Established
in 1976, Tega Industries 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.
Globally, it is the second largest producers of polymer-based mill liners based
on revenues as of June 30, 2021.
The
company mineral processing and material handling products offering covers a
wide range of solutions in the mining equipment, aggregates equipment and the
mineral consumables industry
The
company commenced its operations in 1978 in India, with a foreign collobaration
with Skega AB, Sweden. Madan Mohan Mohanka acquired the entire equity stake of
Skega AB in Tega Industries in 2001. In 2011, it received funding from Wagner
Ltd., an entity affiliated with TA Associates, a global private equity firm.
The
promoters of the company are, Madan Mohan Mohanka, Manju Mohanka, Manish
Mohanka, Mehul Mohanka and NFSPL (Nihal Fiscal Services Private Limited). NFSPL
is an NBFC (Non-Banking Finance company) (without accepting public deposits)
primarily engaged in carrying on the business of activities auxiliary to
financial intermediation. The promoters of NFSPL are Madan Mohan Mohanka, Manju
Mohanka, Manish Mohanka and Marudhar Food & Credit Limited. NFSPL has filed
the scheme before the NCLT (National Company Law Tribunal) for, among others, a
proposed amalgamation with Marudhar, a member of promoter Group.
The
company product portfolio comprises more than 55 mineral processing and
material handling products. As an average of the last three fiscals i.e., 2021,
2020 and 2019, sale of products constitutes 95.08% of total revenue from
operations, while sale of services and other operating revenue constitutes
2.15% and 2.77%, respectively, of revenue from operations. For the three months
period ended June 30, 2021, the sale of products constitutes 94.56% of revenue
from operations, while the sale of services and other operating revenue
constitutes 3.33% and 2.11%, respectively, of revenue from operations.
The
company 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. The company product range is engineered
with a combination of mineral processing engineering, mechanical engineering,
and material sciences, while utilizing its expertise in tribology.
The
company 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 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 customers.
The
company 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. Its facility in India caters to the domestic and overseas
markets across mineral processing and materials handling industries, while its
facilities in Chile, South Africa and Australia caters to their respective
local and regional mineral processing and materials handling industries.
Additionally, its joint venture in India with U.K. branch of Hosch Group,
Germany is engaged in precision conveyer belt cleaning and caters to various
industries in India. It also has 18 global and 14 domestic sales offices
located close to its key customers and mining sites.
To
expand its operations globally, the company acquired Tega Industries Africa
(Pty) Ltd. (formerly, Beruc Equipment (Proprietary) Limited) (Tega Africa) in
FY 2007 which is a South Africa based manufacturer and distributor of grinding
mill liners and screen media, amongst others and this gave it access to
manufacturing capabilities and customers in Africa’s mining and industrial
markets. The company facilities in South Africa also give it access to the
member countries of the Southern African development community (SADC). It
continued its expansion and acquired Chile based Tega Industries Chile SpA
(formerly Acotec SA) (Tega Chile) in FY 2011 which is involved in the
manufacture of pumps, screen media and wear products. Its facilities in Chile
give it access to the South American markets including Chile, Peru, and Bolivia
(according to the F&S Report, Latin American countries contribute 40% of
the global copper production and 8% of the global gold production output). In
the same year, it also acquired Perth based Losugen Pty. Ltd. (Losugen) which
specialized in the design, distribution, installation, wear monitoring of wear liners,
rubber lining, screens for mining handling industries. The company increased
its market share in Australia by acquiring its competitor at the time, which
gave it access to a ready platform to launch conveyor accessories and screens
in that market.
Total
installed capacity of the company at the end of FY2021 is 24558 tonnes compared
to 22677 tonnes at the end of FY2020. Capacity utilization in FY21 was 58%
compared to 57% in FY2020
Revenue
from operation from outside India constituted 84.48%, 86.42%, 85.92% and 85.83%
of its revenue from operations in the three months period ended June 30, 2021,
and FYs 2021, 2020 and 2019, respectively. Revenue from operation from outside
India include North America, South America, EMER (Europe, Middle East and
Russia), Africa, and Asia Pacific (South-East Asia and Australia) which
constituted 17.66%, 19.23%, 14.18%, 21.18% and 12.23% of its revenue from
operations for the three months period ended June 30, 2021, and 13.74%, 24.71%,
15.49%, 22.62% and 9.85% of its revenue from operations in FY 2021.
For the
last three fiscals, the company is present in 513, 498 and 479 installation
sites, respectively, in over 70 countries. Further, for the three months period
ended June 30, 2021, it is present in 212 installation sites.
The
company focus end-customers are mineral processing sites involved in gold and
copper ore beneficiation, accounting for 34.92% and 27.25% respectively of its
sale of products as an average of the last three fiscals and 45.48% and 20.76%,
respectively, of its sale of products for the three months period ended June
30, 2021.
