Tarsons Products share price falls 20% from all-time high; brokerages remain mixed on this small cap stock post Q1

Tarsons Products share price has decreased by about 20% from its all-time high of ₹574.40 per share. Tarsons Products share price has increased by around 2.78% in the last week, the stock opened at an intraday low of ₹458.55 apiece on BSE, and touched an intraday high of ₹468.

Brokerage opinions on the stock have diverged since the company's Q1FY25 earnings. While ICICI Securities reduced the stock to "reduce" from "add" with a lowered target price of ₹408, LKP Securities maintained a "buy" recommendation with a target price of ₹600.

According to Dr. Ravi Singh, SVP - Retail Research Religare Broking Ltd, Tarsons Products share price has seen a decent correction in recent times. If we see price action, we are seeing base formation. With the momentum indicators rising from the oversold levels, we can expect the stock to see some recovery in days to come with potential upside till ₹530.

Tarsons Products is a company that manufactures and sells scientific equipment and plastic laboratory goods. The company serves both foreign and domestic markets.

Q1 Results

According to LKP Securities, the worst may last for a few more quarters; at this point, all eyes are on the recover. Over the last few quarters, Tarsons' export division has grown significantly, while its domestic business has performed consistently. However, a larger percentage of export sales and pay increases put pressure on the company's standalone margins in Q1FY25. Furthermore, the acquisition of Nerbe—a company with substantially lower profit margins—had an adverse effect on total profitability.

Tarsons Products' standalone revenue increased 3.6% YoY to ₹64.9 crore in Q1FY25 from ₹62.6 crore in Q1FY24, according to a report by LKP Securities. Its consolidated revenues for the same period were ₹84.8 crore, which included revenue of ₹20 crore from Nerbe, which was acquired in Q4FY24 and showed a growth of 35.5% YoY (down 19.8% QoQ). The company's unfavourable domestic market and product mix caused its gross margin to decline by 123bps QoQ and 777bps YoY to 67.4%.

Outlook

According to LKP Securities' report, export performance has been robust and domestic business has been solid. However, increased export contributions, pay increases, and the integration of low-margin Nerbe resulted in margin erosion in Q1FY25. The management anticipates that when Nerbe's manufacturing moves to India and additional plants come online, margins will stabilise in the 8–12% range.

“We expect its Revenue/EBITDA/PAT to grow at a CAGR of 20%/25%/28% respectively over FY24-26E, therefore, We maintain our ‘BUY’ rating, with a target price of ₹600 (46x FY26 EPS of ₹12.9),” the brokerage said.

According to ICICI Securities, the stock has dropped by around 24% after the news of Nerbe's purchase was released. This might have an effect on the company's short-term performance.

“We reduce our FY25E/FY26E EPS by 12%/10.8% to factor in lower sales and margins of Nerbe. We expect revenue to grow at 22.4% CAGR with EBITDA/PAT CAGRs of 19.1%/24.5% over FY24–26E. Margins may decline by 180bps to 31.9% in FY26E due to overheads pertaining to commissioning of new plants. We expect RoE/RoCE of 9.4%/7.6% in FY26E. We lower our rating to REDUCE (from Add) and our target price to ₹408 (earlier ₹445) at 17x FY26E EV/EBITDA (unchanged),” said ICICI Securities.

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