IPO Analysis: Tega Industries Ltd

IPO Rating: Invest for long term  

About the issue:  

Tega Industries manufactures and distributes specialized ‘critical to operate’ and recurring consumable products for the global mineral beneficiation, mining and bulk solids handling industry.  

The company is coming out with its initial public offering (IPO) of equity shares of the face value of Rs 10 per equity share. The maiden offer comprises an offer for the sale of shares worth Rs 619.23 crore by existing investors, according to its red herring prospectus. The price band of the issue has been fixed at Rs 443 to Rs 453 per equity share. The IPO opening date is December 1, 2021, while it will be closing on December 3, 2021. The issue will be listed on the exchange on December 13, 2021. The IPO market lot size is 33 shares. A retail-individual investor can apply up to a maximum of 13 lots (429 shares or Rs 194,337). The objects of the offer are to achieve the benefits of listing the equity shares on the stock exchanges. 

Tega Industries IPO Details: 

About the company:  

Established in 1976, Tega Industries is a leading manufacturer and distributor of specialized, critical, and recurring consumable products for the global mineral beneficiation, mining, and bulk solids handling industry. Globally, Tega Industries is the second-largest producer of polymer-based mill liners, based on revenues for the year 2020.  

The company offers a wide product portfolio of specialized abrasion and wear-resistant rubber, polyurethane, steel, and ceramic-based lining components used by their customers across different stages of mining and mineral processing, screening, grinding, and material handling. The company's product portfolio comprises more than 55 mineral processing and material handling products.  

The company has six manufacturing sites, including three in India, at Dahej in Gujarat, and Samali and Kalyani in West Bengal, and three sites in major mining hubs of Chile, South Africa, and Australia, with a total built-up area of 74255 sq. mt. In the last three fiscals, the company has had a presence in 513, 498, and 479 installation sites in over 70 countries. The majority of the company revenue (86.42 per cent in 2021) comes from operations outside India. The company has 18 global and 14 domestic sales offices located close to its key customers and mining sites. Tega Industries is further expanding its operations in major markets including North America, South America, Australia, and South Africa.  

Competitive strengths:  

One of the world's largest producers of polymer-based mill liners.  

Products cater to after-market spends providing recurring revenues.  

In-house R&D and manufacturing capabilities and a strong focus on quality control.  

Global customer base, and strong global manufacturing and sales capabilities.  

Consistent market growth and operational efficiency.  

Experienced management team supported by a large, and diversified workforce. 

Company Financials:  

For the last couple of years, the company’s financial position has witnessed a rising trend. The revenues of the company have grown with a CAGR of 15.5 per cent from FY19 to FY21. The company’s profitability has exploded with a CAGR of Rs 104.5 per cent in the last two fiscals. 

Recommendation:  

The company has a track record of servicing leading global mining companies for a long time. Revenue from operations from outside India constituted 86.42 per cent, 85.92 per cent and 85.83 per cent of its revenue from operations in fiscals 2021, 2020 and 2019, respectively. With an on-ground presence in all major mining locations, it is well-positioned to cater to its customers across the world which comprise large global mining companies as well as small and medium-sized companies in the mining and mineral beneficiation industry in developed countries as well as in emerging regions.   

Its net cash generated from operating activities was Rs 1,702.46 million, Rs 1,283.75 million and Rs 686.69 million in fiscals 2021, 2020 and 2019 respectively. Its EBITDA margin improved substantially to 27.8 per cent in FY21 as compared to 16.8 per cent in FY20. It posted excellent returns on investments as the ROE stood at 22.23 per cent and ROCE stood at 24.76 per cent in fiscal 2021. Its strong in-house R&D has allowed it to register eight global patents and several trademarks.   

Moreover, its deep relationships with some of the world’s largest senior miners and a robust order book of Rs 2,779.80 million as of March 31, 2021, allows it significant visibility to plan for future growth. Considering all such factors, we recommend to invest in the IPO for the long term.