What Tarsons Products’ H1 update tells us as stock slips below IPO price

Last month, Kolkata-based Tarsons Products Ltd became one of nearly 50 companies in India this year to launch an initial public offering seeking to take advantage of investor euphoria that propelled stock markets to record levels in October and have kept them near their peaks. That bullish investor sentiment, however, now seems to be waning.

Tarsons had received a strong response to its IPO, and the shale sale was covered 77.5 times. The company raised Rs 150 crore in fresh capital via the IPO via some of its promoters and shareholders mopped up about Rs 873 crore.

Shares of Tarsons, which makes labware and other medical equipment, had listed at a premium of 5.7% to the IPO price of Rs 662 apiece on November 26. The shares touched a high of Rs 928.65 on November 29, but have lost a third of their value since then.

The shares were trading around Rs 617.85 apiece on Friday, down 6.7% from the IPO price. This gives Tarsons a market capitalization of around Rs 3,287 crore as against a valuation of Rs 3,522.25 crore it sought in the IPO.

To be sure, benchmark stock market indexes have also fallen over the past few weeks and are about 7-8% from record highs. But the Tarsons stock has recorded a far steeper drop.

In a bid to soothe investor worries, the company on Friday came out with an update of its financial and operational performance for the April-September period, the first half of the current financial year. 

First-half update

Tarsons said demand for its products remained strong in H1 despite localised lockdowns during the period.

It witnessed a strong volume uptick on a year-on-year basis in H1 across its product categories in India, thanks to robust demand from consumers across the pharmaceuticals and healthcare sectors, contract research organisations, and the diagnostics industry. Exports were healthy, too.

The company added that it has seen continued traction in its business in October and November 2021 and that it expects demand to remain robust for the remaining period of the fiscal year.

In H1, the company’s revenue grew by around 40% from a year earlier. EBIDTA margins for H1 widened to around 52% from 46.5% for the year ended March 2021 on account of improvement in product mix, higher realisations, operating leverage and cost rationalisation.

The company said it is working on expanding its manufacturing capacities for both existing and new products. It is building a new factory in West Bengal and aims to commission it by the middle of 2023.

Tarsons also plans to develop a new fulfilment centre in Amta, West Bengal to expand its warehouse operations. At the same location, the company aims for backward integration in the manufacturing process by building an in-house sterilization centre for captive consumption. It aims to complete this project by the middle of 2023.

Usage of IPO proceeds

Tarsons said it has repaid debt amounting to Rs 78 crore, utilising part of the IPO proceeds. This has brought down its net debt substantially and will result in lower financing cost and a stronger balance sheet position.

It will use the remaining net proceeds of the primary issue to fund its expansion projects.

Tarsons, which was incorporated in 1983, has a diversified portfolio with over 1,700 SKUs across 300 products.

It currently operates five factories in West Bengal and exports its products to over 40 countries.