Tarsons Products ltd IPO: Should you invest?

A distinct memory from everyone’s school life was the various lab equipment that you used as a science student or heard your friend from that stream complain about. “Galti se beaker tut gaya” has been a uniting guilty pleasure for almost every student. Fortunately for various schools, the introduction of plastic labware was a blessing. With the reduced risk of chipping or cracking, the naggy lab assistant (and dangerous spills) were problems of the past.

It’s been a long time since those school days, but labs in schools as well as others with even more serious uses still benefit from the use of plastic labware as an addition to the existing glassware.

Today we bring to your attention, an IPO by Tarsons Products Ltd., the maker of such plastic labware for various labs and not just limited to school supplies.

Industry Overview

In a broad sense, the company would be highly affected by the healthcare industry. The global healthcare market is expected to register 8.9%  CAGR in 2020-2025 to reach USD 15,098 Billion by 2025 in terms of revenue.

Tarson Products ltd. is a player in Laboratory equipment whose market is advancing due to technological advancements. The global lab equipment market is expected to grow at 4.9% CAGR in 2020-2025 to reach USD 20.5 Billion.

Almost all of us have at least once in our life gone for a blood test and seen a weird-looking dwarf cylinder with round bottom in the lab and kept wondering what that is. That is a centrifuge ware manufactured in a life-sciences company and what we have here for you is Tarsons Ltd., a leading company in the production and supply of laboratory plasticware.

Company Overview

Incorporated in 1983, Tarsons Products Ltd is the leading life sciences company involved in designing, developing, and manufacturing labware products.The company has a wide matrix of quality labware products that helps advance scientific discovery and improve healthcare systems. 

The company's product portfolio is classified into three broad categories comprising consumables, reusables, and others. The latest statistics drafted in the RHP reveal that the company has a diversified product portfolio with over 1,700 SKUs (Stock Keeping Units) across 300+ products. For manufacturing activities, the company has 5 manufacturing facilities, all of which are constituted in West Bengal. 

They rely majorly on its distributors for deriving sales & revenue and thus have a strong distribution network across India comprising over 141 authorized distributors and supplies its products to more than 40 countries. 

Tarsons is a leading manufacturer of Plastic Labware such as Bottles, Carboys, Measuring cylinders, Desiccators, Minicoolers, Cryobox, Test Tube Racks, Centrifuge tubes, Cryovials, and a wide range of other products.

That’s the company in the nutshell. Moving forward let's take a look at the details of the IPO

Details of the IPO

Yet again, the point to be noted is that out of the issue size of Rs.1,023.47 Cr. the majority of the chunk is offered for sale and the fresh issue comprises merely Rs 150 crores. The purpose of the IPO is stated below to help you understand what the company plans to do with the money. 

Purpose of the IPO

The RHP states that the key objectives behind coming to the primary markets for a fund-raise are that the company wants to repay part/all of its borrowings and be virtually debt-free. Also, to scale up operations, hence requiring capital to fund a part of the capital expenditure for a new manufacturing facility at Panchla, West Bengal (proposed expansion).

Now, let’s look at the financials of the company to get a better understanding of whether to put your money in this company or not.

Financials of the company

A well-known proverb says that “Statistics speak for themselves”. The company has robust and strong financials in the light of a currently low Debt/Equity ratio of 0.18, which it aims to completely pay off and become debt-free post the IPO.

The company has posted a strong ROE of 31.17% and ROCE of 34.54% which portrays its effectiveness and efficiency in managing the wealth of the investors. As per the latest figures operating margin stands at 40.58% and 2 Years profit CAGR at 32.96%. 

The image given below throws light on the soundness and strength of the financials.

The numbers in the chart show standalone data for the years 2019 and 2020 and consolidated figures for 2021. Next, we have explained why Tarsons Products Ltd is a good fit for an investment and why it is not.

Why Should you invest in Tarsons Products Ltd.?

• Lucrative Valuations

Tarsons Products Ltd is yet another IPO having no listed peers in the industry, thus it becomes a bit challenging to value the brand, but given its EPS of Rs 13.43 it is expected to list at a PE of 49.29 which seems prudent given the fact that the company operates in a niche segment of Pharma Industry. 
The numbers of the company seem to justify its price band. The current GMP is also high and states that the opinion of the market holds true & fair. 

• Premium Market Positioning

Tarson has reputed customers operating in the life science departments, and it enjoys a strong brand recall value amongst its customers given the fact that over decades it has been able to serve its customers with the same loyalty and efficiency as it enjoys today. 
Tarson’s market positioning is supreme and will benefit from the growing trends of the industry it operates in. 
Moreover, given the fact that it supplies plasticware, it is already into the future given the fact that in future the traditional glassware equipment shall be replaced by plasticware, given the high shelf life of plasticware and other manifold advantages as well. 

The chart given below throws light on how the future market could look like when it comes to glassware and plasticware products. Hence Tarsons looks all set to explore the space.

Why should you avoid applying to Tarsons Products Ltd.?

• High Dependency on imports for raw material

For the procurement of raw material the brand majorly relies upon imports. It imports more than 75% of its raw materials and purchases specialized variants of plastic resins from global suppliers located across countries including Malaysia, USA, Singapore, and Taiwan. Hence in a way Tarsons is dependent on the timelines of its suppliers, any delay in the supply chain of its suppliers will result in huge business risk for Tarsons Products Ltd. 

Their cost of material consumed accounted for 43.16% of the total expenses for the year ending FY 21, any small alterations in the price chart by the suppliers could create a dominant impact of the end price of goods delivered by Tarsons Products Ltd.

• Plasticware: Could inhibit environmental pressure/ ban from the government

All coins have two faces, similarly one way to look at its business model is that it is already operating in the plasticware segment which is projected to grow multifold times in future, the other way could be a probable threat to its business model because of the fact that plastic as a material has been prone to government regulations and restrictions. 

Over the years the government has imposed multiple bans on the production and sales of single-use plastics. Our central government has announced a ban this Aug stating that “The ban on most single-use plastics will take effect from July 1, 2022”. Such kind of government regulations is a probable business risk for Tarsons Product Ltd and its operations.

The Bottom Line

India is looking at a great opportunity to ramp up investments and collaborate with global players in the pharmaceutical and biotech domain to cater to global needs, hence evaluating and observing a great opportunity to ramp up its R&D, technology, manufacturing, and innovation attract larger investments.

Companies like Tarsons Products ltd can surely benefit from this landscape as suppliers to these aforementioned industries, hence the future prospects look viable and blooming, the same is reflected through the RHP and Promoter calls on various diverse platforms. Hence considering all the facts stated in the blog, the IPO looks fairly positive.