Tarsons Products

Plastic labware maker

To expand manufacturing capacities in certain product verticals through capex

Tarsons Products is engaged in the designing, development, manufacturing and marketing of consumables, reusables and others including benchtop equipment, used in various laboratories across research organizations, academia institutes, pharmaceutical companies, Contract Research Organizations (CROs), Diagnostic companies and hospitals. As of June 30, 2021, the company had a diversified product portfolio with over 1,700 SKUs across 300 products.

The product portfolio is classified into three key categories which includes (1) Consumables: this category includes products such as centrifuge ware, cryogenic ware, liquid handling, PCR consumables and petri dish, transfer pipettes and others. (2) Reusables: this category includes products such as bottles, carboys, beakers, measuring cylinders and tube racks and (3) Others: this category includes benchtop instrumentation such as vortex shakers, centrifuges pipettors and others.

In the three months ended June 30, 2021, and June 30, 2020, and in FYs 2021, 2020 and 2019, revenue from 'consumables' product category was Rs 48.11 crore, Rs 25.98 crore, Rs 140.24 crore, Rs 101.63 crore and Rs 97.06 crore representing 69.85%, 62.00%, 61.53%, 58.08% and 54.63% of total revenue from operations, respectively.

In the three months ended June 30, 2021, and June 30, 2020, and in FYs 2021, 2020 and 2019, revenue from 'reusables' category was Rs 17.89 crore, Rs 14.06 crore, Rs 76.94 crore, Rs 61.06 crore and Rs 67.08 crore representing 25.99%, 33.57%, 33.76%, 34.90% and 37.76% of total revenue from operations, respectively.

In the three months ended June 30, 2021, and June 30, 2020, and in FYs 2021, 2020 and 2019, revenue from 'others' category was Rs 2.86 crore, Rs 1.85 crore, Rs 10.71 crore, Rs 12.28 crore and Rs 13.52 crore representing 4.16%, 4.44%, 4.70%, 7.02% and 7.61% of total revenue from operations, respectively.

The company intends to expand its manufacturing capacities in certain product verticals such as liquid handling, centrifuge ware, and cryo ware through investment in additional machines, moulds and ancillary infrastructure.

The company caters to diverse range of end customers across various sectors which include research organizations, academic institutions, pharmaceutical companies, CROs, diagnostic companies, and hospitals. Some of its end customers include Indian Institute of Chemical Technology, National Centre for Biological Sciences across academic institutes and research organizations; Dr Reddy's Laboratories, and Enzene Biosciences.

As of June 30, 2021,the  company had a network of 186 active distributors across the domestic and overseas market. This includes 141 active distributors in the domestic market.

The company currently operates through its five manufacturing facilities located in West Bengal. These facilities are vertically integrated and equipped with automated support systems that helps maintain quality, increase productivity, and reduce costs.

The company supplies its products to over 40 countries across both developed and emerging markets through a blend of branded and ODM (original design manufacturer) sales. Its overseas sales in FY 2021 accounted for Rs 75.59 crore, representing 33.02% of total revenue from operations, with majority of sales being to USA and countries in Europe.

In recent times, there has been a significant growth in demand in India for labware products. This market growth is primarily attributed to the increasing incidences of acute and chronic diseases, rising need for timely and accurate disease diagnosis, growing healthcare sector, and a rise in investments in the pharmaceutical and biotechnology sectors for R&D activities.

Offer and its objects

The IPO comprises fresh issue of equity shares worth up to Rs 150 crore and an offer for sale of Rs 873.84 crore by existing shareholders and investors: Sanjive Sehgal, Rohan Sehgal and Clear Vision Investment Holdings Pte Limited.

The Price band for the IPO is Rs 635 to Rs 662 per equity share of face value Rs 2 each.

The objectives for the fresh issue are: Rs 78.5 crore will be used for Repayment/prepayment of certain borrowings, Rs 62 crore for funding capital expenditure for the Proposed Expansion and remaining amount for general corporate purposes.

The promoters of the company are Sanjive Sehgal and Rohan Sehgal. They hold an aggregate of 2,58,54,373 equity shares, aggregating to 50.75% of the pre-offer issued and paid-up Equity Share capital. The post-IPO shareholding for the same is expected to be around 47.27%.

