Tatva Chintan Pharma: IPO analysis

Tatva Chintan Pharma Chem, a speciality chemical company, is involved in the manufacturing of structure-directing agents (SDAs, 40 per cent of FY21 revenue), phase transfer catalysts (PTCs, 27 per cent), electrolyte salt for supercapacitor batteries (1 per cent), and pharma and agrochemical intermediaries (30 per cent). PTCs are catalysts that are used in chemical processes to eliminate unsafe elements, increase yield and minimise wastage. Whereas SDAs are made through forward integration of PTCs and helps in forming particular channels and pores during the synthesis of zeolites. Zeolites are microporous minerals used as commercial adsorbents. The company's products have application in green chemistries wherein chemical processes are undertaken in an environmentally friendly manner. These products find their end-use in industries such as automotive, petroleum, pharmaceutical, agrochemicals, paints, and others. The company counts significant players such as Merck, Bayer AG, Asian Paints, and others as its customers and derives around 70 per cent of its revenue from exports. It currently operates two plants with a total capacity of 280 KL along with an R&D centre in Gujarat. Globally, a need for conducting chemical processes in environmentally less harmful ways has given impetus to green chemistries. This will lead to a rise in the global PTC market to $132.8Bn in 2024 from $103.1Bn in 2019. The introduction of BS VI vehicles in India and China has led to a sharp increase in demand for zeolites (and hence SDA) which helps in reducing emission levels. Additionally, though a niche for the company right now, the electrolyte salt division is expected to experience good growth on the back of demand for electric vehicles and battery storage devices. Tatva Chintan is raising Rs 500 crore, out of which Rs 225 crore will be used for capacity expansion while the rest is an offer for sale. Led by three first-generation entrepreneurs, the company intends to launch new products and further enhance its R&D expertise. Strengths The company is the largest and only commercial manufacturer of SDAs for zeolites in India. It has a DSIR approved R&D facility in Vadodara and, in the past 10 years has commercialised 82 products. In the past three years, it has invested around 1.7-1.9 per cent of its revenue towards R&D, and its products are highly technical. Long product approval timelines coupled with stringent product quality requirements lead to high switching costs for the company's customers. The company's products find application in various end-use industries such as automotive, petroleum, pharmaceutical, agrochemicals, paints and coatings, dyes and pigments, and others protecting it from cyclicity