Kolkata-based life sciences company Tarsons Products is planning to launch its IPO soon after getting regulatory approval. Tarsons IPO will be a mix of fresh issue and sale by existing shareholders. Here is a brief synopsis of the company, its operations, and future plans.
#1 Business background
Tarsons is engaged in the designing, development, manufacturing and marketing of various consumable and reusable products in laboratories of various research organizations, academic institutions, pharmaceutical companies, CROs, diagnostic companies, and hospitals. Its consumable products include centrifuge ware, cryogenic ware, liquid handling, PCR consumables and petri dish, and transfer pipettes. On the other hand, reusable products include bottles, carboys, beakers, measuring cylinders and tube racks. The company also makes benchtop equipment like Centrifuge and Hot Plate Stirrer for laboratories. As of 31 March 2021, it had a diversified product portfolio with over 1,700 SKUs products across 300 distinct products.
The company’s major customers include 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. Tarsons distributes its products to these end customers on a pan-India basis through authorised distributors.
#2 Industry outlook
According to Frost & Sullivan, the plastic labware market in India was estimated at INR1,225 crore in 2020 and is estimated to expand at a CAGR of 16% to reach approximately INR2,576 crore by 2025. The industry has been historically dominated by global MNCs and Tarsons has been able to provide an alternate for high-cost imports by offering differentiated, consistent quality, and cost-effective products.
This rate is significantly higher than the global plastic laboratory products market which is expected to grow at a CAGR of 10.5% to USD13.8 billion by 2025. Nevertheless, the potential export market is massive allowing the company to penetrate further in new product segments. Tarsons supplies products to over 40 countries across both developed and emerging markets through a blend of branded and ODM (Original Design Manufacturer) sales.
#3 Tarsons IPO – Export operations
As mentioned above, the company supplies its products to over 40 international destinations, it is no wonder that exports contribute a sizeable chunk to the company’s top line.
In FY2021, the company generated INR75.6 crore in revenues through exports, representing 33% of its overall revenues. This is worth highlighting that export revenue and contribution to top line is up from previous year when it amounted to 26.9%.
Thanks to the increase in tariffs levied by the USA as well as tightening of environmental protection norms on Chinese goods over the past years, Tarsons Products has a lot going in its favor when it comes to overseas sales. In recent years, India has emerged as a cost-effective manufacturing alternative to China and domestic players like Tarsons are well-positioned to gain share in international markets.
#4 Private equity on board
The company received investment from Clear Vision Investments Holding Pte in 2018. The private equity firm picked up 49% equity stake but plans to pare its stake to nearly half by selling 12,500,000 shares through the Offer For Sale (OFS) route.
#5 Manufacturing strength
Tarsons currently operates five manufacturing facilities in West Bengal with the following attributes:
- Jangalpur – 14,220 sq. mts. manufacturing Pipette tips, Petri dishes, PCR plates, Micro centrifuge tube, Transfer pipette, Bottles
- Dhulagarh – 4,046 sq. mts. manufacturing Centrifuge tube, Cryo ware, Micro centrifuge tube
- Burroshibtolla I – 530 sq. mts. manufacturing Desicator, Utility tray, Drying tray, Specimen container
- Burroshibtolla II – 1,022 sq. mts manufacturing Ria vial, Aspirator bottle, Conical flask, Funnel, KIPPS apparatus
- Kasba – 277 sq. mts. manufacturing Centrifuges, Magnetic stirrers, Shakers
#6 Capacity expansion
Tarsons is currently developing its sixth facility at Panchla on land spreading across approximately 21,550 sq. mts which is equal to approximately the combined capacity and area of the other five facilities. This new facility will allow the company to double of its current production effectively providing a potential to double its revenues as well. The facility will also enable the entry and expansion of the company into the new product segments including PCR plates, deep well plates, screw cap tubes, volumetric flasks.
An amount of INR70.9 crore has been earmarked for funding capital expenditure for the proposed expansion. Out of this, INR54 crore will be used from Tarsons IPO proceeds while the remaining amount will be funded from internal accruals.
In addition, Tarsons intends to develop a new fulfilment centre in Amta which will also house a sterilization facility for captive consumption. Currently, the company outsources sterilization of finished products to a third-party vendor.
#7 Tarsons IPO – Issue objectives
Majority of the Tarsons IPO proceeds are earmarked towards debt reduction while another chunk is reserved for capital expenditure.
- Repayment/prepayment of all or certain of borrowings – INR75 crore
- Funding a part of the capital expenditure for Panchla manufacturing facility – INR54 crore
- General corporate purposes
#8 Tarsons IPO – Debt-free after public offer
According to draft prospectus, the company had outstanding loan amount of INR77.9 crore as of 15 July 2021. Majority of this amount was related to term loans and working capital loans. As mentioned above, the company plans to utilize INR75 crore from IPO proceeds towards debt reduction and it will be effectively debt free following the public offer.
#9 Strong Financial performance
Tarsons’ financial performance in the recent years has been marked with better cost control and higher profitability. A look at the last three years of financial data reveals that revenues have followed increasing trend and so have net profits. An important contribution in profitability has come from reduction in borrowings. The company’s current and long-term borrowings have declined in the last three years.
Tarsons Products’ Financial Performance (in INR crore)
#10 High RONW and ability to reinvest
For the year ended 31 March 2021, the company’s RONW stood at 28.2%. This is higher than 20.5% in FY2020 when its performance was negatively affected by Covid-19 pandemic. The weighted average RONW of the last three years is also quite impressive at 25.7%. With quite big addressable market and reinvestment opportunity, this combination of high RONW and low debt can do wonders for the company.