Tatva Chintan – A catalyst for growth

Concall: Tatva Chintan Pharma Chem Earnings Call for Q1FY23 – YouTube
Investor PPT: https://www.bseindia.com/xml-data/corpfiling/AttachLive/5605c8a3-6517-4977-b734-c11ac57ad8bd.pdf

My notes on Q1 FY23 concall:

SDA

1. Elephant in the room – Drop in SDA demand for Q1 (52% in FY22 vs 7% in Q1FY23) and Q2 was advised in Q4 concall.
2. This is a temporary demand problem mainly due to semiconductor shortage and geo-political issues, further increased due to COVID lockdowns in China.
3. Despite SDA tanking, achieved 83% of YoY numbers meaning other segments are quite strong. PTC + Salts + PASC showed 60% YoY growth, expect better through to Q4 due to 1 new product in PASC gone into commercial sales now.
4. SDA is high margin segment so lower EBITDA margin in Q1 is due to loss of revenues from SDA segment

Guidance for FY23

• Renewed demand seen. Q2 to be marginally better than Q1 with Q3 onwards full scale demand expected.
• Carrying higher inventory now mainly due to expected demand uptick from Q3 onwards.
• So, realistically expect to achieve 90% of FY22 numbers. Mainly due to delay in order for 1 large customer in China which should come in by Dec ’22.
• SDA based zeolite catalyst in waste recycling already developed and ready for commercial sales.

PTC

1. PTC showed historically highest quarterly revenue of 40Cr, growth of 79% YoY. TCPCL continues to be leader in PTC segment and has increased market share in Q1 (by how much?)

Guidance for FY23

• More PTC can be sold due to lower captive consumption by SDA segment in Q1. Additional capacity of PTC should be online by Q3FY23 so now full potential of PTC can be realised without hampering SDA pipeline when SDA demand returns.
• PTC demand in Q1 higher due to 1 Europe customer whose 80% demand was serviced by TCPCL due to better logistics than other supplier.

Electrolyte Salts

1. Showed historically highest quarterly revenue of 6.9Cr, entire FY22 was 5.7Cr.
2. Formal approval from new customer on energy storage device application is in and commercial sales have begun. 2 more customers in pipeline for approvals.

Guidance for FY23

• Robust future for this segment in coming years. Previous guidance is 4x-5x over FY22.|

PASC

1. PASC 34.5Cr, strong growth of 28% YoY. 1 new product has begun full commercial sales.
2. Monoglyme – Pilot stage equipment will be in place in Q2. For another product (Which one??), equipment is in place and trials underway with commercial sales Q2-Q3FY24 onwards.
3. New product in metal extraction is approved and commercial sales to begin in Q4FY23 (1 of the 4 ones in R&D in Q4). At full scale, 30-40Cr revenue potential.

Guidance for FY23

• No major callout for PASC. Previous guidance of strong growth of 40-50% expected over FY22.

Flame Retardants

1. Pilot trials completed, Full scale plant trial to start now. Current plant of 5000 MT vs global market size of 160,000 MT. No competitor in India, only 3 known MNCs.

Guidance for FY23

• No major callout, revenue potential towards Q4FY23.

General

1. Capex for Dahej as per schedule and should be ready by Q3FY23 (Nov ’22) despite 3 weeks of construction strike. Increase reactor capacity from 200KL to 400KL with potential to double revenues in coming years.
2. Minor capex of 3Cr towards special tanks for storing flame retardants done in Q1FY23.
3. Until FY22, 100% tax exemption for Dahej plant. Next 5 years, 50% tax would be applicable. Overall tax rate should be 18-20%.

Guidance for FY23

• No major capex after Dahej expansion until EC clearance for acquired land comes in.
• Sustainable margins – 23-27% EBITDA margins

Estimates for FY23 based on above commentary turn out to be not too bad actually. With non-SDA segments, growing 60%, if they manage to get ~200Cr from SDA (10% degrowth), you are looking at ~20% topline growth and ~30% bottomline since SDA is high margin. Now that Dahej tax holiday has ended, bottomline will come down a bit and needs higher SDA share to alleviate that. With Q2 to be marginally better for SDA, overall numbers might look subdued until Q3 when additional capacity, renewed demand and new product revenues kick in. I see this as temporary pain for 2 quarters which will hopefully bring TCPCL down from stratospheric into reasonable valuation range.

Disc: Not invested. In my watchlist to invest when valuations are reasonable.