Tatva Chintan bets on fast growth

Tatva Chintan Pharma Chem Ltd is tapping the capital markets with its fresh offer for Rs225 crores and an offer for sale of Rs 275 crs in a price band is Rs 1,073-1,083. The issue opens on Friday (July 16) and closes on Tuesday (July 20). The company had allotted 13,85,040 shares amongst 15 anchor investors equally, giving each 6.67 per cent or 92,339 shares. This is probably the first time that one has seen such equitable distribution.

Tatva Chintan Pharma Chem Limited is a niche speciality chemical company manufacturing SDA (structure directing agents), PTC (Phase transfer catalysts), PASC (pharmaceuticals and agrochemicals intermediates) and Electrolyte salts for SCB. The company is the largest manufacturer in its category in the country and one of the leading players in the world as well.

Revenues from the first three segments are fairly equally distributed and form 40 per cent, 27 per cent and 30 per cent of the revenues. The Electrolyte salt is the new business and currently forms just one per cent of the revenue, but has great potential growing forward. It has applications as organic battery electrolytes, automotive, transportation and consumer electronics. PTC's and PASC find application in pharmaceutical and agrochemical intermediates with additional application as far as PASC is concerned in paints and coatings, personal care products and flavours and fragrances. SDAs are used for manufacture of zeolites used for emission control and as refining catalysts.

The revenues of the company were Rs300.36 crore for the year ended March 2021 and net profit after tax was Rs 52.40 crores. The company enjoys healthy margins of 23 per cent at the EBITDA level and 17 percent at the PAT level. The company reported an EPS of Rs 26.02 for the year ended March 2021. The PE band is 41.24-41.62 times based on March 2021 numbers.

The company has been expanding its capacity and the object of the issue is to enhance capacity further at its plant in Dahej, Gujarat. Currently the capacity utilisation is lower at around 69 per cent for reactor capacity and 55 per cent for assembly lines which was at 90-91 per cent in FY 2020. This was the impact of Covid-19 and has been corrected with the 4th quarter performance of FY21 where top line was Rs 110 crores out of total revenues of Rs 300 crores for the year. Taking this as a run rate, one may presume that the company would do revenues of Rs 430-450 crores in FY22.

The company being a niche player and in a fast-growing segment with little or no competition makes it attractive and an interesting bet going forward. The valuation is in line with peers and takes into account the attention that speciality chemical manufacturers are getting at this time. The fact that this company exports to China makes it a plus for the company as the often-repeated question about China competition, does not affect this company. While all the boxes are ticked, the one area of concern is the size. Currently Tatva Chintan is a small company and in times of downturn size does matter.

The issue which opened on Friday has been subscribed 4.55 times on day one with Retail portion being subscribed 8.32 times. There is money on the table for those investors who are lucky on getting allotment. Post listing valuations would be at a different level completely and primary market frenzy may make valuations beyond comprehension. In conclusion, apply for the IPO and if lucky in getting allotment, book profits on listing. Take a longer term view some time later.

(The author is the founder of

Kejriwal Research and Investment Services, an advisory firm)