Tatva Chintan Pharma Chem’s IPO opens today, should you subscribe?

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The Rs 500 crore initial public offer (IPO) of Gujarat-based Tatva Chintan Pharma Chem opens for subscription today. The price band for the issue has been fixed at Rs 1,073-1,083 per share. The bidding will close on July 20. Investors can bid for a minimum of 13 equity shares and in multiples, thereafter, translating to a minimum bidding amount of Rs 14,079 at the higher end of the price band. A retail investor can at max apply for 14 lots or 182 shares for Rs 1,97,106.

The public offer comprises fresh issuance of equity shares of Rs 225 crore, and an offer for sale of Rs 275 crore by promoter and promoter group including Ajaykumar Mansukhlal Patel, Chintan Nitinkumar Shah, and Shekhar Rasiklal Somani. The specialty chemical manufacturer intends to use the net proceeds from the fresh issue for funding expansion of its Dahej manufacturing facility and up-gradation at its R&D facility in Vadodara.

Anchor book

Ahead of the IPO the specialty chemical company on July 15 has garnered Rs 149.99 crore from 22 anchor investors that includes the like of Goldman Sachs, HSBC Global, Abu Dhabi Investment Authority, Aberdeen Standard Asia, and Nomura. Domestic institutional investor like Axis MF, Aditya Birla Sun Life, Nippon Life, SBI Life Insurance, SBI MF, ICICI Prudential, and HDFC Trustee were also allotted shares.

Grey market chatter

In the grey markets, the share was quoting at Rs 1,783 to Rs 1803 commanding a premium of Rs 710-720 or 66% over its issue price. “At the upper band asking PE comes to 41.62x and P/BV comes at 13x. Comparing with other listed peers the issue seems fairly priced. Momentum in chemical stock and small issue size should help in attracting good subscription,” said Abhay Doshi, Founder of Unlisted Arena who tracks grey markets.

Brokerage view

Here is what brokerages have to say about the issue.

Motilal Oswal | Rating: Subscribe

Tatva Chintan Pharma Chem 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. The issue is valued at 45.9x FY21 P/E (price to earnings) on a post-issue basis, which appears reasonable compared to peers (avg. P/E of 59x), as it enjoys higher earnings growth (62% CAGR (Compounded annual growth rate) vs. avg. 38% CAGR for peers over FY18-21).

Angel Broking | Rating: Subscribe

Tatva Chintan Pharma Chem is the largest player in India for PTCs and the only manufacturer in India of SDAs for zeolites which have importance due to preference for green technologies. The company has shown good revenue and earnings growth and has a healthy balance sheet with solid return ratios. It is raising funds for Capex and R&D requirements as they believe that there is a strong growth opportunity available. Given the client additions, wide portfolio, capabilities, and favourable outlook for the industry, Angel Broking believes that Tatva Chintan can maintain healthy growth rates which justifies the ~46x FY21 EPS (earnings per share) commanded by the company.

Marwadi Shares and Finance | Rating: Subscribe

The company is going to list at a P/E of 41.62x with a market cap of Rs. 2,400.47 crore, while its peers namely Aarti Industries and Navin Fluorine International are trading at a P/E of 59.54x and 73.95X respectively. It is a niche global player in specialty chemicals with SDAs in centre stage, having a globally renowned clients list and reasonable valuation as compared to its listed peers.

(Disclaimer: The recommendations in this story are by the respective research and brokerage firm. Money9 & its management do not bear any responsibility for their investment advice. Please consult your investment advisor before investing.)