It’s often said that the developed countries of the world have polluted the environment unthinkably when they were developing nations. But can we use that as an excuse today, to adopt environmentally unfriendly practices?
The bottom line is, ESG (Environmental, Social and Governance) compliances are here to stay. Yes, they will increase the cost of compliance and may prove inflationary as well, but governments and businesses are increasingly embracing the change.
No wonder then ‘climatic change’ investing is catching up fast and investors are placing their bets on ‘green’ companies.
The IPO market is now giving you an opportunity to invest in a company which is a part of green chemistry.
Tatva Chintan Pharma Chem Limited—a Gujarat-based specialty chemicals manufacturer—has launched a Rs 500-crore IPO on July 16, 2021.
It’s quite possible that you haven’t heard of this company before but you might be pleasantly surprised to know who its customers are.
The list includes some domestic and multinational marquee names—Merck, Bayer AG, Firmenich Aromatics, Ipox Chemicals KFT, Asian Paints Ltd., Laurus Labs, SRF, Navin Fluorine International, Meghmani Organics, Oriental Aromatics and Atul, to name a few.
The company has chalked out a massive expansion plan and aims to utilize a part of the IPO proceeds for capacity expansion and modernization of its R&D facility. The new capacities are expected to come on stream by November 2022.
At the IPO price, Tatva Chintan Pharma Chem is valued at ~Rs 2,400 crore
The key positives of Tatva Chintan Pharma Chem are:
- High growth potential
- Dominant producer status
- Exposure to the green energy sector
- Strong balance sheet
We expect Tatva Chintan’s revenues to grow at 20.2% between FY21 and FY24. The planned capex will increase its aggregate capacity by 200 kilo liters (71.4%).
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At this juncture, India’s chemical sector has been presenting overarching opportunities.
With multinational companies diversifying their supply chains away from China, India has emerged as a strong alternative. ‘China Plus One’ is a buzzword nowadays.
Capacity additions by consumer-facing companies offer relatively high visibility to their raw material suppliers including the manufacturers of specialty chemicals.
Import substitution is another opportunity.
Not so surprisingly then, Foreign Portfolio Investors (FPI) have been flocking to Indian chemical companies.
Bayer AG has been working on reducing emissions in their supply chains. The company aims to achieve climate neutrality at its plant by 2030. The company has earmarked a capex of Euro 500 million and the opex of Euro 50-200 million for this purpose.
Other global companies have also been setting ambitious ESG targets. Firmenich Aromatics, one of the leading privately-owned perfume and taste companies, endeavours to achieve carbon neutrality in its direct operations by 2025 and water neutrality by 2030. It wants to reduce its plastic footprint and attain zero waste to landfill at its sites.
Tatva Chintan’s domestic customers such as Meghmani Organics, Navin Fluorine and Laurus Labs are also working on a busy capex schedule.
According to the company disclosures, Meghmani Organics is expected to spend Rs 1,035 crore on capacity additions. This includes establishing a new multipurpose chemical facility at Dahej. Navin Fluorine, on the other hand, has laid out a capex plan of Rs 720 crore which aims at expanding its product portfolio and making the company future-ready.
Such expansion plans by its customers bode well for Tatva Chintan’s future since they offer reasonable revenue visibility.
You see, the IPO lineup on the Dalal Street has rarely been as diverse and exciting as it is nowadays.
The discomforting part about companies going public is that most of them are valuing their businesses quite aggressively. However, the most comforting aspect is they are well-aligned with the megatrends. Over the past 10-12 years, the markets have backed companies showing strong growth momentum and having a good track record on ESG compliance. Markets have often ignored high-valuations in such cases.
It’s your call—whether to be apprehensive about valuations or be prepared to take calculated risks.
What do you think about Tatva Chintan Pharma Chem? Are you prepared to take calculated risks to participate in the growth journey of Tatva Chintan Pharma Chem? Click here to apply for its IPO
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Disclaimer: The blog is for information purposes only and anything mentioned herein shouldn’t be construed as a fundamental reason to buy/hold/sell any stock. Furthermore, the information provided in the blog and observations made therefrom shouldn’t be treated as the extension of recommendations made on the other properties of Ventura Securities. We strongly suggest you to consult your financial advisor before taking any decision pertaining to your finances. Asset allocation becomes extremely relevant.
We, Ventura Securities Ltd, (SEBI Registration Number INH000001634) its Analysts & Associates with regard to blog article hereby solemnly declare & disclose that:
We do not have any financial interest of any nature in the company. We do not individually or collectively hold 1% or more of the securities of the company. We do not have any other material conflict of interest in the company. We do not act as a market maker in securities of the company. We do not have any directorships or other material relationships with the company. We do not have any personal interests in the securities of the company. We do not have any past significant relationships with the company such as Investment Banking or other advisory assignments or intermediary relationships. We are not responsible for the risk associated with the investment/disinvestment decision made on the basis of this blog article.