Tatva Chintan Pharma Chem Ltd IPO - Should you apply?

Primary markets have been flush with funds for over a year! With boatloads of cash raining in the markets, companies from every sector are coming up to have a taste of the feast. These include companies from a broad spectrum of industries. You name it, you have it!

Let’s talk about one such ever-evolving sector, Specialty Chemicals.

These specialty chemicals are interesting. From personal care to pharmaceuticals, they have industry-wide applications, which is why you can say this sector won’t ever be out of business!

No sooner did one specialty chemicals company hit the markets than another is up to it. Tatva Chintan Pharma Chem Ltd, a company with a long-standing of 25 years in the chemical sector, is set to release its IPO on the 16th of July.

The obvious question to ask is - “Should I apply?” Well, that’s a very subjective matter. What we can tell you, though, is why you should / shouldn’t. Then, it’s ultimately your call.

So, hop in, dear investing enthusiasts.

Tatva Chintan Pharma Chem - An Overview

Tatva Chintan Pharma Chem Ltd., incorporated on 12th June 1996, is a specialty chemical manufacturing company focused on the manufacture of various substances for supercapacitor batteries and pharmaceutical and agrochemical intermediates, and other specialty chemicals. It is India’s first and world’s second-largest commercial manufacturer of SDAs for zeolites (used in batteries).

The company also exports its products to over 25 countries, including Germany, the USA, South Africa, Japan, China. To combat its negative impact on the environment, the company continuously strives to improve its processes and infrastructure and take up various “green” projects. It currently has two facilities, in Ankleshwar and Dahej.

Financials of the company

The standalone financials of the company are as follows:

(Source: Ticker)

Growth Strategies of the company

• The company strives to continue to consistently grow its manufacturing capabilities, which would help meet the anticipated increased demands of its products.

• The company further seeks to improve its research and development capabilities to produce conventional products with new-age technology.

• The strong R&D is also aimed towards improving the product portfolio with existing customers.

Details of the IPO

The IPO is for an amount of Rs 500 crore. The company is inviting qualified institutional buyers (QIBs) for a maximum of 50% of shares issued and non-institutional bidders for 15% of the shares. The balance of 35% would be available for retail investors. Also, the process is carried on as a book-building IPO.

The merchant bankers to this issue are ICICI Securities and JM Financial.

Other details of the IPO are tabulated below:

Purpose of the IPO

Though the IPO is for an amount of Rs 500 crore, it includes an offer for sale worth Rs 275 Crore. Thus, the company will receive funds only from the new issue, to the extent of Rs 225 crore. This amount is to be utilized for the following purposes.

• Funding capital expenditure requirements for Dahej Manufacturing Facility. The estimated expenditure is Rs.147.1 crore.

• Funding capital expenditure requirements for upgrading their research and development facility in Vadodara, the estimated expenditure of which is Rs. 23.971 crores.

• General corporate purposes.

Why should you invest?

Let’s look at a few reasons for you to invest in this company:

• The financial performance of the company is incredible. It has increased the total revenue at a CAGR of 21.70% during the last three years. Profit after tax is witnessing growth at a CAGR of 59.50%. 

• The company is a leading manufacturer of structure-directing agents and phase transfer catalysts (chemicals used in a battery) with consistent quality. The company also has a team of 81 employees dedicated to quality control and quality assurance.

• The company has a broad customer base across various industries, which has largely helped them minimize the impact of structure-specific disruptions on their business.

• Tatva Chintan Pharma Chem Limited has a strong research and development capacity that provides a cost advantage and aids in delivering new products to its customers.

Why should you not invest?

There are a couple of concerns to take note of before investing in this company. They are listed below:

• Undoubtedly, COVID-19 did hurt the operations, revenue generation, and profitability of the company.

• The company has a small number of suppliers that provide them the required raw materials. This could prove disadvantageous.

• The company also has a very high revenue concentration. In 2020, about 58% of the total revenue of this company came from the top ten customers.

Final words

IPOs are indeed not everyone’s cup of tea. But with the overflow of IPOs, investors are bound to be tempted. It is always advised to resist the temptation, rationally weigh the pros and cons, consider one’s financial goals, comfort level, and only then invest. To sum it up in a single line -

“Invest in what you know.”

So, what’s it this time? A hit or a miss? Tell us.