Tarsons to tread on a long runway of growth says LKP Securities

Tarsons expected to perform well in the international market after improving production capabilities

Brokerage firm LKP Securities is bullish on Tarsons Products Ltd (TPL) and has initiated a ‘buy’ rating, with a target price of Rs 770 apiece as the company's strong financials hints at a robust growth trajectory in the upcoming quarters.

Tarsons Products, a producer and supplier of laboratory plasticware, is expanding its manufacturing capacity for new and existing products by setting up a factory in Panchla, West Bengal.

This footprint expansion will help Tarsons cater to a strong domestic and foreign market and increase the target addressable market to Rs 26,500 crore. Furthermore, the labware maker is planning to set up another facility in the eastern state for backward integration of in-house sterilisation and to coordinate warehouse operations.

Also read: UBS sees 21% upside in ABB India, upgrades stock to 'buy'

Cementing domestic presence

The company currently garners a 12-14 percent market share in India, aided largely by its cohesive network of marketing representatives, distributors, and more than 500 sub-distributors.

"A strong supplier and distributor connection and a reliable distribution network indicates that 75–80 percent of all distributors have been with Tarsons Products for more than 20 years," the LKP Securities report stated.

Tarsons has been consistently expanding its market share, thanks to import substitution and high consumer demand, the brokerage noted.

Tapping foreign market

In the last three years, Tarsons has increased its revenue share from export business by 600 basis points. Its export business has grown at a compound annual growth rate (CAGR) of 12.1 percent in the last five years. The US, European Union, and South-East Asia are the top markets for Tarsons.

Given that the company is gradually increasing production, LKP is of the view that the company will gain significant traction in the export business as its products are at least 50 percent cheaper than those of its international competitors. The company first forayed into the international market in 2008.

Analysts at the brokerage firm have also said that there is a "huge export opportunity waiting to unfold". They highlighted that while the export sales figures stood at approximately Rs 3 crore-Rs 4 crore five years ago, they have now surged to nearly Rs 100 crore.

Moreover, the cell culture products segment is poised to grow significantly and achieve a CAGR of 15.1 percent by 2025, the broking firm says. Currently, Tarsons holds a modest market share of 0.3 percent (including PCR/Cell Culture) in the export consumables sector and a 2.1 percent market share in the export reusable market. The company is expected to attain an additional 2-3 percent, backed by strong branding and effective promotional efforts.

Follow our live blog for all the market action

"We are confident that Tarsons will continue to capture a significant market share in the exports market," the report added.

Plasticware market is on the rise

Interestingly, the Indian laboratory plastic equipment market has grown at a CAGR of 10 percent from FY15 to FY20. Overall, the lab equipment market has grown at a much slower pace, at 5 percent during the same period.

Plasticware has gradually climbed the ladder and is on course to replace the glassware laboratory industry. This is because plastic is cheaper, and unbreakable, making it safer for lab usage, has better reusability and solves the issue of leaching of inorganic ions into aqueous solutions kept in the glass. The industry is expected to reach 67 percent by 2025 due to value migration and increasing use of disposable consumables.

Scientists are also likely to tilt towards plasticware as the material is durable, light, and, most importantly, shatter-proof. "These solutions also offer the advantages of increased safety for scientists, decreased risk of losing a priceless sample, and a decrease in expense for container replacement or lost productivity as a result of staff accident," the broking firm explained.

While the outlook seems positive, there are a few risks that could hamper the projected numbers. Stiff domestic and international competition, a decrease in R&D (research and development) by pharma companies, delay in the establishment of the new facility, and geographical concentration of manufacturing facilities in one region are some of the threats to the company's upside potential.

At 12:30 pm on June 12, Tarsons share price was quoting at Rs 560, up 2.1 percent from the previous day's close.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.