada and South Africa.

Concerns:

1. Wide forex fluctuations: As exports constitute 85% of revenue, company reported Rs. 16 cr forex loss in FY20, and on the other hand, Rs. 28 cr forex gain in FY21, which materially impacts reported profit.
2. Entirely OFS, with PE investor exiting completely, at an unexciting IRR of just 10% in after a long investment period of 10.5 years.
3. Q1FY22 performance subdued, with EBITDA margin declining to 14% on Rs. 173 cr revenue and reported PAT of only Rs. 12 cr for June quarter. 

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