In the recent investor presentation Rohan Sehgal quoted the following. " Our recent strategic acquisition of Nerbe, a Hamburg-based distributor specializing in plastic labware products, enhances
our global presence through channel partners, facilitating quicker access to larger markets. Nerbe serves as a gateway for expanding our footprint in Europe, accelerating our geographical growth in the long run"
I am already invested in Tarsons.
Few comments on what I understand from the Concall and Credit rating reports:-
Overall, even though the mgmt has done well over the last 4decades, at this point I see too many uncertainties in the business. I would personally choose the option to wait and watch from the sidelines and see the story unfold. Prefer to enter with some light at the end of the tunnel.
Disc: Please do your due diligence. This is not a buy or sell recommendation. This is my personal assessment of the situation.
Stock is bottoming out significantly and looks very attractive on the valuation front; on the other hand, manufacturing is about to kick off at least in the Panchla facility, but the real question is why Mr.Market is not looking at this as an attractive pick?? There is so much moat in using plastic labware, new facility launch, an increase in CDMO space, diagnostic tailwinds, etc., which definitely helps this business to improve revenues, and as most of us say, sometimes common sense is the key to winning in the stock market, and I see decent risk to reward coverage in this. Kindly share your views and any latest updates.
Disc: invested near 500 level
What matters is the position sizing and how much percentage would U allocate to this …are we overlooking the immediate risks like a) liquidity is still strong so what happens when market goes down further b) Europe is still weak so the expected spending is still not coming in the immediate future c) how well the new facility can ramp up sales d) wat can be the eps in 3 4 yrs timeframe and where could be the stock price e) depending on the margins if U can arrive on eps or say 20 ,30, 40 in the next several how much return this can give and finally f) are we seeing any other nice opportunities where we can increase our position which might have much more visiblity than this
Agreed. Just adding my 2 cents,
The raw material costs for the co. increased significantly during past few quarters.
Also, recovery of slowdown in demand from countries like Europe is still uncertain. The dreams shown for the growth of plastic industry seems too far fetched.
I think their capacity expansion is also facing some problems. It missed the deadline at which certain part was supposed to be completed.
Surely, if we apply a variant perception here, there can be a great opportunity but one needs to look out for above risks also.
Concall Notes - Jun 2024
Capex:
Acquisition - Nerbe:
Revenue Performance:
Margins:
Industry & Market Outlook:
Customer Engagement & Market Strategy:
Challenges & Opportunities:
Domestic Business & Growth Strategy:
600 capex. Putting 2 time turnover which is 1200 crore and a PAT of 30% (based on good year) 400 crore. Reasonable p/e of 25 to 30 times. So market cap 12,000. Possible in next 3 to 4 years? Current value 2500 crore. Will it be a margin of safe?
Dis - not invested. Just saw assets are doubled. So downloaded reports for reading
*Demand in domestic as well as in international market is in declining mode after peak demand during COVID.
*Margin pressure due to oversupply from China.
*Until unless demand picks up additional capacity will increase employee cost and depreciation.
*I think it’s good idea to wait and watch at present situation.
Disc: Sold all my holdings 1 year ago.