The
predominant raw material used for manufacturing the company's products is
rubber compound, which it manufactures in India from primary raw materials
including carbon black, high grade natural rubber, polyurethane rubber, and
styrene-butadiene rubber. It also exports the rubber compound manufactured by
it as an intermediate raw material to its subsidiaries, Tega Chile and Tega
Africa, to ensure quality consistency in the products manufactured at their
manufacturing facilities. It exported 33%, 18%, 16% and 14% of the total rubber
compound manufactured in the three months period ended June 30, 2021, and in FYs
2021, 2020 and 2019, while the remaining quantity was to be used for
manufacturing operations in India. The other major raw material for
manufacturing products is reinforcement including wear plates, casting and
aluminum which is typically procured separately for each manufacturing
facility.
The
company plans to expand its existing capacity at Dahej and Samali facilities in
India. Further it plans to set up a new manufacturing facility in Chile
evaluating the growth trajectory in South America.
The company
intends to continue to actively pursue acquisitive opportunities and strategic
alliances with targets that are complementary to its business. Particularly, it
will seek to make acquisitions that provide it with access to new technologies,
or new customers, or new geographies.
The Offer and the Objects
The
offer comprises an offer for sale by selling shareholders of up to 1366978
equity shares aggregating to Rs 619.23 crore at the upper price band of Rs 453
and Rs 605.56 crore at the lower price band of Rs 443. The company will not
receive any proceeds from the offer and all the offer proceeds will be received
by the selling shareholders, in proportion to the offered shares sold by the
respective selling shareholders as part of the offer.
Promoter
Madan Mohan Mohanka post-issue shareholding shall decrease to 8.1% from 13.07%
pre issue shareholding while Manish Mohanka shall decrease to 11% from 11.98%.
Other promoter Mehul Mohanka and NFSPL are not selling equity shares. Promoter
Group Marudhar is also not selling equity shares
Wagner
post-issue shareholding shall decrease to nil from 14.62% pre issue
shareholding.
Strengths
The
company is the second largest producers globally of polymer-based mill liners
in terms of revenues as of June 30, 2021, in a near oligopolistic market
structure. It 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.
The
company’s engineering capability, which has evolved over decades, has enabled
it to consistently offer quality, complex manufactured products within
stipulated timelines, allowing it to reduce downtime and maximize operational
efficiency for customers, and forge robust relationships with customers leading
to high recurring revenues
The
company's 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 customers.
Generally
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. It takes from nine months to one
year to become an approved supplier at every customer site and once approved,
these approvals do not have an expiry period.
The
company is well positioned to cater to customers across the world with
on-ground presence in all major mining locations, whichcomprise large global
mining companies as well as small and medium size companies in the mining and
mineral beneficiation industry in developed countries as well as in emerging
regions.
The
company is insulated from mining capex cycles, as its products cater to
after-market spends, providing recurring revenues. After-market spend for a
mining processing unit comprises regular operating expenses which include costs
of wear and separation parts, grinding media, power consumption, liners, and
other regular operating expenses.
The
company’s strong in-house R&D has allowed it to register 8 global patents
and several trademarks. Its 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 customers. The company undertake multiple stringent quality checks
and have been awarded Integrated Management System (IMS) certification by SGS
United Kingdom Limited, which are: Quality Management System (QMS) – ISO
9001:2015 (India, South Africa), Environment Management System (EMS) – ISO
14001:2015 (India) and Occupational Health & Safety Management System
(OHSMS) – ISO 45001:2018 (India).
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. As of June 30,
2021, order book for DynaPrime includes 28 target sites.
The
company has a track-record of servicing leading global mining companies for a
long period of time and in several cases, relationships with key customers span
more than 10 years, leading to high repeat revenues for them. Its repeat
business from existing mineral processing sites accounted for 76.28%, 74.29%,
75.43% and 79.72% of revenue from operations in the three months period ended
June 30, 2021, fiscals 2021, 2020 and 2019, each year. Conversion revenue (i.e.,
revenue from new sites added in a year) accounted for 19.26%, 25.13%, 22.35%
and 18.09% of revenue from operations in the three months period ended June 30,
2021, FYs 2021, 2020 and 2019.
Weaknesses
The
company's global manufacturing operations are subject to risks that are
specific to each foreign country where its manufacturing facilities are
located, being Chile, South Africa, and Australia. Chile and South Africa have
experienced periods of political uncertainty and social unrest in the past,
such as the recent protests in Chile in FY2020.
Any
shortfall or delay in the supply of raw materials or an increase in raw
material costs may adversely affect the pricing and supply of its products and
shall have an adverse effect on business, results of operations and financial
condition. The company is dependent on a few key suppliers of certain raw
materials and do not have long term contracts or exclusive arrangements with
these key suppliers
The
company is exposed to foreign exchange rate fluctuations (mainly in USD, CAD,
AUD, EUR, SGD, ZAR, CLP, GHS, GHC) in respect of revenue from overseas business
in foreign denominations, foreign currency denominated borrowings, currency
translation losses for the purpose of preparing consolidated financial
statements (which are presented in Indian rupees), on account of global operations
and value of foreign assets.
