Steel City Securities Limited

Tatva Chintan Pharma Chem IPO

• IPO Advise Subscribe to The Issue(Expect 20-25% Return Over Medium
Term

• Leading manufacturer of SDA, PTC, electrolyte salts and PASC

• The company is the largest and only commercial manufacturer of SDAs
for zeolites in India and also enjoys the second largest position globally
• Valuation(higher price band of Rs 1083, the offer is made at around
45.9 times
• Incorporated on June 12, 1996, Tatva Chintan Pharma chem is a
specialty chemicalsmanufacturing company engaged in the
manufacturing of a diverse portfolio of structure directing agents(SDAs),
phase transfer catalysts (PTCs), electrolyte salts for super capacitor
batteries and pharmaceutical and agrochemical intermediates and other
specialty chemicals (PASC).

• It is the largest and only commercial manufacturer of SDAs for zeolites in

India.
• It also enjoys the second largest position globally.
• In addition, the company is one of the leading global producers of
anentire range of PTCs in India and one of the key producers across the
globe.
• The company is promoted by Chintan Shah, Ajay Patel and Shekhar
Somani, who each have over 24 years in the specialty chemicals
manufacturing industry and have established strong business
relationships with domestic as well as overseas customers.

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• As on March 31, 2021, the company manufactures over 154 products

which can be divided into the following four broad categories-

Structure Directing Agents:

• SDAs are quarternary salts which are chemicals which help in the
formation of particular channels and pores during the synthesis of
zeolites.
• Zeolites have variedapplications including as catalysts and adsorbents.
• In particular, zeolites promoted with transition metals such as copper
and iron have been proven to be active for the selective catalytic
reduction, which is currently considered as one of the preferred
technologies for emission control in automotive applications.
• With a great focus on green technology and a healthy
environment,industries are evaluating new technologies by investing in
R&D.
• New and innovative applications are driving the growth of the zeolite
market, in turn driving the quaternary ammonium compounds market.
• During the fiscals ended March 31, 2019, 2020, and 2021, revenue from
sale of SDAs was Rs 25.383 crore, Rs 101.654 crore, and Rs 120.243
crore, respectively, which accounted for 12.30%, 38.62% and 40.03%
respectively, of total revenue from operations.

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Phase Transfer Catalysts:

• PTCs are used to facilitate the migration of a reactant from one phase
into another phase where the reaction occurs, in a heterogeneous multi-
phase system.
• PTCsare used for a variety of industrial processes.
• Phase transfer catalysts are widely used in green chemistry applications.
• Therefore, the increasing global focus of the chemical industryon
reducing residual waste and reducing the use of organic solvents is
boosting the market for catalysts for phase transfer.
• During the fiscals ended March 31, 2019, 2020, and 2021, revenue from
sale of PTCs was Rs 86.406 crore, Rs 74.911 crore, and Rs 81.612 crore,
respectively, which accounted for 41.88%, 28.46% and 27.17%
respectively, of total revenue from operations.

Electrolyte salts for super capacitor batteries:

• Electrolyte salts are used in the manufacture of super capacitor
batteries, which are used in automobile batteries and other batteries.
• It is thelargest producer of electrolyte salts for super capacitor batteries
in India.
• During the fiscals ended March 31, 2019, 2020, and 2021, revenue from
sale of electrolyte salts for super capacitor batteries was Rs 3.202 crore,
Rs 4.629 crore, and Rs 3.035 crore, respectively, which accounted for
1.55%, 1.76%, and 1.01% respectively, of revenue from operations.

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Pharmaceutical and agrochemical intermediates and other specialty

chemicals:

• The products manufactured by the company under this category are

used in the manufacture of variouspharmaceutical and agrochemical
products as intermediates, disinfectants and catalysts, and solvents.
• In addition, it also manufacture specialty chemicals under this category
that are used indyes and pigments, personal care ingredients, flavour
and fragrance sectors.
• During the fiscals ended March 31, 2019, 2020, and 2021, revenue from
sale of PASC was Rs 87.458 crore, Rs 76.491 crore, and Rs 91.218 crore,
respectively, which accounted for 42.39%,29.06%, and 30.37%
respectively, of total revenue from operations.
• The company’sproducts has a wide application, serving customers across
various industries, including the automotive, petroleum, pharmaceutical,
agro chemicals, paints and coatings, dyes and pigments, personal care
and flavour and fragrances industries.
• Apart from customers in India, it also exports products to over 25
countries, including the USA, China, Germany, Japan, South Africa, and
the UK.
• During the Fiscals ended March 31, 2019, 2020, and 2021, exports of
products amounted to Rs 143.519 crore, Rs 202.020 crore and Rs
211.992 crore, which accounted for 69.57%, 76.74%, and 70.58%, of
total revenue from operations, respectively.

