Equity Research: Tega Industries Ltd

Summary

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. Globally, Tega industries are the second largest producers of polymer-based mill liners, based on revenues for the year 2020.

ABOUT:

Tega Industries (Tega) 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, the company is the second largest producer of polymer based mill liners deriving 88% of its sales from outside India. It has 6 manufacturing facilities, 3 in India and 3 abroad having more than 55 product portfolios spread across multiple geographies. 

PRODUCT PORTFOLIO:

• The company’s mineral processing and material handling products offering covers a wide range of solutions in the mining equipment, aggregates equipment and the mineral consumables industry. Tega Industries’ products offerings 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, products include chutes and its liners, grinding mill liners, trommels and screens, hydrocyclones, pumps and floatation parts and conveyor products.
• The services segment offering ranges from undertaking specialised plant audit consultancy service to customers for grinding and classification upgrades, supplying individual spare parts, to comprehensive solutions covering maintenance and operations. The company focuses on creating unique solutions to enhance the performance and productivity of its customers’ plants and equipment throughout their entire lifecycle.

Tega Industries’ products are used according to mineral processing and material handling industry value chain

SERVICE SEGMENT:

Offerings from the services segment range from providing specialised plant audit consulting services to clients for improvements in grinding and classification, from selling single replacement parts to all-inclusive solutions for maintenance and operations. The company focuses on developing distinctive solutions to improve the efficiency and productivity of its clients' machinery and facilities over the course of their entire lifecycles.

KEY GROWTH FACTORS:

• Gain market share & customer wallet share across high growth markets

1. Increase penetration & market share in North & South America, Australia & South Africa
2. Improve market penetration by crossselling
3. Continue focus on high quality products with recurring demand leading to high repeat revenues

• Leverage in-house R&D to grow product offerings & capitalize on future trends

1. In-house R&D team focuses on upgrading our existing products & variants
2. Focus on ability to customize product offerings through innovation
3. Continue to discern emerging trends & proactively identify new products

• Expand manufacturing capabilities to optimise economies of scale

1. Continue expanding manufacturing capabilities by adding capacity at Dahej & Samali facilities in India
2. Plan to set up a new manufacturing facility in Chile
3. Expand into life cycle management for customers

• Explore opportunities for inorganic growth

1. Actively pursue acquisitive opportunities & strategic alliances with complementary targets
2. Seek acquisitions that provide them with access to new technologies, or new customers, or new geographies  

• Operational efficiencies & margin expansion

1. Continue enhancing operational efficiencies, to increase economies of scale, better absorb fixed costs & strengthen competitive position
2. Focus on cycle time reduction by adopting advanced technologies that will also result in process optimisation

GROWTH & LONG TERM BUSINESS 

• Robust market position

Entry barriers helps maintain high margins over time with revenues from operations growing at 14.5% CAGR (FY19-22).

• Built Inherent Strength

Successfully maintained operational efficiency levels whilst completing acquisitions, JVs & strategic alliances, in Chile, South Africa & Australia.

• Forged Strong Relations

In several cases, relationships with key customers span more than 10 years, a testimony to business excellence.

CORPORATE STRUCTURE:

SHAREHOLDING PATTERN

In DII, Sbi Large & Midcap Fund & Hdfc Trustee Company Ltd. A/C Hdfc Balanced Advantage Fund have increased their holding.

FINANCIALS:

The company’s revenue grew at a CAGR of 14.5% over FY19-22 (~76% CAGR growth of DynaPrime while rest of the mill liners products exhibited a CAGR growth of 8.7% and nonmill liners segment grew at a CAGR of 4.2%) while EBITDA grew at a CAGR of 23.6%, over the same period. Company’s 75% revenue in FY22 was from mill liner products, out of which 25% of the revenue was from its flagship product DynaPrime, which is a rubber steel composite mill liner, while 50% of the revenue was from polymer based mill liner. Balance 25% of the revenue was from non-mill liner based products like trommel screens, hydrocyclone pumps, etc. for applications in mineral benefaction process.

GLOBAL PRENENCE: 

The company owns & operates six strategically positioned manufacturing sites with a combined built-up area of 74,255 sq mtrs, three of which are in India (Dahej in Gujarat and Samali & Kalyani in West Bengal) and three of which are in the main global mining hubs of Chile, South Africa, and Australia. The company's facilities are adjacent to developing industrial markets, mining hubs, and material handling hubs, giving its clients logistical benefits, economies of scale, and protection against local supply or other interruptions. 

MANUFACTURING FACILITIES CAPACITY

COMMENT:

• Management expects DynaPrime to sustain its revenue momentum and grow at a CAGR of 25-30% while non-mill liners segment expected to grow at a CAGR of 10-12% in the near to medium-term. Overall, the company expects ~15- 16% revenue growth in the near to medium-term with EBITDA margins expected to be in the range of 21- 23% (19.2% in FY22) on the back of pass-through of raw material costs and ease in freight costs along with operating leverage.
• The company continues to perform strongly across its revenues/Ebitda and PAT witnessing 41%/96%/94% growth while margins expanded 532bps despite higher commodity inflation and higher freight cost which is gradually coming down but still at higher levels compared to pre-pandemic.
• Dynaprime continues to grow strong during the quarter grew 157% largely dominated by volume growth (+150% YoY). Management maintained that Dynaprime will grow at 30% CAGR for the next couple of years given the low base which will help push the volumes further. Non mill liner grew 15% YoY (8% volume and 7% value growth). Order book at ₹3,004mn providing healthy revenue visibility ahead. Management reiterated that overall revenue to grow at 15-18% while margins to remain in the range of 21-23%.

SOURCE:

https://www.sebi.gov.in/filings/public-issues/dec-2021/tega-industries-limited_54488.html

https://www.crisil.com/mnt/winshare/Ratings/RatingList/RatingDocs/TegaIndustriesLimited_October%2029,%202021_RR_278379.html

https://www.bseindia.com/xml-data/corpfiling/AttachLive/fc3f6795-6834-4757-b946-d0ac2ce43286.pdf

https://www.tegaindustries.com/tega-investors/