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Review By Dilip Davda on November 27, 2021

•    TIL is one of the leading players in mining and mineral beneficiations.
•    It has posted consistent growth in top and bottom lines for the last 3 fiscals. 
•    Q1 of FY22 indicates an unmatched ratio based on FY21 full years working. 
•    Management is confident of maintaining trends of the last three fiscals going forward.
•    Based on all parameters, the issue appears fully priced. Investors may consider it with a medium to long term perspective. 

ABOUT COMPANY:
Tega Industries Ltd. (TIL) is a leading manufacturer and distributor of specialized 'critical to operating' and recurring consumable products for the global mineral beneficiation, mining and bulk solids handling industry, on the basis of sales as of June 30, 2021 (Source: F&S Report). Globally, it is the second-largest producer of polymer-based mill liners, on the basis of revenues as of June 30, 2021 (Source: F&S Report).

The company offers comprehensive solutions to marquee global clients in the mineral beneficiation, mining and bulk solids handling industry, through a wide product portfolio of specialized abrasion and wear-resistant rubber, polyurethane, steel and ceramic based lining components, used by customers across different stages of mining and mineral processing, screening, grinding and material handling, including after-market spends on wear, spare parts, grinding media and power, which are regular operating expenses for its customers. 

TIL's engineering capability, which has evolved over decades, has enabled it to consistently offer quality, complex manufactured products within stipulated timelines, allowing it to reduce downtime and maximize operational efficiency for customers, and forge robust relationships with them leading to high recurring revenues. 

It commenced operations in 1978 in India, with a foreign collaboration with Skega AB, Sweden. Foreign partners entire stake was bought out by the Indian promoters in 2001. Its product portfolio comprises more than 55 mineral processing and material handling products. 

TIL's products offering includes consumables required in the mines and mineral processing industry. In the sequence of their usage in the mineral processing value chain, after blasting to floatation, its products include chutes and its liners, grinding mill liners, trommels and screens, hydrocyclones, pumps and flotation parts and conveyor products. Its product range is engineered with a combination of mineral processing engineering, mechanical engineering and material sciences while utilising TIL's expertise in tribology.

TIL has around 25% domestic sales and the rest is coming from exports. Historically its first half generates around 40% of annual turnover and the second half 60%. The management is confident of maintaining the trends expressed for the last three fiscals going forward.  The turnover consists of 25% new orders and the rest from repeat orders, thus it enjoys good markets among its customers for consumable products of TIL. 

ISSUE DETAILS/CAPITAL HISTORY: 
To provide an exit to some of its stakeholders and for listing benefits, TIL is coming out with a maiden IPO of equity shares of Rs. 10 each via book building process with its secondary offer. The company is issuing 13669478 equity shares of Rs. 10 each in a price band of Rs. 443 - Rs. 453 per share to mobilize Rs. 619.23 cr.  at the upper cap. The minimum application to be made is for 33 shares and in multiples thereon, thereafter. The issue opens for subscription on December 01, 2021, and will close on December 03, 2021. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 20.62% of the post issue paid-up capital of the company. The company has allocated 50% for QIBs, 15% for HNIs and 35% for the Retail investors. 

The two joint Book Running Lead Managers (BRLMs) to this offer are Axis Capital Ltd. and JM Financial Ltd. while Link Intime India Pvt. Ltd. is the registrar to the issue. 

Having issued initial equity at par, the company raised further equity in the price range of Rs. 20.50 to Rs. 65.00 per share between September 1990 and November 2021. It has also issued bonus shares in the ratio of 12 for 1 in October 2013. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 0.02, Rs. 0.34, Rs. 0.53, Rs. 1.26 and Rs.  170.25 per share. 

This IPO being pure OFS, TIL's current paid-up equity capital of Rs. 66.29 cr. will remain the same post issue. (66293149 shares). Based on the upper cap of the issue price, the company is looking for a market cap of Rs. 3003.08 cr.

FINANCIAL PERFORMANCE: 
On the financial performance front, for the last three fiscals, TIL has (on a consolidated basis) posted total turnover/net profits of Rs. 643.01 cr. / Rs. 32.67 cr. (FY19), Rs. 695.54 cr. / Rs. 65.50 cr. (FY20) and Rs. 856.68 cr. / Rs. 136.41 cr. (FY21).  For the first quarter of FY22 ended on June 30, 2021, it has earned a net profit of Rs. 11.88 cr. on a turnover of Rs. 179.39 cr. 

For the last three fiscals, TIL has posted an average EPS of Rs. 14.34 (fully diluted) and an average RoNW of 17.19%. The issue is priced at a P.BV of 4.19 based on its NAV of Rs. 108.06 as of June 30, 2021. As of June 30, 2021, its paid-up equity capital of Rs. 66.29 cr. is supported by free reserves of Rs.  564.86 cr. 

Based on FY21 earnings, while the asking price is at a P/E of 22.01, on annualised FY22 earnings, the asking price is at a P/E of 63.18. On the basis of the last three fiscals average EPS, the asking price stands at a P/E of 31.59. Based on all other parameters, the issue appears fully priced. 

DIVIDEND POLICY:
The company has not paid any dividends on the equity shares from FY19 till the filing of this offer documents. It has paid a dividend of Rs. 500 per year on CCPP for the last three fiscals in accordance with the SHA. The company will adopt a prudent dividend policy post listing based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per offer documents, the company has shown AIA Engg. as its listed peer. It is currently trading at a P/E of 40.65 (as of November 26, 2021). However, they are not truly comparable on an apple to apple basis. 

MERCHANT BANKERS' PERFORMANCE:
The two BRLMs associated with this issue have handled 45 public issues in the past three years, out of which 18 issues closed below the offer price on the listing date.

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