Tega Industries IPO Fundamental Analysis (Subscribe)

Key Business Highlights

Incorporated in the year 1976 in West Bengal, Tega (the ‘Issuer’) is a manufacturer and distributor of specialized critical to operating and recurring consumable products for the global mineral beneficiation, mining, and bulk solids handling industry. Tega commenced operations in 1978 in India, with a foreign collaboration with Skega AB, Sweden. Madan Mohan Mohanka (promoter) acquired the entire equity stake of Skega AB in our Company in 2001.
The Issuer acquired Tega Industries Africa (Pty) Ltd. in FY 2007, a South Africa-based manufacturer and distributor of grinding mill liners and screen media. Tega also acquired Chile-based Tega Industries and Perth-based Losugen Pty. Ltd in FY 2011.
The product portfolio comprises more than 55 mineral processing and material handling products. The Issuer 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. The products are used across different stages of mining and mineral processing, screening, grinding, and material handling, including after-market, spending on wear, spare parts, grinding media, and power.
The company has had a presence in 513, 498, and 479 installation sites, respectively, in over 70 countries since the last three fiscals.
The Issuer has six manufacturing sites including three in India, at Dahej in Gujarat, and at Samali and Kalyani in West Bengal, and three sites in major mining hubs of Chile, South Africa, and Australia, with a total built-up area of 74,255 Sq. mts. The company also has 18 global and 14 domestic sales offices located close to our key customers and mining sites.
Revenue from operations from outside India constituted 84.48%, 86.42%, 85.92%, and 85.83% of revenue from operations in Q1FY22, FY21, FY20, and FY19 respectively.
Tega is further expanding operations in North America, South America, Australia, and South Africa. Focus end-customers are mineral processing sites involved in gold and copper ore beneficiation which accounted for 34.92% and 27.25% respectively of the sale of products as an average of the last three fiscals and 45.48% and 20.76% respectively for Q1FY22.
The Issuer has a diversified client base with top 10 customers accounting for 34.19%, 32.62%, 31.31%, and 22.51% of the sale of products and services for Q1FY22, FY21, FY20, and FY19 respectively.

Financial Review of Tega Industries

The total revenue of Tega for Q1FY22 was Rs 179.39 crore and PAT was Rs 11.88 crore for the same period. The total revenues of the Issuer increased by 23% in FY21 to Rs 856.68 crore from Rs 695.54 crore in FY20. The increase was due to the increase in revenue from operations by 17%. Other income rose substantially by 378% due to an increase in net gain from foreign currency fluctuations and the one-time receipt of government grants in FY21. Tega posted an adjusted PAT of Rs 85.25 crore in FY21 (adjusted for other income) as against Rs 65.50 crore in FY20. The profitability margins are strong and show an increasing trend since the last three fiscals as seen in Table 1 below.

The debt to equity ratio was 0.36x as of the end of FY21. Return on equity was 1.91%, 22.25%, 14.43% and 8.33% for Q1FY22, FY21, FY20 and FY19 respectively.

Table 1 - Financials and Ratios (Amount in Rs Crore)
Title	Q1FY22	FY2021	FY2020	FY2019
Total Revenue	179.39	856.68	695.54	643.01
Other Income	6.18	51.16	10.70	9.26
PAT	11.88	136.41	65.50	32.67
EBITDA	24.11	190.16	108.34	98.56
Total Assets	1056.17	1018.34	887.32	790.27
Cash generated from operations	49.24	170.25	128.38	68.67

Valuation and Peer Comparison

The Issue is priced at 53.93x with annualized EPS of 8.40 calculated at the upper price band of Rs 453 per share. The Issue appears to be reasonably priced with a peer average P/E of 30.25. P/BV is 4.19 at NAV of Rs 108.06 as of the end of Q1FY22. AIA Engineering (share price of Rs 1848.10 as of 28 th Nov 2021) is shown as the peer of the Issuer as per the RHP.

Table 2 - Listed peer comparison
Particulars	AIA Engineering Ltd	Tega Industries
Face value per share	2	10
Total income for FY 21 (Cr)	3,053.69	856.68
EPS (as on 28 Nov 21)	61.47	24.1
NAV per share	449.99	105.04
Return on net worth	13.33%	22.23%
P/E (As on 28 Nov 21)	30.25	53.93
P/B (As on 28 Nov 21)	4.12	4.19

Issue Snapshot

Tega Industries IPO opens on 1st Dec 2021 with an issue size of Rs 619.23 crore ( 100% OFS ). The Issue has a price band of Rs 443-453 per share, the retail portion is 35% and one application amount is Rs 14949. The objective of the Issue is to reap the benefits of listing and the promoter’s shareholding would come down to 79% from 85%. The Issue closes on 3 rd Dec and is expected to list on 13 th Dec 2021.

Conclusion and Investment strategy

The Issuer provides a wide range of products and solutions for processing across different stages of mineral processing and the products are critical to the overall productivity of a mineral processing site. In-house R&D and manufacturing capabilities, including design, process engineering, and manufacturing facilitate customized designs in a short time frame, offer comprehensive solutions and better service standards to the customers, and enable cross-selling of multiple products. The sector in which the Issuer operates is a capital and working capital intensive sector. The Issuer has grown with both organic and inorganic acquisitions in the past. The Issuer has reasonable profit margins and the financials show an increasing trend in the last three fiscals. Looking at the reasonable valuations of the Issue, one may apply to the IPO for the short to medium term.

Reviewer recommends Subscribe to the issue.

Review By CA Priyanka Choudhary on 24th Nov 2021

Review Author

About CA Priyanka Choudhary

CA Priyanka Choudhary, a freelance chartered accountant

Priyanka Choudhary Jain is a Chartered Accountant and an experienced credit analyst. She has worked with CRISIL as Senior Credit Analyst on ratings assignments including business and financial analysis in Corporates as well as the Public Finance Sector.

Email: [email protected]

DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor prior to making any actual investment decisions, based on information published here. Any reader taking decisions based on any information published here does so entirely at own risk. Investors should bear in mind that any investment in stock markets are subject to unpredictable market related risks. Above information is based on RHP and other documents available as of date coupled with market perception. Author has no plans to invest in this offer.

User Reviews

1. Paresh Jani Dec 01 2021 11:29:54 AM Reply

Respected Madam,

I had gone through your detailed analysis of Tega Industries.

Frankly speaking, I have read your analysis for the first time and impressed.

This mail is for the appreciation of your work.

With Regards
Paresh Jani