Concall Q3 F23
Revenue in Q3 FY23 was INR 61.3 crores, down 13% YoY
EBITDA was INR 27 crores with 43.5% margin
PAT was INR 16 crores with 26.3% margin
Revenue declined 13% YoY in Q3 FY23
EBITDA margin contracted to 43.5% in Q3 FY23 vs 46.7% in Q3 FY22
PAT margin was 26.3% in Q3 FY23
Exports revenue: INR 21 crores (34% of total)
Domestic revenue: INR 41 crores (66% of total)
Capacity utilization not specifically mentioned but implied to be lower than previous year
Company believes it has increased market share despite industry slowdown
Expects to be in a good position to capitalize when industry rebounds
Inventory of INR 112 crores
Receivables of INR 50 crores
Industry facing slowdown across segments like diagnostics, academia, research
Export markets impacted by global economic conditions
New facilities (Panchla and Amta) to start operations in Q2 FY24
No short-term revenue guidance provided due to market uncertainty
Company participating in international exhibitions to build brand
Expansion into new product lines through Panchla facility
Participating in international exhibitions to build export business
Focus on building branded sales in export markets
Overall industry slowdown post-COVID
Diagnostics segment undergoing transformation with new entrants
Research budgets constrained globally
Slowdown in diagnostic, pharma, research segments
Global economic uncertainty impacting export demand
High inventory levels with distributors
Expected rebound in research spending
Government focus on boosting medical device industry
Panchla facility to start operations around May 2023
Amta facility expected to be ready by July-August 2023
New product lines like PET bottles to be launched
Global economic slowdown impacting demand
Currency issues in some export markets
China+1 strategy providing opportunities
Building brand through international exhibitions
No specific guidance provided due to market uncertainty
Expect industry rebound in next few quarters
No specific order book or revenue guidance provided
Cautiously optimistic on medium to long-term industry outlook
INR 500 crore capex plan underway for new facilities and product lines
Phased investment in equipment for new facilities
Expansion into new product categories
Growing export business
Prolonged industry slowdown
Underutilization of new capacities
Favorable government stance on research and medical devices industry
Cautious spending across customer segments
Inventory destocking by distributors and end customers
Major Takeaways:
Concall Q4 F23
Revenue in Q4 FY23 was INR 82 crores, down 3% YoY but up 34% QoQ
Full year FY23 revenue was INR 283 crores, down 6% from INR 301 crores in FY22
Q4 FY23 EBITDA margin improved to 47.8% from 43.5% in Q3 FY23
Full year FY23 EBITDA margin was 45.8%
Q4 revenue grew 34% QoQ but declined 3% YoY
Full year revenue declined 6% YoY
Q4 EBITDA margin improved to 47.8% from 43.5% in Q3
Full year EBITDA margin was 45.8%, down from 50.8% in FY22
Exports contributed 30% and domestic 70% of Q4 revenue
For full year, exports were 33% and domestic 67% of revenue
Consumables were 56% and reusables 39% of revenue
Company believes it is growing slightly faster than the industry and gaining market share
Focused on expanding exports, especially in Europe, US and key Asian markets
Inventory levels have increased due to imported raw materials, new product launches, and maintaining stock for 1700+ SKUs
New Panchla facility expected to start production by end of Q2 FY24
Full ramp-up of Panchla facility expected by Q4 FY24
Panchla facility has potential to generate INR 500 crores revenue at full capacity
Company exploring inorganic acquisition opportunities in international markets
No specific revenue guidance provided for FY24 and FY25
Expanding exports through OEM relationships and branded presence
Exploring inorganic acquisition opportunities in international markets
Launching new product lines like PET/PETG bottles and cell culture products
Recovery seen in pharma, biotech and CRO segments
Diagnostic segment still under pressure
Academia/research facing funding constraints
Headwinds: Slowdown in diagnostics, funding constraints in academia/research
Tailwinds: Growth in pharma, biotech, CRO segments
New Panchla facility to start production by end of Q2 FY24
Launching PET/PETG bottles and cell culture products
Serological pipettes showing strong growth from low base
Focusing on OEM relationships in developed markets
Building branded presence in developing markets
Exploring inorganic opportunities to boost international sales
No specific revenue guidance provided
Company positioning itself for growth through capacity expansion, new products and potential acquisitions
No specific order book or revenue guidance provided
Optimistic on medium-term growth prospects of life sciences industry
Capex of INR 500-550 crores for Panchla facility expansion
Exploring inorganic acquisition opportunities
Expanding exports, especially in Europe, US and Asia
New product launches like PET/PETG bottles and cell culture
Potential inorganic acquisitions
Slowdown in diagnostics segment
Funding constraints in academia/research
Key take aways
Concall Q1 F24
Revenue from operations for Q1 FY24 was INR 53 crores, down 9% YoY
Adjusted EBITDA was INR 24.1 crores with 38.5% margin
PAT was INR 9.6 crores with 15.3% margin
Revenue declined 9% YoY in Q1 FY24
Adjusted EBITDA margin was 38.5%, down from previous quarters
Reported EBITDA margin was 34%
Domestic revenue: INR 45 crores (73% of total)
Export revenue: INR 17 crores (27% of total)
Company believes it is gaining market share despite industry contraction
