Tarsons Products: Immense Potential?

“Our capacity expansion is proceeding smoothly, and commissioning is scheduled for Q2FY24. These capabilities would propel the company’s next phase of expansion, which would include the addition of high-value products, this would further strengthen the “Tarsons” brand. We believe that these market conditions are temporary in nature and in the long term we see the plastic labware market continue to grow both domestically and internationally and so will Tarsons.”

– Mr. Rohan Sehgal, Whole Time Director

Stock Data
Ticker	TARSONS
Exchange	NSE
Industry	PLASTIC LABWARE

Price Performance
Last 5 Days	-8.48%
YTD	-25.92%
Last 12 Months	-26.74%

*As of 30.03.2023

Company Description:

Pipette pipes were the first plastic labware item Tarsons Products introduced in 1984. When Tarsons imported high-end tooling equipment in 1994–1995, it contributed a significant boost to the goods’ quality. Throughout the years, the company has steadily increased its offering, and today it dominates numerous important customer sectors in India for plastic labware goods.  It also has developed a substantial export industry that contributed 33% of the company’s revenues in FY2021.

Over the past three decades, the Indian plastic labware market has witnessed a remarkable transformation from being dominated by imports from MNCs to homegrown firms like Tarsons which now accounts for a substantial portion of the market. In spite of having a meagre 13% share of revenues, Tarsons contributed over 44% of the total operating profits among the top five participants from FY17 to FY21. This is because the company enjoys a much higher operating margin.

The main sources of Tarsons’ recent revenue growth can largely be owed to the launch of new products and rapid expansion in export markets. A better product mix, including a higher share of sterilised products, improved operating efficiencies, and improved pricing have all led to the company’s growth in EBITDA and PAT margins which has surpassed revenue growth. This is evident from the consistent and growing profits reported by the firm over the years.

High operating margins have allowed Tarsons to routinely produce healthy RoCEs despite the fact that the business is capital intensive.

Tarsons’ Critical Success Factors:

Dependable and Persistent distribution connections: Tarsons has amassed an extensive pan-India distribution network over the years that is both robust and fairly diversified. A certain level of stocks must be kept on hand because of the dispersed location of the end users throughout India, the sheer volume of SKUs, and the erratic nature of the customers’ demand. In this situation, wholesalers acting as stockists keep inventories for two to three months to assure dependable and prompt deliveries to the end user. Distributors also take on the credit risk for the end-user sectors concurrently.

With the help of its distributors, Tarsons has been able to preserve enduring ties. For example, 75–80% of Tarsons’ total distributors have been with the company for longer than 20 years, and have contributed significantly to Tarsons’ success. Distributors, on the other hand, have benefited from Tarsons’ strong brand appeal, the company’s high-quality products, and other competitive advantages it enjoys within the industry.

Tarsons’ Un-imitable In-house manufacturing: Tarsons, which predominantly relies on in-house manufacture, has by far the largest in-house manufacturing footprint of plastic labware goods in India. Given that the company operates in the niche market of the industry, MNC competitors like Thermo Fisher and Eppendorf India primarily rely on imports from their global facilities. Additionally , domestic competitors like Genaxy Scientific outsource production to third parties on an as-needed basis.

Important advantages of in-house manufacturing for players like Tarsons:

• Substantial cost benefits, particularly when compared to MNCs that rely heavily on imports. This makes it possible for the local producer in India to price its goods reasonably when compared to those that are imported.

• Complete control over the product’s quality and delivery schedule

While there are clear advantages to in-house production, the low capital employed turnover associated with it necessitates that a business always look to increase margins in order to produce respectable returns on capital employed. In this context, Tarsons has been able to constantly increase its margin through its investments in automation, including robotics, continuous product basket expansion (and hence scale benefits), increased share of sterilised items, and concentration on operational savings.

Focus on the core business: With significant reinvestments in the core company, Tarsons management is concentrated on the plastic labware industry. Together with consistently increasing production capacity, efforts have been made in improving production efficiency through the use of automation technologies/robotics and the establishment of an R&D facility. The amount of debt and interest payments have been reduced with the extra money after reinvestment.

Taking advantage of Opportunities in export markets and untapped segments: 

• Export Market: Tarsons’ USP in the export market is the same as in the domestic market: selling premium goods at discount prices. Tarsons has improved their export staff during the past few years. Tarsons intends to expand its exports to more than 120 nations in the future. Given that the global plastic labware market is worth USD 8.4 billion, Tarsons has a significant growth potential in the export market.

• Domestic Market: Nowadays, only 60% of the market for plastic labware is served by Tarsons. The remaining portion of the market is currently controlled by MNC competitors in important sectors like PCR and cell culture, where Tarsons is currently underrepresented.

Key Challenges:

• Concentration of manufacturing facilities in West Bengal: The state of West Bengal is home to all five industrial sites and the forthcoming factory of the company. This exposes the business to any state-specific risks that could negatively affect its operations.

• Reliance on Distributors: The top 10 distributors of Tarsons in India accounted for 56% of domestic sales in FY21. Similar to domestic markets, a sizable portion of export sales in FY21 were attributable to the top distributor. Any distributor’s departure could have an effect on the company. But, the company’s top distributors have all been with them for a very long period.