Tega Industries IPO Review: Subscribe or Avoid?

This is yet another action-packed week for IPO markets and the latest to hit the markets is Tega Industries IPO which opens for subscription on 1 December. Priced in the range of INR443 – 453 per share, the offer aims to mobilize as much as INR619.23 crore. All the shares will be sold through an Offer For Sale (OFS) by existing shareholders. In Tega Industries IPO Review, we try to find out if it is a worthwhile for investors to subscribe to the IPO.

Tega IPO Details

Subscription Dates	1 – 3 December 2021
Price Band	INR443 – 453 per share
Fresh issue	NIL
Offer For Sale	13,669,478 shares (INR605.56 – 619.23 crore)
Total IPO size	13,669,478 shares (INR605.56 – 619.23 crore)
Minimum bid (lot size)	33 shares (INR14,949)
Face Value	INR10 per share
Retail Allocation	35%
Listing On	NSE, BSE

Tega Industries IPO Review: Business Background

The company is second largest producer of polymer-based mill liners in terms of revenues for calendar year 2020. Mill liners fundamentally protect mills (machines that grind, cut, and crush solid materials into useable sizes) from the wear that comes with grinding harsh raw materials. Mill liners primarily have a life of 6 months to 2 years, depending on the hardness of the ore to be refined. As a result, the demand for mill liner is repeating in nature largely due to regular wear.

Copper and gold together accounted for 75% of mill liner market share during 2020, followed by iron ore and other (cement and aggregates) with 25%. The global mill liner market was estimated at USD1.73 billion in 2020. According to Frost & Sullivan forecasts, the industry is expected to grow to USD2.43 billion by 2025. The market was oligopolistic in nature with top 5 producers capturing a global market share of 49% namely Metso-Outotec, Me Elecmetal, Bradken, PT Growth and Tega Industries.

The company operates six manufacturing facilities across the globe, including three in India. In FY2021, FY2020 and FY2019, its India and overseas customer base included 513, 498 and 479 installation sites, respectively.

Exports accounted for around 85% of its revenue while domestic market contributed only 15%. Important export destinations include North America (13.7% of revenues in FY2021), South America (24.7%), EMER (Europe, Middle East and Russia) (15.5%), Africa (22.6%), and Asia Pacific (9.8%).

Tega Industries’ Financial Performance & Valuations

Tega Industries’ revenues have increased consistently and so have been profits. The company also has tight control on expenses which means its profitability has also improved in recent years. As a result, the company’s net profit margin has improved from 5.1% in FY2019 to 16.9% in FY2021.

	FY2019	FY2020	FY2021	Q1 FY2022
Revenue	643.1	695.6	856.7	179.4
Expenses	598.4	638.1	675.5	163.8
Net income	32.7	65.5	136.4	11.9
Margin (%)	5.1	9.4	15.9	6.6

Figures in INR crore unless specified otherwise

As clearly visible in the table below, the company has managed to cut down on debt and also posted a strong growth in return ratios.

	FY2019	FY2020	FY2021
EPS	4.90	9.84	20.48
PE ratio	–	–	21.63
RONW (%)	8.14	14.16	22.23
ROCE (%)	11.12	11.17	24.76
EBITDA (%)	16.49	16.85	27.86
Debt/Equity	0.53	0.53	0.31
NAV	–	–	105.04

Tega Industries IPO Review: Positive Industry Structure

The company has posted strong growth in revenues in the recent years and this growth is likely to continue primarily on two accounts – increasing demand of copper from sectors such as renewable energy and electric vehicles (EVs) and declining ore grade. As copper and gold ore concentration depletes, miners are forced to excavate more for optimal yield. This, in-turn, is expected to drive higher capital and operating expenditures in the industry which translates into higher demand of mill liners.

Tega Industries IPO Review: Should you invest?

In summary, here are the five reasons which make Tega Industries IPO a decent investment

• Positive demand outlook for considerable future
• Quality of revenues (repeat orders and spares account for 75% of business)
• Global operations (exports accounting for 85% of revenues)
• Strong balance sheet (net debt-free)
• Attractive valuations (PE ratio of 21.6, improving profitability & return ratios)

Some of these points, for example exports, may also turn out to be limitations or risks associated with the company’s business if situation changes. Nevertheless, the fact that the company management has successfully led the operations so far is indicative of its capabilities.

It also helps that Tega Industries is being actively traded in grey market and currently has 65% IPO GMP.

Overall, Tega Industries IPO review indicates that the offer holds promise for investors owing to a solid business model, deleveraged balance sheet and attractive valuations.