Expects to increase revenues compared to last year, but cautious on industry trends
Inventory as of June 30th was INR 112 crores
Raw material inventory reduced significantly compared to last quarter
Demand trends weak, especially in consumables segment
Destocking impact expected to continue in near term
Acquisition strategy remains in place despite recent unsuccessful attempt
New product launches (cell culture, PET/PETG bottles) progressing well
Panchla plant to start commercial production in Q3
Pursuing inorganic growth opportunities in export markets
Launching new product lines like cell culture and PET/PETG bottles
Expanding manufacturing capacity through Panchla and Amta plants
Overall life sciences industry facing slowdown
High inventory levels at customers and distributors
Gradual recovery expected but timing uncertain
Reduced demand for plastic labware products
Inventory destocking by customers
Competitive pressures globally
Panchla plant to start commercial production in Q3 FY24
Amta plant expected to be ready by December 2023
New product lines: Cell culture, PET/PETG bottles, serological pipettes
Export markets facing more pressure than domestic
Currency depreciation increasing raw material costs for imports
Expects to increase revenues compared to last year
Margins impacted by lower absorption of fixed costs
Fresh order inflow 4-5% higher YoY
Cautiously optimistic on full year growth
Near-term outlook remains sluggish
Total capex of ~INR 525-530 crores
Asset turnover ratio target of 0.65-0.7 on gross block
New product lines (cell culture, PET/PETG)
Potential acquisitions in export markets
Continued industry slowdown
Inventory destocking pressures
Customers facing inventory overhang issues
Hesitant to engage new suppliers currently
Major Takeaways:
Concall Q2 F24
Q2FY24 revenue was INR 66 crores, up 6% QoQ
H1FY24 revenue was INR 129 crores vs INR 140 crores in H1FY23
Q2FY24 EBITDA margin was 38.3%
H1FY24 PAT was INR 22 crores with 17.4% margin
6% QoQ revenue growth in Q2FY24
EBITDA margin declined to 38.3% in Q2FY24 from over 45% last year
Margins impacted by lower revenue growth, higher costs for new facility
Exports 35%, Domestic 65% of Q2FY24 revenue
Current capacity utilization around 75%
Can do INR 50-60 crores more revenue with existing setup
Expects to gain market share as industry recovers
Opportunity to take share from European players facing high costs
Inventory of INR 118 crores, including INR 39 crores raw material
4-5 months inventory required to run operations
INR 550 crore capex - 60% for capacity expansion, 40% for new products
Expects 4-5 years to fully ramp up new capacity
No revised guidance for FY25, INR 500 crore target looks unlikely
Looking at international acquisitions to grow overseas business
Cell culture seen as more complex product with stronger moat
Setting up subsidiary in Singapore for overseas acquisitions/partnerships
Actively evaluating international acquisitions to grow exports
Investing in new product lines like cell culture
Industry facing destocking, but showing signs of recovery
Shift from glass to plastic continues, no major threat seen
Headwinds: Destocking, slower demand post-COVID
Tailwinds: Recovery expected, opportunity vs European players
New Panchla facility to start production from December 2023
Cell culture and expanded capacity for existing products
Total capex of INR 550 crores, INR 400 crores already incurred
European manufacturing challenges provide opportunity
Looking at acquisitions to grow exports
No specific guidance, but expects growth in coming quarters
Margins expected to improve as industry recovers and new facility ramps up
No specific order book guidance provided
Expects industry recovery and better conditions going forward
INR 550 crore capex for expansion and new products
Looking at international acquisitions
Opportunity to gain share from European players
Risk of continued industry slowdown
Price sensitivity has increased post-COVID
Major Takeaways:
Concall Q3 F24
Revenue for Q3 FY24 was Rs. 62 crores, up 1% year-on-year
EBITDA for Q3 FY24 was Rs. 23 crores, down 14% year-on-year
PAT for Q3 FY24 was Rs. 10 crores with 16% margin
Domestic revenue grew 14% year-on-year in Q3
Export revenue declined year-on-year due to subdued global demand
Gross margins declined due to changes in product mix
EBITDA margin for Q3 FY24 was 37%
About 2/3rd of revenue comes from single-use/consumable products
1/3rd comes from reusable products
Export sales contributed 29% and domestic 71% for 9 months FY24
Current infrastructure allows business up to Rs. 320-350 crores
Market share in diagnostics segment returning to pre-COVID levels
Expect to maintain/grow market share in domestic market
Focusing on expanding market share in international markets, especially Europe
Cash flow from operations was Rs. 83 crores for 9 months FY24
Inventory days have increased due to new product launches
Acquired Nerbe, a Hamburg-based distributor, to expand presence in Europe
Focusing on expanding ODM business in North America and Europe
Launching new cell culture products and expanding capacity
Gradual recovery seen in plastic labware markets
Shift towards single-use/consumable products globally
China Plus One strategy benefiting Indian manufacturers
Gradual recovery in global plastic labware demand
China Plus One strategy benefiting Indian manufacturers
Subdued demand in key global markets
Red Sea crisis impacting exports and freight costs
Inventory overstocking in some product categories like PCR
Panchla facility nearing completion, initial production to start in Q4 FY24
