Tolins Tyres IPO review (Apply)

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Review By Dilip Davda on September 5, 2024

•    The company is in the business of manufacturing and marketing tyres and tread rubber and related products. 
•    It posted a minor setback for FY23 following the volatile crude oil markets and natural rubber prices. 
•    With its synergy and consolidation, it marked growth in its top and bottom lines for FY24 on a consolidated basis. 
•    Based on FY24 earnings, the issue relatively appears fully priced. 
•    Investors may park funds for medium to long term. 

ABOUT COMPANY:
Tolins Tyres Ltd. (TTL) is one of the leading players in the industry with all India presence with a diverse product range. It is one of the companies that are present in both verticals - manufacturing of new tyres and tread rubber. The Company has established itself as a major tyre retreading solutions provider across India and exported to 40 foreign countries, including the Middle East, East Africa, Jordan, Kenya and Egypt. 

The major products of the Company include two-wheeler, three- wheelers, light commercial vehicle and agricultural tyres, precured tread rubber and other accessories including bonding gum, tyre flap, vulcanizing solutions, etc. (Source: Company Commissioned CRISIL Report). TTL is primarily engaged in manufacturing of bias tyres for comprehensive array of vehicles (including light commercial, agricultural and two/three-wheeler vehicles) and precured tread rubber and are also involved in manufacturing of ancillary products like bonding gum, vulcanizing solution, tyre flaps and tubes. It commenced operations in 1982 as a proprietorship concern for manufacture of tread rubber. It incorporated this Company in the year 2003 and commenced production and sales in the year 2005 and since then have been one of the players for retreading products manufacturing owing to excellence and innovation in the industry. 

It is a profitable growing Company in the retreading and tyre manufacturing space and its Profit after Tax has grown at a CAGR of 541.98% between Fiscal 2022 (on a standalone basis) and Fiscal 2024 (on a consolidated basis). Over the years, it has expanded manufacturing capabilities through infusion of capital from the Promoters, in addition to growing dealers and distribution network. With over four decades of experience, it relies on product development capabilities to design and deliver proprietary products such as precured tread rubber and bias tyres that are market fit.

Under the "Tolins Tyres" brand, the company markets and sells tyres for use in light commercial vehicles, agricultural vehicles and two/three-wheeler vehicles, primarily in India and export to the Middle East, the ASEAN region, and Africa. The Company has established itself as a major tyre retreading solutions provider across India and exported to 40 foreign countries, including the Middle East, East Africa, Jordan, Kenya and Egypt. (Source: Company Commissioned CRISIL Report).

Currently, the Company caters to all three segments of market viz. exports, domestic sales and Original Equipment Manufacturers ("OEMs") like, Marangoni GRP, Kerala Agro Machinery Corporation Ltd (KAMCO), Redlands Motors, Tyre Grip etc. Further, it sells products through dealership network and depots. It has a widespread customer base with domestic customer base situated in most of the regions of the country and its international customers situated across varied countries covering Middle East, the ASEAN region and Africa. It has been recognized by customers for the high-quality of the products supplied by it, which is one of the factors that has helped it establish long term relationships with them. 

It has backward integrated with raw materials, design, process engineering, casting and machining capabilities which allows it greater control over process, timelines, pricing and quality. For products, it has also forward integrated with a network of sales channels through depot and dealers across key states in India. As on March 31, 2024, it had a total of 8 depots and 3,737 dealers across the country.

The location of its facilities in India is strategically close to the raw material source of natural rubber and infrastructure such as airports, seaports and national road network which gives it a competitive edge to address the market requirements. Currently, it has a consolidated capacity of 1.51 million tyre manufacturing, 12,486 tons tread rubber manufacturing capacity and 17,160 tons of rubber compound across the Company and its wholly owned subsidiaries.

