The Rs 500-crore initial public offering (IPO) of specialty chemical company Tatva Chintan Pharma opens today with a price band of Rs 1,073 - Rs 1,083 per equity share.
The issue, which will close on July 20, consists of a fresh issue of shares worth Rs 225 crore and an offer for sale of shares worth Rs 275 crore by the promoter and promoter group. The fresh issue proceeds will be utilised for expansion of the Dahej manufacturing facility, and upgradation of the R&D facility in Vadodara.
Most brokerages recommend 'subscribe' on the back of robust financials, strong growth potential, diversification, potential play on green chemistry, discounted valuation compared to its peers and niche global placement.
Here's a look at what they say:
The brokerage likes the firm due to its leadership position, wide product portfolio, strong client relationship, and high entry barriers. The company is expected to witness strong growth for the next 2-3 years given its expansion plans. It is well placed to tap the opportunity in the fast-growing specialty chemical space with an increasing focus on green chemistry by leveraging its strong R&D capabilities, as per the brokerage.
"The issue is valued at 45.9x FY21 P/E on post-issue basis, which appears reasonable compared to peers (avg. P/E of 59x), as it enjoys higher earnings growth. Hence, we recommend 'Subscribe'," it said.
Considering its niche product profile with diversified applications and dominant domestic production share, the brokerage believes the company would continue to post robust operating and financial performance in the future. Also with the proposed expansion of its capacity, Tatva Chintan will be well-positioned to capitalise on the growth opportunities in the specialty chemicals space, said the brokerage. It assigns a 'subscribe' rating for the issue.
Considering the wide application of its products, the company serves customers across various industries and geographies providing diversification benefits. Moreover, its high-quality product portfolio, strong R&D capabilities, strategically located manufacturing facilities and a focus on ‘green’ chemistry processes bode well for the company, said BP Wealth.
"On the valuation front, considering the upper price band, diluted EPS and FY 21 earnings, the company is valued at 45.9x P/E which is at a discount when compared to its listed industry peers. Its stable financial performance and growth opportunities provide visibility for the long term. Considering all such factors, we give a 'subscribe' rating on this IPO issue for the long term," it said.
"At the offer for sale price of INR 1,083, the stock is valued at 31.3X FY24 earnings. The high valuations are justified given the high growth potential, dominant producer status, exposure to green energy, and strong balance sheet," said the brokerage. It recommends a 'Subscribe' rating for listing gains.
Tatva Chintan's growth prospects are bright owing to its leadership status in the various product categories of specialty chemicals and significant presence in export markets, according to KR Choksey.
"Given that it operates in segments which could see a rise in environmentally sustainable products, the growth potential is further higher. The balance sheet is strong and well capitalised, with low external debt. On account of strong growth potential, dominant manufacturer status, potential play on 'green chemistry' and discounted valuation compared to its peers, we recommended a 'subscribe' rating for long-term gains."