Tega Industries coming with an IPO to raise upto Rs 619 crore

Tega Industries

• Tega Industries is coming out with a 100% book building; initial public offering (IPO) of 1,36,69,478 shares of Rs 10 each in a price band Rs 443-453 per equity share.
• Not more than 50% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not less than 15% of the issue will be available for the non-institutional bidders and the remaining 35% for the retail investors.
  
• The issue will open for subscription on December 1, 2021 and will close on December 3, 2021.
  
• The shares will be listed on BSE as well as NSE.
  
• The face value of the share is Rs 10 and is priced 44.30 times of its face value on the lower side and 45.30 times on the higher side.
  
• Book running lead manager to the issue are Axis Capital and JM Financial.
  
• Compliance Officer for the issue is Sudipta Bhowal.
  

Profile of the company

The company is a leading manufacturer and distributor of specialized ‘critical to operate’ and recurring consumable products for the global mineral beneficiation, mining and bulk solids handling industry. It offer comprehensive solutions to marquee global clients in the mineral beneficiation, mining and bulk solids handling industry, through its wide product portfolio of specialized abrasion and wear-resistant rubber, polyurethane, steel and ceramic based lining components, used by its 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. Its engineering capability, which has evolved over decades, has enabled it to consistently offer its quality, complex manufactured products within stipulated timelines, allowing it to reduce downtime and maximize operational efficiency for its customers, and forge robust relationships with its customers leading to high recurring revenues.

The company’s product portfolio comprises more than 55 mineral processing and material handling products. Its mineral processing and material handling products offering covers a wide range of solutions in the mining equipment, aggregates equipment and the mineral consumables industry. Its products offering include 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 its expertise in tribology.

Proceed is being used for:

• Achieving the benefits of listing the equity shares on the Stock Exchanges.
  

Industry overview

The GDP contribution of the mining and quarrying sector, both in terms of nominal and real GDP, has declined over the last decade. In regards to nominal GDP, as can be seen from the chart below, the share of mining and quarrying declined from 2.13% in 2015–2016 to 1.75% by 2019–2020; the goal of the government is to raise the share from 1.75% to 2.50%. A timeline for this 2.5% commitment, however, is not clear, with 2024-2025 assumed as the timeline, in line with the government’s 2024-2025 vision of becoming a $5 trillion economy.

The ore occur in large lumps which is broken on desired size using crushers, screens and other mineral processing equipment. The mineral processing value chain after mining the ore to floatation requires various mineral processing equipment such as chutes, grinding mills, trommels and screens, hydrocylones, pumps, floatation parts and conveyors. The surface of these equipment is subjected to high impact, sliding abrasion and corrosion. To protect these equipment, have a longer service life, reduce the downtime and reduce the noise levels during the operation it is very critical to install reliable products called liners in these equipment which can withstand the sliding abrasion. The science and engineering of these interacting surfaces in relative motion called ‘Tribology’. The combination of mineral processing engineering, mechanical engineering and material science provide products that extends the service life of the equipment in use, reduce the down time as well as the operating expense

Pros and strengths

Leading producer of specialized and ‘critical to operate’ products: The company is present across the value chain of a mineral processing site, providing a wide range of products and solutions for processing across different stages of mineral processing. Its products are critical to the overall productivity of a mineral processing site. They are a relatively low cost component in a unit’s operations, however, they play a critical role in determining a unit’s productivity, in terms of throughput, lower grinding media consumption, lower energy consumption and lower downtime, leading to lower operating costs for its customers. Downtime can be expensive for its customers at the mining sites, which leads to substantial losses to them. In its experience, mineral processing sites do not tend to switch to a substitute supplier, even if the product offered by a new entrant or established substitute supplier is comparatively cheaper. This is due to the high cost of initial planning involved, the lead time required for approval, degree of certainty of the products of an established supplier, the high cost of downtime or shutdown of a site and relatively lower percentage cost of its components in the total operating costs of a mineral processing site. 

High value add and technology intensive products: The company’s in-house R&D and manufacturing capabilities, including design, process engineering and manufacturing facilities, allow it to turn around customized designs in a short time frame, offer comprehensive solutions and better service standards to its customers and cross sell multiple products to its customers. It designs and customizes its products uniquely for each customer site, taking into account multiple characteristics of the application including type of ore, ore size, tonnage, breakage rate, power or rotational speed, pH, temperature, humidity, size, distribution and trajectory, sound levels, health and safety standards. Its continuous design innovation makes its products highly engineered “built-to-suit” rather than “off-the-shelf”, with its products being unique for each customer site taking into account multiple characteristics of its application.

Long standing market player with marquee global customer base: Over time, the company has diversified its capabilities by expanding its product portfolio and augmenting its technical capabilities. Starting from one manufacturing facility in 1978, it has now grown to operate six manufacturing facilities across the globe. It has a track-record of servicing leading global mining companies for a long period of time and in several cases, its relationships with key customers span more than 10 years, leading to high repeat revenues for it. It has Indian manufacturing operations at Dahej in Gujarat and at Samali and Kalyani in West Bengal, and its international manufacturing operations is in proximity to the world’s major copper and gold mining locations in Chile, South Africa and Australia, with a total built-up area of 74255 Sq. mts. Its extensive footprint across key mining belts worldwide has allowed it to enjoy economies of scale and logistical advantages and develop significant insight into its customers’ needs and market trends.