Commercial production of cell culture products expected in Q3 FY25
Launching 7-8 new product categories next year across segments
Red Sea crisis increasing freight costs and lead times
Subdued demand in key global markets
Expect gradual improvement in coming quarters
EBITDA margins not expected to go below current levels
Domestic order book stronger than previous year but below FY22 levels
No specific revenue guidance provided
Expect gradual improvement in coming quarters
Total capex plan of Rs. 550-575 crores, of which Rs. 450 crores already incurred
Remaining Rs. 100-125 crores to be spent over next 12 months
Current net debt of Rs. 230 crores, expected to peak at Rs. 270-280 crores
Plan to repay debt through cash accruals over 3-5 years
Expanding presence in European market through Nerbe acquisition
Growing single-use/consumable product segment
Launching new cell culture products
Continued subdued demand in global markets
Freight cost increases due to geopolitical issues
Intense competition in domestic market
Major Takeaways:
Concall Q4 F24
Highest quarterly standalone revenue of ₹87 crores in Q4 FY24, up 6% YoY and 40% QoQ
FY24 standalone revenue at ₹277 crores, down 2% YoY
Standalone EBITDA for FY24 at ₹103 crores
Consolidated revenue (including Nerbe) at ₹296 crores for FY24
Q4 FY24 standalone EBITDA margin at 39.1%
Adjusted FY24 standalone EBITDA margin at 40% (excluding one-off expenses)
Consolidated margins impacted by inclusion of lower-margin Nerbe business
Export sales contributed 30% and domestic sales 70% in FY24 standalone
Current capacity utilization at approximately 75-80%
25% market share in India for products manufactured
Expects gradual improvement in pharma, CRO, research and diagnostic sectors
One-time inventory provision of ₹3.7 crores in Q4 FY24
Acquisition of Nerbe to expand presence in European market
Focus on leveraging synergies between Tarsons and Nerbe
Early signs of recovery in life sciences industry in second half of FY24
Inventory levels reducing across industry
Tailwinds: Increasing investments in R&D, growing demand from emerging economies
Headwinds: Geopolitical tensions, supply chain disruptions
Panchla facility to focus on cell culture products and expand existing product capacities
Amta plant to include radiation facility and centralized warehouse
China Plus One strategy benefiting Indian manufacturers
Logistics and supply chain disruptions impacting international business
No specific revenue guidance provided
Aims to maintain early 40% EBITDA margins on standalone basis with sustainable growth
Total planned capex of ₹600 crores, of which ₹475 crores already incurred
Major Takeaways:
Concall Q1 F25
Q1 FY25 standalone revenue was INR 64.9 crores, up 3.6% YoY
Consolidated revenue was INR 84.8 crores, including INR 20 crores from Nerbe acquisition
Standalone adjusted EBITDA was INR 20 crores with 30.9% margin
Consolidated adjusted EBITDA margin was 25.7%
Standalone PAT was INR 6.5 crores with 10% margin
Consolidated PAT was INR 4 crores with 4.7% margin
Standalone revenue grew 3.6% YoY despite industry slowdown
Margins impacted by product mix changes, employee expenses, and Nerbe acquisition
Standalone adjusted EBITDA margin of 30.9%, down from previous quarters
Domestic revenue INR 42 crores vs INR 45 crores last year
Export revenue INR 22 crores vs INR 17 crores last year
Nerbe revenue INR 20 crores in Q1 FY25
Current capacity utilization not specified, but significant capacity available
Company maintained market share better than industry average
Seeing signs of recovery in domestic and overseas markets
Aiming to increase market share through new products and Panchla facility
Domestic diagnostics industry recovering but back to pre-COVID levels
Panchla facility commissioning delayed due to machinery damage, expected in H2 FY25
Nerbe acquisition to provide platform for European expansion
Gross margin decline due to competitive market and product mix changes
Global tender participation expected to yield results in coming quarters
Acquired Nerbe Plus in Germany to expand European presence
Participating in global tenders and RFQs to grow international business
New product introductions planned through Panchla facility
Recovery signs in domestic and overseas plastic labware markets
Shift towards more value-added and new product categories
Focus on expanding global presence, especially in Europe
Overall industry slowdown in past 18 months
Competitive market pressures
Lower demand for high-margin products like PCR and liquid handling
Panchla facility (greenfield) to commence operations in H2 FY25
INR 300 crores invested in Panchla for manufacturing and growth
70% of Panchla capacity for new products, 30% for existing product expansion
Logistics issues, container availability, and higher shipping costs
Longer waiting times for vessel availability
Increasing order inquiries from international markets
Expect growth as new capacities come online and market recovers
Order book increasing compared to last year
Optimistic about future revenue and profitability growth as demand recovers
Total capex program of INR 550-600 crores
INR 525 crores already spent, remaining to be incurred in next 6-12 months
Focus on optimizing new capacity utilization, especially Panchla facility
Continued industry slowdown
Competitive pressures impacting margins
Delays in new facility ramp-up
Major Takeaways:
Summarising last 06 concalls
Today Tarsons Posted Result. Looks like turnaround is happening. Standalone revenue grew yoy.margin uptick QOQ
Consolidated basis EBITDA is increasing and more than Standalone EBITDA. Consolidated PBT is still below Standalone PBT.
