Tarsons Products IPO - Information Note

Tarsons Products IPO - Information Note

IPO
by 5paisa Research Team Last Updated: 2021-11-16T15:59:25+05:30

Tarsons Products Ltd, is a life sciences company that basically manufactures and markets laboratory products. These lab products are essentially supplied to the laboratories of research organizations, academic institutions, pharmaceutical companies, diagnostic and testing companies as well as contract research organizations or CROs. Tarsons has a wide portfolio of 1,700 SKUs across 300 products.

Tarsons caters to a large addressable market in the life sciences industry. Its manufacturing facilities are state of the art and equipped to handle scale. Currently, Tarsons has 5 manufacturing facilities spread across West Bengal.

In addition, it also has a strong distribution franchise of 141 distributors and its market extends across over 40 countries. Based on the upper end of the price band, Tarsons will have a listing market cap of Rs.3,522 crore.
 

Key terms of the IPO issue of Tarsons Products Ltd
 

Key IPO Details

Particulars

Key IPO Dates

Particulars

Nature of issue

Book Building

Issue Opens on

15-Nov-2021

Face value of share

Rs.2 per share

Issue Closes on

17-Nov-2021

IPO Price Band

Rs.635 - Rs.662

Basis of Allotment date

23-Nov-2021

Market Lot

22 shares

Refund Initiation date

24-Nov-2021

Retail Investment limit

13 Lots (286 shares)

Credit to Demat

25-Nov-2021

Retail limit - Value

Rs.189,332

IPO Listing date

26-Nov-2021

Fresh Issue Size

Rs.150 crore

Pre issue promoter stake

50.78%

Offer for Sale Size

Rs.874 crore

Post issue promoters

47.30%

Total IPO Size

Rs.1,024 crore

Indicative valuation

Rs.3,522 crore

Listing on

BSE, NSE

HNI Quota

15%

QIB Quota

50%

Retail Quota

35%

 

Data Source: IPO Filings
 

Here are some of the key merits of the Tarsons Products Ltd business model


1) A fairly large addressable market and growing at a rapid pace ensures that the market has scope to handle competition.

2) Laboratory costs for most research organizations are core expenses and hence this market is not too cyclical.

3) Its portfolio of 1700 SKUs across 300 products means that the products are mass customized to a large extent and cater to a wide array of lab needs.

4) Strong net margins and a solid asset turnover ratio offer the promise of robust ROE performance in the coming quarters.

5) IPO funds will be used for capacity expansion and for debt repayment, both of which are likely to be value accretive for the company.

 

How is the Tarsons Products IPO structured?


The Tarsons Products IPO will be a combination of offer for sale and fresh issue where 2 promoters and one early investor, Clear Vision Investment Fund, will look to monetize part of their holdings. Here is a gist of the IPO offer.

A) The OFS component will comprise the issue of 1,32,00,000 shares and at the upper end of the price band of Rs.662, the OFS size works out to Rs.873.84 crore.

B) Out of the above 132 lakh shares as part of the OFS, early investor Clear Vision Investment Fund, will sell 125 lakh shares while the promoters Sanjiv Sehgal and Rohan Sehgal will sell total of 7 lakh shares between them.

C) As a result of the above OFS and the expanded capital due to the fresh issue, the promoter stake in the company will reduce post issue from 50.78% to 47.30%. Correspondingly, the public shareholding will move up to 52.70%.

D) The new issue component will entail the sale of 22.66 lakhs shares which at the upper end of the price band of Rs.662, amounts to Rs.150 crore. The fresh issue will be used for repayment of debt and part funding the expansion.
 

Check - Tarsons Products IPO - 7 Things to Know
 

Key Financial parameters of Tarsons Products
 

Financial Parameters

Fiscal 2020-21

Fiscal 2019-20

Fiscal 2018-19

Total Assets

Rs.295.95 cr

Rs.248.71 cr

Rs.211.96 cr

Sales Revenues

Rs.234.29 cr

Rs.180.05 cr

Rs.184.72 cr

Net Profit / (Loss)

Rs.68.87 cr

Rs.40.53 cr

Rs.38.96 cr

Net Profit Margins

29.40%

22.51%

21.09%

Asset Turnover

0.79X

0.72X

0.87X

 

Data Source: Company RHP

There are 3 key inferences that follow from the financials. The sales growth and profit growth have been robust in the last 3 years. Secondly, the net margins have shown consistent improvement while the asset turnover has been around median of 0.8X.

Lastly, the company largely follows an asset light model, so profit boost with scale can be the real icing on the cake.
 

Investment Perspective for Tarsons Products Ltd


The IPO is a combination of an OFS and a fresh issue. Here are some takeaways.

a) The current market valuation of Rs.3,522cr and net profits of Rs.69cr imply a P/E ratio of around 50 times. That looks reasonable for the niche positioning.

b) However, if you factor consistent growth in profits and the prospects for expansion of ROE, the valuation does look attractive from a forward perspective.

c) Tarsons has built deep relationships with clients in India and abroad and that is the key in this type of business with limited entry barriers.

The company looks well positioned but the pricing may not leave too much on the table. Investors can look at Tarsons from a longer term perspective, although supply chain issues are likely to impact this business in the coming quarters. It will be higher on the risk scale.

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