Tarsons Products IPO - Information Note

5paisa Research Team 5paisa Research Team 16th November 2021 - 03:59 pm

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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