First time studying the co. looks interesting. Anybody can share their interpretation?
Might be we are looking at when things turn good maybe.
FY25 Guidance was 500 crore if you look at con call.
They acquired another company which has low margin to get entry into Europe which contributes around 17 to 18 crore I think this quarter. so the revenue has hardly moved probably still reeling from the effect of more supply and demand still recovering
Now we can do 2 things. Either invest and hope the expansion of 600 crore will contribute well over next 5 yrs or wait for 3 to 4 quarter to see if they are producing the results and then start adding positions. The other alternative is wait for market downturn where the macro env can provide us with a better entry point which provides a margin of safety
And finally are there not better opportunities elsewhere ?
Not studied much . If there is no much demand why should company triple their fixed assets ? Will it be a temporary slow down ? If yes after 2 years company will perform.?
I saw same thing to Supriya life science but after a year company making good business. Eventually share also went from 200 to 650 range (benefited from Supriya )
Looking at assets addition of Tarson I wanna further study
sometimes, these capex spending can be in anticipation of demand that does not come and the stocks see a huge crash
sometimes capex maybe a way for the promoter to take money out of the company by paying to sister unlisted firms
First part may possible in this company
But reading 2 years annual report and few con all reports and listening to management talk I don’t think the second mentioned corporate issue in the company
My personal view can be wrong
I’m invested in tarson for couple of years however it’s important to size your position as you get more visibility sometimes it takes years to build a solid position and that comes with conviction.
Capex will improve TAM in global market but it’s Difficult to predict how easy it is to gain the market share. Europe slowed down and that impacted the market in general after over stocking.
Asset turnover ratio is low for these consumables. Need to get better understanding of cell culture products they were planning
I would still love to have macro environment giving us options to buy at lower level
Can anyone please update the current investment thesis in Tarson Products? Reasons why you are still invested in this business? I can see severe price wise correction in it hence reversion to mean could be one reason. Or huge planned Capex which could be another?
Those doubting CG issues, I think that’s not a possibility as the bull market is the best time to pull out the pump using inflated profits/orders/business updates etc. As fundamentals will improve the image will too improve as happened in case of Supriya
Q3 has seen decent recovery in business operations of the company with a 23% growth in Standalone revenue. Margins are still compressed on a standalone and consolidated basis however there might be some costs of the new CAPEX that with scale might improve. Gross margins remain above 70% but have fallen roughly 300bps YoY.
The main investment thesis (in my opinion) for Tarsons is the new CAPEX. There is potential for it to double revenues in 2 years. Primary drag on share price has been the fall in EPS which is primarily on account of lower margins, rising interest costs and rising depreciation. Once Panchla comes online the hope is that all these issues will be overcome. Stock even after massive correction is over 50PE however growth potential is very high especially if margins also improve.
Tarsons Products is another classic example of clever promoter doing IPO at the top of the cycle, painful journey for investors who bought in, hanging by the hope that Capex kicks in and scales revenues.
They have acted well doing Acquisition and Capex during down cycle, hoping to reap gains when things normalize.
Tarson will do 660 Cr revenue(St.) in next 5 yrs and will do PAT of 140 Cr(Cons.) If I give 25 exit PE as it is high ROCE business . Its Market Cap comes 3500 Cr and current Market Cap is 1690.
Disc- Recently bought, will keep buying as market give opportunity. DYOD