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• Key customers include Merck, Bayer AG, Asian Paints Ltd., Ipox
Chemicals KFT, Laurus Labs Ltd., Tosoh Asia Pte. Ltd., SRF Limited, Navin
Fluorine International Limited, Oriental AromaticsLtd., Atul Limited,
Otsuka Chemical (i) Pvt Ltd., Meghmani Organics Limited, Divi’s
Laboratories Limited, Hawks Chemical Company Limited, Firmenich
Aromatics Prod.(I) Pvt. Ltd., Jiangsu Guotai Super Power New Materials
Co., Ltd. and Jade Chem Co. Ltd
• The company currently operates through two manufacturing facilities
situated at Ankleshwar and Dahej in Gujarat, both of which are
strategically located very close to the Hazira port.
• Thesemanufacturing facilities have an annual installed reactor capacity
of 280 KL (Kiloliters) and 13 assembly lines, as on March 31, 2021.
• The manufacturing facilities employ various modern machinery and
equipment, including reactors, assembly lines, ANFDs (Agitated Nutsche
Filter Dryer), centrifuges and RCVDs(Rotary Conical Vacuum Dryers).
• These equipment enable facilities to undertake various chemistry
processes, such as, quaternization, methylation, amination, phase
transfer reactions, cyclization, halogenation, condensation, and
electrolysis.
• As partof eco-friendly and environmentally sustainable initiatives, the
company has adopted various ‘green’ chemistry processes, including
electrolysis as part of manufacturing process.
• Besides the single starting raw material, electrolysis only uses water and
electricity to produce the target product.
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• Considering that no additional chemicals are used, this helps ensure it

does notgenerate any additional waste or by-products.
• Over the years, the company has invested in processes and
manufacturing infrastructure and systems.
• From fiscal 2018 to fiscal 2021,installed reactor capacity grew from 130
KL to 280 KL, and assembly lines grew from 10 assembly lines to
17assembly lines respectively.
• Capacity utilisation of the reactor was 68.85% and assembly was 54.5%
in FY2021 compared to 90.34% in reactor and 91.47% in FY2020
• Power requirements of Ankleshwar manufacturing facility are met
through local state power grid.
• For Dahej manufacturing facility, the company has entered into a power
purchase agreement with a private sector power company for the supply
of electrical power.
• It also maintain diesel generator sets at manufacturing facilities, as a
precaution against any disruption in power supply.
• The Ankleshwar manufacturing facility and Dahej manufacturing facility
receive water supply from the Gujarat Industrial Development
Corporation (GIDC).
• In fiscals 2019, 2020, and 2021, utility charges accounted for 4.24%,
5.76%, and 5.75% respectively, of total expenses in such periods.
• The company’s manufacturing facilities are strategically located in
proximity to the Hazira port.
• It transport raw materials and finished products by road, air and sea.
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• The company outsource the transport of raw materials and finished

goods to third-party logistics companies for transportation and logistics
requirements.
• It predominantly sell its products on a cost, insurance and freight basis
• The raw materials used in the manufacturing process are categorised as
tertiary amines, alkyl halides, general solvents and general and fine
chemicals.
• In fiscals 2019, 2020, and 2021, the cost of raw materials consumed
represented 57.34%, 55.52%, and 50.24% respectively, of total revenue
from operations.
• Tertiary amines are sourced from both domestic as well as overseas
suppliers located at USA, Germany and China.
• Apart from tertiary amines, the remaining raw materials are primarily
sourced from the domestic suppliers in Gujarat and Maharashtra, on a
purchase order basis.
• During the fiscals ended March 31, 2019, 2020, and 2021, expenditure
on raw materials sourced from domestic suppliers accounted for
73.51%, 44.40% and 54.55%, of total expenditure on raw materials,
respectively.
• The company has a dedicated R&D facility that is recognized by the
Department of Scientific and Industrial Research (DSIR), Government of
India, at Vadodara, Gujarat, with state-of-the-art research and
development infrastructure.