Experienced management team supported by large, diverse and skilled work force: The company has an experienced Board, with an optimal mix of whole-time directors, independent directors and a nominee director of Wagner, each with several years of relevant experience. Its Board is supported by strong management and technical teams, which include individuals with specialized training and/or substantial experience, including in operations, business development, quality assurance, customer relationships, finance and human resource management. It has a team of experienced employees located in various parts of the world. Each of the global business units at Chile, South Africa and Australia are led by business heads in respective geographies, which provides a focused approach to each respective region. The diversity of its workforce allows it to optimally manage its overseas operations.

Risks and concerns

Rely on third party logistic and support service providers: The company relies on third party logistic and support service providers including for transportation services at multiple stages of its business activities, including for procurement of raw materials from its suppliers and for transportation of its finished products from its manufacturing facilities to its customers and warehousing facilities. It generally uses water and road transportation services to meet its transportation requirements. Its ability to identify and build relationships with reliable transportation partners worldwide contributes to its growth and successful management of its deliveries as well as other aspects of its operations. The company may face transportation risks including damage or losses of goods in transit, delay in deliveries to its customers etc. due to loss or pilferage, which it may not be able to fully recover from its service provider or from its insurance coverage. Further, while it adjust freight costs in the cost of products sold to its customers, it bear transportation risk for the duration of transit.

Significant power, water and fuel requirements: The company requires substantial power, water and fuel for its manufacturing facilities. In particular, power and fuel costs represent a significant portion of the production costs for its operations. If its power sources are disrupted, it may have to rely on captive generators, which may not be able to consistently meet its requirements or incur additional costs towards sourcing additional power and steam. The cost of electricity from state electricity boards could be significantly higher, thereby adversely affecting its cost of production and profitability. Further, if for any reason such electricity is not available, it may need to shut down its plants until an adequate supply of electricity is restored. Interruptions of electricity supply can also result in production shutdowns, increased costs associated with restarting production and the loss of production in progress. Any of the foregoing situations could adversely affect its production costs and results of operations.

Risks associated with expansion into new geographic markets globally: Any geographic expansion subjects the company to various challenges, including those relating to its lack of familiarity with consumer preferences, regulations and economic conditions of new markets. Language barriers, cultural differences, difficulties in staffing and managing such operations, coupled with a possible lack of brand recognition locally may also affect its ability to expand into newer geographic markets. The major markets where it is currently expanding its operations include North America, South America, Australia and South Africa. Further, depending on the product it market in such new territories, it may also face significant competition from other players who may already be established in such markets and may have a significant market share, or from a well-established player. It may not be able to compete effectively with such players if it is unable to offer competitive products at better price points which appeal to consumers in such markets.

Business is capital intensive: The company’s sources of additional capital, where required to meet its capital expenditure plans, may include the incurrence of debt or the issue of equity or debt securities or a combination of both. Further, its budgeted resources may prove insufficient to meet its requirements, draining its internal accruals or requiring it to raise additional capital. If the company is required to raise additional funds through the incurrence of debt, its interest and debt repayment obligations will increase, and could have a significant effect on its profitability and cash flows and it may be subject to additional covenants, which could limit its ability to access cash flows from operations. If is unable to successfully utilise the facilities for which it has raised additional funds, it will have adverse effect on its business.

Outlook

Tega Industries is a leading manufacturer and distributor of specialized, critical, and recurring consumable products for the global mineral beneficiation, mining, and bulk solids handling industry. The company offers a wide product portfolio of specialized abrasion and wear-resistant rubber, polyurethane, steel, and ceramic-based lining components used by their customers across different stages of mining and mineral processing, screening, grinding, and material handling. The company has a track record of developing and commercializing a diverse and innovative product portfolio of 55 mineral processing and material handling products over the years, including DynaPrime launched by it in 2018. This product is targeted towards large mineral processing units which historically or conventionally had relied on traditionally used steel liners. On the concern side, if the company is unable to maintain constant dialogue with its customers, understand the recurring needs of their operations or deliver the spares to replace the parts in a timely manner and of a certain quality, it may not be able to retain its long-term relationship with them and lose their repeat orders to its competitors. The company relies on its IT infrastructure to provide it with connectivity and data backup across its locations and functions. While the ERP solutions that it has implemented have enabled it to improve its working capital cycles, it can provide no assurance that it will be able to do so in the future.

The issue has been offered in a price band of Rs 443-453 per equity share. The aggregate size of the offer is around Rs 605.55 crore to Rs 619.22 crore based on lower and upper price band respectively. On performance front, the company’s total income increased by Rs 161.14 crore, or 23.17%, from Rs 695.54 crore in Fiscal 2020 to Rs 856.68 crore in Fiscal 2021. The company’s restated total profit for the year increased by Rs 70.90 crore, or 108.24%, from Rs 65.50 crore in Fiscal 2020 to Rs 136.40 crore in Fiscal 2021. The company seeks to capitalize on its track record of adding new customers and mining sites across geographies. It also intend to leverage its strong product development, design, engineering and manufacturing capabilities along with its customer relationships to grow its share of customer wallets and improve its market penetration by cross-selling within its existing customer base. It plans to continue expanding its manufacturing capabilities in order to capture future growth trends. In order to enhance its existing capabilities, it plans to expand its manufacturing capacity and capabilities, both in India and overseas.