Tega Industries IPO opens: Should you subscribe to the issue?

New Delhi: The Rs 619 crore IPO of Kolkata-based Tega Industries, manufacturer of consumables for the mining industry, kicked off for subscription on Wednesday, December 1.

The issue is entirely an offer for sale (OFS) of up to 13,669,478 equity shares by promoters and existing shareholders and the company will not receive any proceeds from the IPO.

Promoters Madan Mohan Mohanka and Manish Mohanka will sell 33,14,657 equity shares and 6,62,931 shares respectively, through an offer to sell, and the remaining 96,91,890 equity shares will be offloaded by investor Wagner.

The company has fixed its price band in the range of Rs 443 to Rs 453 apeice. Investors can bid a minimum of 33 shares and then multiples thereof. The issue can be subscribed till Friday, December 3.

Majority of the brokerages have a positive view of this issue and have recommended participating in the IPO, citing attractive prices and market leadership.

However, the company competes with strong multinational companies for its product and service portfolio. Although the competition is limited, it comes from organised and unorganised players.

Marwadi Shares and Finance said that given the adjusted FY 21 EPS of Rs 20.58 on a post-issue basis, the company will be trading at P / E of 22.02 with a market cap of Rs 3003.1 crore, which is at discount to its peers.

The brokerage assigned a " subscribe " rating to this IPO due to its leadership in specialized and "critical to operate" products, with high barriers to replacement or substitution and a reasonable valuation compared to its peers.

The company, which plans to expand its manufacturing services in India and abroad, has deep relationships with some of the world's largest large miners.

Tega is the world's second largest producer of polymer-based plant mill liners on the basis of sales as of June 2021. The company has a highly diversified revenue stream from various geographies around the world.

Reliance Securities, which has an IPO rating, said the IPO is worth 22 times FY 21 earnings, which looks attractive compared to its AIA Engineering peers.

"In addition, the size of the global market for mineral crushing, screening and processing equipment provides a vision of sustainable growth for the company," he added. "A strong balance sheet, industry-leading rate of return, and strong cash-generating capabilities provide an edge over peers."

The company intends to gain market share and expand globally in North America, South America, Australia, and South Africa. It has plans to expand its manufacturing unit in Chile, grow its product offering and explore inorganic growth opportunities.

According to Canara Bank Securities, the release is available at PE 18.80x for fiscal year 21, which looks attractive. The company has shown strong growth potential in the last three years. Subscribing to the list was recommended, as well as long-term earnings from the cause.

Tega Industries has garnered Rs 186 crore from anchor investors. The company has decided to allocate 41 lakh equity shares to anchor investors at Rs 453 apiece, valuing the size of the deal at Rs 185.76 crore, according to a BSE circular.

Major investors include: BNP Paribas Arbitrage, Goldman Sachs Funds, Ashoka India Equity Investment Trust Plc, Kuber India Fund, SBI Mutual Fund (MF), ICICI Prudential MF, HDFC MF, Axis MF, Tata MF and Aditya Birla Sun Life MF.

In the last three years, the company has shown stable growth in revenue and net profit. The company's margins are also expanding, Swastika Investmart said in its IPO note. The company meets the requirements of mining companies around the world.

With an underwriting rating to include earnings and long-term, the company added: "The company has enough cash balance for the private equity fund to come out. The company's valuation appears to be priced attractively to investors."

The company reported total revenue of Rs 179.38 crore for the period ending June 30, 2021 with a net profit of Rs 11.88 crore. Revenue and net profit in fiscal year 2021 stood at Rs 856.68 crore and Rs 65.5 crore, respectively.

As of June 30, 2021, the company has an order book of Rs 316.14 crore, which allows them significant visibility to plan for future growth. The company is net debt free as of June 2021.

Religare Broking said the company is well positioned in the mineral processing value chain, offering a wide range of products and solutions that are critical at various stages of mineral processing.

With a positive outlook on the company, he added: "His leadership position, solid research, proven track record in developing an innovative product portfolio, and outstanding global customers are all important positive factors for the company."

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