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• The company has developed 22 products, 15 products, and 16 products,

respectively, in the fiscals ended 2019, 2020, and 2021, respectively,
which have contributed Rs 0.994 crore, Rs 5.763 crore and Rs 0.001
crore to its total revenue, amounting to 0.48%, 2.18%, and 0.00
(negligible)%, of total revenue, in the respective periods.
• Further, 82 products have been developed by them since March 31,
2011, and these products have contributed Rs 71.043 crore, Rs 54.911
crore and Rs 26.626 crore to total revenue, which constituted 23.19%,
20.75%, and 12.88% of total revenue, in Fiscals 2021, 2020, and 2019,
respectively.

The Offer and the Objects

• The offer comprises a fresh issue of 2077562 equity shares at upper

price band of Rs 1083 and 2096925 equity shares at lower price band of
Rs 1073 aggregating up to Rs 225 crore by the company and an offer for
sale by selling shareholders of up to 2539243 equity shares at the upper
price band of Rs 1083 and 2562908 equity shares at the lower price band
of Rs 1073 aggregating to Rs 275 crore.
• Promoter Ajaykumar Mansukhlal’s Patel pre-issue shareholding was
21.02%, which shall decrease to 18.1% at the upper price band of Rs
1083, while Chintan Nitinkumar Shah’s shareholding will decrease from
28.12% to 22.1% and Shekhar Rasiklal Somani’s shareholding will
decrease from 31.39% to 25.4%

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• Other Promoter Group Selling Shareholders’ shareholding will decrease

from 16.1% to 10.5%.
• Other Promoter Group Selling Shareholders are Ajay Mansukhlal Patel
HUF, Priti Ajaykumar Patel, Darshana Nitinkumar Shah, Kajal Shekhar
Somani, Shitalkumar Rasiklal Somani, Samirkumar Rasiklal Somani
• The proceeds from the offer for Sale shall be received by the selling
shareholders
• The company proposes to utilize the net proceeds of the fresh issue
towards funding capital expenditure requirements for expansion of its
Dahej manufacturing facility amounting Rs 147.1 crore, funding capital
expenditure requirements for upgradation at its R&D facility in Vadodara
amounting Rs 23.971 crore and balance towards general corporate
purposes.
• The company is currently in the process of expanding the installed
capacity of Dahej manufacturing facility located in Dahej, Gujarat. As at
March 31, 2021, it has an installed production capacity of 280 KL and 17
assembly lines at its manufacturing facilities.
• Pursuant to the proposed expansion, the company intends to enhance
the installed capacity at manufacturing facilities by 200 KL and 14
assembly lines.
• The total estimated cost for the proposed expansion is approximately Rs
151.323 crore.

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• The company also is in the process of upgrading capabilities at its R&D

facility located in Vadodara, Gujarat. The total estimated cost for the
proposed upgradation is approximately Rs 23.971 crore.

Strengths
• The SDA market remains highly consolidated with a handful of players
operating at the global level.
• With very few players in the Indian and global market, the company is
the largest and only commercial manufacturer of SDAs for zeolites in
India.
• It also enjoys the second largest position globally.
• Opportunities in the automotive industry continue to grow, as
compliance with the regulations regarding the emission control in
commercial vehicles becomes a mandate worldwide.
• The demand for quaternary ammonium compounds is growing in the
Asia Pacific region owing to the increasing disposable income of the
people in China, and India, which is increasing the sales of personal care
products
• As a manufacturer of specialty chemicals, the company focuses on
application of products which form a key ingredient to customers’
manufacturing and industrial processes.
• For instance, SDA and PTC products have various applications in green
chemistry, which is pertinent considering the growing focus on green
and sustainable technologies.
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• The company continuously strives to improve its processes and

infrastructure to help reduce its impact on the environment and have
accordingly, undertaken various ‘green’ chemistry processes such as
electrolysis.
• The specialty chemicals manufacturers enjoy strong entry barriers in the
form of vendor acquisition, lengthy and complex product approval,
registration process, customer loyalty among others.
• These barriers help companies ensure sustainable growth
• The company has established long standing relationships with marquee
players across various industries.
• Of total customer base as of December 31, 2020, 38.34% of these
customers have been customers for over five years (but less than 10
years) and 28.77% of these customers have been customers for over 10
years
• The company has over the years, diversified, expanded, and evolved its
operations into manufacturing of pharmaceutical and agrochemical
intermediates and other specialty chemicals, which have diverse
applications across various industries.
• India’s specialty chemical companies are gaining favour with global
MNCs because of the geopolitical shift after the outbreak of Covid-19 as
the world looks to reduce its dependence on China