The issue, through the book-building process, will open on 15 November 2021 and will close on 17 November 2021.

Strengths

In terms of revenue, the company is one of the leading plastic labware player in India, which is estimated at Rs 1225 crore as of FY 2020 by value terms. Plastic labware market is further expected to expand at a CAGR of 16.00% to reach approximately Rs 2575.5 crore by FY 2025.

The company has a diverse range of labware products across varied customer segments, such as pipette tips, petri dish, centrifuge tubes, cryo vials, transfer pipettes, bottles, carboys, measuring cylinder, desiccators, mini coolers, cryobox and test tube racks. The company also develops customized products to suit specific requirements of customers.

The manufacturing processes are automated with use of robotics and certain other technologies that have developed in collaboration with its overseas partners. Automation lines help improve product cost efficiencies and output.

There is pan India sales and distribution network that enables catering to a wide range of end customers, thereby ensuring effective penetration of diverse range of products. Its distribution network across India comprises over 141 authorized distributors as of June 30, 2021.

The management team has significant experience in the life sciences industry and is led by Chairman and Promoter Sanjive Sehgal, who has over 30 years of experience in the labware manufacturing sector in India.

Weaknesses

The company imports more than 75% of its raw materials and purchases specialized grades of plastic resins from global suppliers located across countries. In the three months ended June 30, 2021, June 30, 2020, and in FYs 2021, 2020 and 2019, purchase of raw materials accounted for 79.89%, 77.60%, 76.12%, 76.65% and 77.64%, respectively, of the import on total purchases. Any delay, interruption, or reduction in the supply of raw materials, may adversely affect business.

Due to the geographic concentration of its manufacturing units in West Bengal, operations are susceptible to local and regional factors, such as accidents, system failures, civil unrest as well as other adverse social, economic, and political events in India. In FY21, 86.32% of total manufacturing revenue is contributed by its manufacturing units located at Dhulagarh and Jangalpur.

One of the manufacturing facilities located in the Jalan Industrial Complex at Jangalpur (admeasuring approximately 3.50 acres) applied for conversion of the Jangalpur land to non-agricultural purpose for the purposes of construction of a manufacturing facility and a warehouse. However, the company is yet to receive the requisite approvals and, therefore, may be subject to regulatory action. In FY 2021, the Jangalpur facility contributed 58.00% of the total consolidated sale realization.

Many countries including India have joined in the efforts to ban plastic products. In case any plastic products manufactured by the company is banned in India or in any of the markets where it exports, it could have a material and adverse effect on business.

Valuation

In Q1 FY2022, consolidated sales were up by 64.58% to Rs 69.15 crore compared to standalone sales of Q1 FY2021. OPM increased by 2569 bps to 53.16%, which led to 218.50% rise in operating profit to Rs 36.76 crore. Other income increased 26.97% to Rs 1.98 crore, while interest cost rose 43.70% to Rs 0.83 crore and depreciation increased 44.01% to Rs 4.57 crore. PBT after EO rose 256.59% to Rs 33.34 crore. Tax expense for Q1 FY2022 was of Rs 8.51 crore compared to tax expense of Rs 2.38 crore in Q1 FY2021. Net profit rose 256.47% to Rs 24.84 crore.

For FY 2021, consolidated sales were up by 30.14% to Rs 228.91 crore compared to standalone sales of FY 2020. OPM increased by 582 bps to 45.19%, which led to 49.36% rise in operating profit to Rs 103.44 crore. Other income increased 29.58% to Rs 5.38 crore, while interest cost fell 55.40% to Rs 2.72 crore and depreciation decreased 3.59% to Rs 13.66 crore. PBT after EO rose 73.97% to Rs 92.43 crore. Tax expense for Q1 FY2022 was of Rs 23.56 crore compared to tax expense of Rs 12.60 crore in Q1 FY2021. Net profit rose 69.92% to Rs 68.87 crore.

The EPS (excluding extraordinary items and relevant tax) on post-issue equity works out to Rs 12.9 for FY2021. At the upper price band of Rs 662, P/E works out to 51.3. There are no listed companies in India that engage in a similar business.