Tarsons Products IPO review (Apply)

•    TPL is a plastic labware company enjoying the most preferred vendor status.
•    The company is gearing for expansion to meet rising demand.
•    Health-related segments have expanded post-pandemic, this augurs well for the company.
•    Issue appears reasonably priced and may be lapped up for medium to long term rewards.
•    The list of customers has many renowned end users with long term relationships. 

ABOUT COMPANY:
Tarsons Products Ltd. (TPL) is an Indian labware company engaged in the designing, development, manufacturing and marketing of 'consumables', 'reusables' and 'others' including benchtop equipment, used in various laboratories across research organizations, academia institutes, pharmaceutical companies, Contract Research Organizations ("CROs"), Diagnostic companies and hospitals (Source: Frost & Sullivan Report). It manufactures a range of quality labware products that helps advance scientific discovery and improve healthcare (Source: Frost & Sullivan Report). 

As of June 30, 2021, the company had a diversified product portfolio with over 1,700 SKUs across 300 products. Its product portfolio is classified into three key categories which include consumables, reusables, and others. 'Consumables' category includes products such as centrifuge ware, cryogenic ware, liquid handling, PCR consumables and petri dish, transfer pipettes and others. 'Reusables' category includes products such as bottles, carboys, beakers, measuring cylinders and tube racks. 'Others' category includes benchtop instrumentation such as vortex shakers, centrifuges pipettors and others. Consumable products which fall under the "Use and Throw" category accounts for nearly 62% of overall revenue and this brings regular business for the company. 

TPL caters to a diverse range of end customers across various sectors which include research organizations, academic institutions, pharmaceutical companies, CROs, diagnostic companies, and hospitals. Some of its end customers include customers such as Indian Institute of Chemical Technology, National Centre for Biological Sciences across academic institutes and research organizations; Dr Reddy's Laboratories, Enzene Biosciences across pharmaceutical sectors; Syngene International, Veeda Clinical Research across CROs; and Molbio Diagnostics, Agappe Diagnostic, Metropolis Healthcare, Dr Lal Path Labs, Mylab Life Solutions across other sectors such as diagnostics. TPL distributes products to these end customers on a Pan-India basis through authorised distributors. The company has long-standing relationships with end customers as well as distributors, which it has achieved by aligning offerings with their business needs and through the support of an on-ground sales and marketing team. 

The company currently operates through five manufacturing facilities located in West Bengal. These facilities are vertically integrated and equipped with automated support systems that help the company in maintaining quality, increasing productivity, and reducing costs. Its key manufacturing facilities are ISO 9001:2015 and ISO 13485:2016/NS-EN ISO 13485:2016 certified. In addition, it has received a CE-IVD certificate for products such as micro and macro tips, cryovials and centrifuge tubes which indicates that the products of the company have been assessed by the manufacturer and deemed to meet EU safety, health and environmental protection requirements enabling the Company access to the European region.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its plans for repayment/prepayment of certain borrowings (Rs. 78.54 cr.), funding proposed capex (Rs. 62.00 cr.) and general corporate purposes, TPL is coming out with a maiden combo book building process IPO consisting of fresh equity issue worth Rs. 150 cr. (approx. 2265868 shares at the upper cap) and an offer for sale (OFS) of 13200000 equity shares of Rs. 2 each (approx. Rs. 873.84 cr. at the upper cap). Thus the overall size of the issue is Rs. 1023.84 cr. (approx. 15465868 shares). The company has fixed the price band of Rs. 635 - Rs. 662 per share. 

The minimum application to be made is for 22 shares and in multiples thereon, thereafter. The issue opens for subscription on November 15, 2021, and will close on November 17, 2021. Post allotment, shares will be listed on BSE and NSE. The company has reserved 60000 shares for its eligible employees and offering them a discount of Rs. 61 per share. Out of the residual portion, it has allocated 50% for QIBs, 15% for HNIs and 35% for the Retail investors. The issue constitutes 29.07% of the post issue paid-up capital of the company. The joint Book Running Lead Managers (BRLMs) to this issue are ICICI Securities Ltd., Edelweiss Financial Services Ltd. and SBI Capital Markets Ltd. and KFin Technologies Pvt. Ltd. is the registrar to the issue. 

Having issued initial equity at par, the company converted some equity in the swap ratio of 1 for 82 shares for the amalgamation scheme. It has also issued bonus shares in the ratio of 52 for 1 in June 2021. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 0.03, Rs. 1.78 and Rs. 51.83 per share. 

Post issue, TPL's current paid-up equity capital of Rs. 10.19 cr. will stand enhanced to Rs. 10.64 cr. Based on the upper price band of the issue price, the company is looking for a market cap of Rs. 3522.26 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, TPL has posted a turnover/net profit of Rs. 184.72 cr. / Rs.38.96 cr. (Proforma-Standalone basis) for FY19, Rs. 180.05 cr. / Rs. 40.53 cr. (on a standalone basis) for FY20 and Rs. 234.29 cr./ Rs. 68.87 cr. (on a consolidated basis) for FY21. For the Q1 ended on June 30, 2021, for FY22 it has earned a net profit of Rs. 24.84 cr. on a turnover of Rs. 71.13 cr. (on a consolidated basis). Thus it has been reporting growth in bottom lines amidst all odds. 

For the last three fiscals, the company has posted an average EPS of Rs. 10.55 and an average RoNW of 25.73%. The issue is priced at a P/BV of 12.54 based on its NAV of Rs. 52.80 as of June 30, 2021, and at a P/BV of 8.41 based on its post-issue NAV of Rs. 78.74 (at the upper price band). 

If we annualize FY22 earnings and attribute it to fully diluted post issue equity capital, then the asking price is at a P/E of around 35.46. Thus considering the segment, the issue appears reasonably priced.

COMPARISON WITH LISTED PEERS:
As per the offer documents, TPL has no listed peers to compare with.

DIVIDEND POLICY:
The company has not paid any dividend till the filing of this offer RHP. However, it will adopt a prudent dividend policy post listing based on its financial performance and future prospects. 

MERCHANT BANKER'S PERFORMANCES:
The three BRLMs associated with this issue have handled 42 issues in the past three years and out of which 16 issues closed below the offer price on the listing date.