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Weaknesses

• The company is subject to quality requirements and strict technical

specifications and audits by institutional customers.
• Its failure to comply with the quality standards and technical
specifications prescribed by such customers may lead to loss of business
from such customers and could negatively impact reputation.
• The company depends on limited number of suppliers for certain raw
materials.
• The loss of one or more such suppliers could adversely affect business,
results of operations, financial condition and cash flows.
• The company is dependent on a limited number of customers for a
significant portion of revenue.
• Top 10 customers contributed 59.99%, 58.44%, and 46.99%,
respectively, to revenue from operations in fiscals 2021, 2020, and 2019.
• The company operates in a hazardous industry and is subject to certain
business and operational risks consequent to operations, such as, the
manufacture, usage and storage of various hazardous substances

Valuation

• For FY 2021, consolidated sales were up by 14% to Rs 300.36 crore.

• OPM rose100 bps to 21.9% which led to 20% increase in operating profit
to Rs 65.7 crore.
• Other income increased 329% to 5.93 crore while interest cost rose7%
to Rs 4.21 crore and depreciation increased 40% to Rs 6.73 crore.
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• PBT increased 28% to Rs 60.7 crore. Tax expenses fell8% to Rs 8.43

crore.
• Net profit increased 38% to Rs 52.26 crore.
• At the higher price band of Rs 1083, the offer is made at around 45.9
times its EPS of Rs 23.6 for the period ended March 31, 2021, on a post-
issue equity share capital of Rs 22.17 crore of facevalue of Rs 10 each.
• Listed industry peers of the company are Aarti Industries, Navin Fluorine
International, Alkyl Amines Chemicals, Vinati Organics and Fine Organics.
• In comparisonAarti Industries trades at 59.5 times its FY2021 EPS of Rs
14.4 at the current market price of Rs 859, Navin Fluorine International
trades at 78.4 times its FY2021 EPS of Rs 49.63 at the current market
price of Rs 3891, Alkyl Amines Chemicalstrades at 101 times its FY2021
EPS of Rs 37.1 at the current market price of Rs 3776, Vinati Organics
trades at 74.4 times its FY2021 EPS of Rs 26.2 at the current market price
of Rs 1950 and Fine Organicstrades at 76.8 times its FY2021 EPS of Rs
39.2 at the current market price of Rs 3014.

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Tatva Chintan Pharma Chem:Issue Highlights

Fresh issue (in Rs crore) 225
Offer for sale (in Rs crore) 275
Offer for sale (in number of shares)
- in Upper price band 2539243
- in Lower price band 2562908

Price Band (Rs) 1073-1083

For Fresh Issue Offer size (in no of
shares )
- in Upper price band 2077562
- in Lower price band 2096925
Pre issued capital (Rs crore) 20.09
Post issue capital (Rs crore)
- in Upper price band 22.17
- in Lower price band 22.18
Pre issue promoter and Promoter 100.00
Group shareholding (%)
Post issue Promoter and Promoter
Group shareholding
-On higher price band (%) 88.54
-On lower price band (%) 88.45
Bid Size (in No. of shares) 13
Issue open date 16/07/2021
Issue closed date 20/07/2021
Listing BSE, NSE
Rating 50/100

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Tatva Chintan Pharma Chem: Consolidated Financials

Particulars 1903 (12) 2003 (12) 2103 (12)
Total Income 206.31 263.24 300.36
OPM 16.4 20.9 21.9
Operating Profits 33.80 54.95 65.70
Other Income 0.49 1.38 5.93
PBIDT 34.30 56.34 71.63
Interest 3.63 3.95 4.21
PBDT 30.66 52.39 67.43
Depreciation 4.02 4.79 6.73
PBT 26.64 47.60 60.70
Share of Profit/loss of JV 0.00 0.00 0.00
PBT Before EO 26.64 47.60 60.70
EO -0.75 0.00 0.00
PBT after EO 27.39 47.60 60.70
Provision for Tax 6.98 9.14 8.43
Profit after Tax 20.42 38.45 52.26
PPA -0.13 0.66 0.00
Net profit after PPA 20.54 37.79 52.26
MI 0.00 0.00 0.00
Net profit after MI 20.54 37.79 52.26
EPS (Rs)* 9.0 17.3 23.6
*EPS annualized on post issue equity capital of Rs 22.17 crore of face value of
Rs 10 each
Figures in Rs crore
Source: Capitaline Corporate Database

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