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IPO update: Tatva Chintan Pharma Chem

Increasing domestic consumption, growing export business and the emergence of the 'China plus one' strategy are some tailwinds for the company.

IPO update: Tatva Chintan Pharma Chem

Tatva Chintan Pharma Chem came out with its IPO about 10 weeks ago. Value Research's analysis of the IPO can be found here. In this follow-up article, we focus on the share price and financial performance of the company post-IPO.

Our analysis of the IPO
Tatva Chintan Pharma is a speciality-chemical company involved in manufacturing structure-directing agents (SDAs), pharma and agrochemical intermediaries, phase-transfer catalysts and electrolyte salt for supercapacitor batteries. It is the largest manufacturer of SDAs in India and the second largest globally. With a solid global presence, the company derives almost 70 per cent of its revenue from exports. In view of its expertise in SDAs, diversified product mix and international presence, we gave the company a score of 20 out of 27. The company's revenue mix, which highly depends on its top 10 customers and its working-capital cycle were our major concerns.

Our rating of the company was based on the following factors:

  • Out of 10 business metrics, the company did well on six
  • Out of six business metrics, the company did well on all of them
  • Out of eight financial metrics, the company did well on six
  • Out of three valuation-related metrics, the company did well on two

Stock performance since listing
Tatva Chintan had a great reception from investors and was oversubscribed by 180 times. The retail portion was subscribed by 35 times, the institutional portion was subscribed by 186 times and the high-net-worth individual (HNI) portion was subscribed by 516 times. It emerged as the second most subscribed IPO in 2021.

The stock had an amazing debut listing at a premium of 95 per cent at Rs 2111 over its issue price of Rs 1,083. The stock continued to surge and touched its all-time high of Rs 2,534. The price is still at a solid position of Rs 2,207, 104 per cent more than the issue price and 4.5 per cent over its listing price.

Business performance
The company released great results for the first quarter of FY22. Its top-line grew by 112.4 per cent YoY, EBITDA grew by 174 per cent YoY and profit after tax grew by 245 per cent YoY. The top-line was flat QoQ, the EBITDA margin increased to 26.2 per cent as against 24.3 per cent in the previous quarter. Profits also grew by 9.6 per cent on a QoQ basis.

The growth was mainly driven by the growing demand following the economic revival and the company's ability to pass costs down to its customers. Speciality-chemical stocks have been performing well in the market for the last few years and have gained attention in the last year.

What to do now?
Tatva Chintan made an amazing debut and has been maintaining the same price levels since listing, as reflected in its recent earnings report. The company has planned to do capacity expansion with the IPO proceeds and the management expects solid revenue growth in view of the ongoing momentum in the speciality-chemicals sector in India.

Owing to its fair valuations, the stock caught investors' attention. However, following its stellar debut, the P/E of the stock now stands at 92, which is 100 per cent more than its IPO valuation. The P/B value is at 7, which is still below peers' median level of 11.8.

The speciality-chemicals industry has been experiencing tailwinds, such as increasing domestic consumption, growing export business and the emergence of the 'China plus one' strategy in several countries to avoid supply chain issues. Being an industry leader in SDA, Tatva Chintan expects significant growth in the next few years. Investors who are confident about the company's prospects and can do due diligence can consider this stock.

Disclaimer: This analysis is not meant to serve as a recommendation. Do your own research before investing in the company. If you are interested in our stock recommendations, please visit www.valueresearchstocks.com