The
company activities involving the manufacturing process can be dangerous and can
cause injury to people or property in certain circumstances. A significant
disruption at any of the manufacturing facilities may adversely affect
production schedules, costs, sales, and ability to meet customer demand.
The
company does not have long-term agreements with most of its customers. Any
changes or cancellations to orders or inability to forecast demand for its
products may adversely affect business, results of operations and financial
condition
The
company is subject to strict quality requirements and any failure to comply
with quality standards or product defect may lead to the cancellation of
existing and future orders, reputational risks, and liability claims.
The
company failure to obtain or renew necessary regulatory approvals, licenses,
permits in a timely manner, or at all, may adversely affect business and
financial condition.
The
company is subject to various laws and regulations in jurisdictions where it
operates, including environmental and health and safety laws and regulations,
which may subject it to increased compliance costs, which may in turn result in
an adverse effect on financial condition.
Valuation
For
FY 2021, consolidated sales were up by 18% to Rs 805.52 crore. OPM rose 770 bps
to 23.3% which led to 76% increase in operating profit to Rs 187.48 crore.
Other income increased 378% to 51.16 crore while interest cost fell 19% to Rs 17.28crore
and depreciation increased 5% to Rs 40.18 crore. PBT increased 215% to Rs 15.57
crore. Tax expenses were Rs 47.46 crore compared to credit of Rs 6.26 crore.
Net profit increased 108% to Rs 136.41 crore.
At
the higher price band of Rs 453, the offer is made at around 22 times its EPS
of Rs 20.6 for the period ended March 31, 2021, on a post-issue equity share
capital of Rs 66.29 crore of face value of Rs 10 each. Listed industry peer of
the company is AIA Engineering.
In
comparison AIA Engineering trades at 31 times its FY2021 EPS of Rs 60 at the
current market price of Rs 1856.
Tega Industries: Issue Highlights
|
Fresh issue (in Rs crore)
|
0
|
Offer for sale (in number of shares)
|
13669478
|
Offer for sale (in Rs Crore)
|
|
- in Upper price band
|
619.23
|
- in Lower price band
|
605.56
|
|
|
Price Band (Rs)
|
443-453
|
Pre issued capital (Rs crore)
|
66.29
|
Post issue
capital (Rs crore)
|
66.29
|
Pre issue promoter and Promoter
Group shareholding (%)
|
85.17
|
Post issue
Promoter and Promoter Group shareholding
|
60.12
|
Bid Size (in No. of shares)
|
33
|
Issue open date
|
1/12/2021
|
Issue closed date
|
3/12/2021
|
Listing
|
BSE, NSE
|
Rating
|
48/100
|
Tega Industries: Consolidated
Financials
|
Particulars
|
1903 (12)
|
2003 (12)
|
2103 (12)
|
2106 (03)
|
Total Income
|
633.757
|
684.85
|
805.52
|
173.21
|
OPM
|
15.3
|
15.6
|
23.3
|
13.6
|
Operating Profits
|
96.75
|
106.53
|
187.48
|
23.50
|
Other Income
|
9.26
|
10.70
|
51.16
|
6.18
|
PBIDT
|
106.00
|
117.23
|
238.64
|
29.68
|
Interest
|
23.60
|
21.44
|
17.28
|
3.61
|
PBDT
|
82.40
|
95.79
|
221.36
|
26.07
|
Depreciation
|
37.76
|
38.36
|
40.18
|
10.50
|
PBT
|
44.65
|
57.43
|
181.18
|
15.57
|
Share of Profit/loss of JV
|
1.81
|
1.81
|
2.68
|
0.62
|
PBT Before EO
|
46.45
|
59.24
|
183.86
|
16.18
|
EO
|
0.00
|
0.00
|
0.00
|
0.00
|
PBT after EO
|
46.45
|
59.24
|
183.86
|
16.18
|
Provision for Tax
|
13.79
|
-6.26
|
47.46
|
4.30
|
Profit after Tax
|
32.67
|
65.50
|
136.41
|
11.88
|
MI
|
0.04
|
0.00
|
0.00
|
0.00
|
Net profit after MI
|
32.63
|
65.50
|
136.41
|
11.88
|
EPS (Rs)*
|
4.9
|
9.9
|
20.6
|
#
|
*EPS annualized on post issue equity
capital of Rs 66.29 crore of face value of Rs 10 .each
|
# EPSnot annualized due to
seasonality of business
|
Figures in Rs crore
|
Source: Capitaline Corporate
Database
|
|