Its competitive strengths lie in operational efficiency, ensuring timely delivery, stringent quality control, and product innovations. Anticipating that its quality management systems will sustain system-driven efficiency, it is poised for increased revenues and profitability. Needless to say, each of its product category is BIS (ISI certification required for Tyres) approved and almost all required sizes have got BIS product certification, which is mandatory for manufacturing and marketing Tyres in India. As at March 31, 2024, it had 201 employees on a consolidated basis comprising of 40 permanent employees and 161 contract employees.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden/combo IPO of fresh equity shares issue worth Rs. 200 cr. (approx. 8849558 shares at the upper cap), and an Offer for Sale (OFS) worth Rs. 30.00 cr. (approx. 1327434 shares at the upper cap). The company has announced a price band of Rs. 215 - Rs. 226 per equity shares of Rs. 5 each. The overall size of the issue will be approx. 10176992 shares worth Rs. 230.00 cr. The issue opens for subscription on September 09, 2024, and will close on September 11, 2024. The minimum application to be made is for 66 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 25.76% of the post-IPO paid-up equity capital. From the net proceeds of the fresh equity issue, the company will utilize Rs. 69.97 cr. for repayment/prepayment of certain borrowings of the company, Rs. 75.00 cr. for working capital, Rs. 23.15 cr. for investment I wholly owned subsidiary Tolin Rubbers Pvt. Ltd., Rs. 15.15 cr. for repayment/prepayment of certain outstanding of wholly owned subsidiary, and Rs. 8.00 cr. for general corporate purposes. 

The sole Book Running Lead Manager (BRLM) to this issue is Saffron Capital Advisors Pvt. Ltd., while Cameo Corporate Services Ltd. is the registrar to the issue. 

Having issued initial equity shares at par, the company issued further equity shares at a fixed price of Rs. 118 per share (based on Rs. 5 FV), between October 2023, and December 2023. It has also issued bonus shares in the ratio of 1.6 for 1 in October 2023. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 5.59, and Rs. 8.87 per share. 

Post-IPO, its current paid-up equity capital of Rs. 15.33 cr. will stand enhanced to Rs. 19.75 cr. Based on the upper cap of the IPO price band, the company is looking for a market cap of Rs. 892.90 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 114.39 cr. / Rs. 0.63 cr. (FY22), Rs. 119.68 cr. / Rs. 0.50 cr. (FY23) - (on a standalone basis), and Rs. 228.69 cr. / Rs. 26.06 cr. (FY24) - (on a consolidated basis). 

According to the management, setback for FY23 is attributed to spiraling prices of crude oil and natural rubber impacted their bottom lines while eased crude oil price and reduced natural rubber prices coupled with additional capacities created/acquired helped in boosting top and bottom lines for FY24. Considering its plans to be debt free company post-IPO and additional capacities participation in meeting the rising demands for the products, the company is poised for bright prospects ahead.

For the last three fiscals, the company has posted an average EPS of Rs. 5.67 and an average RoNW of 22.47%. The issue is priced at a P/BV of 6.14 based on its NAV of Rs. 36.80 as of March 31, 2024, and at a P/BV of 2.67 based on its post-IPO NAV of Rs. 84.52 per share (at the upper cap). 

If we attribute FY24 annualized earnings to its post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 34.35. Thus the issue relatively appears fully priced.

The company reported PAT margins of 0.56% (FY22), 4.22% (FY23), 11.45% (FY24), and RoCE margins of 14.80%, 31.49%, 36.08% for the referred periods, respectively. Its Debt-Equity ratio reduced to 0.78 as of March 31, 2024 (consolidated), against 4.51 as of March 31, 2022 (standalone).

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document. It has already adopted a dividend policy in January 2024, based on its financial performance and future prospects.

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown Indag Rubber, Vamshi Rubber, TVS Srichakra, GRP Ltd., and Elgi Rubber as their listed peers. They are trading at a P/E of 52.9, 31.3, 34.8, 69.1, and 149.0 (as of September 05, 2024). However, they are not truly comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
This is the 3rd mandate from Saffron Capital in the last three fiscals (including the ongoing one). Out of the last two listings, 1 opened at par and 1 with a premium of 38.29% on the date of listing.

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