Tatva Chintan Pharma Chem - Core Business Normalising; New Products Pipeline Maturing: ICICI Securities

ICICI Securities Report

In FY23, Tatva Chintan Pharma Chem Ltd.'s earnings were hurt from a downcycle in its structure directing agent business, which should resume growing FY24 onwards. The addition of a significant new customer to its SDA has the potential to propel growth in the near future.

Pharmaceutical and Agrochemical Intermediates and Other Specialty Chemicals segment will likely reap the benefit of products under qualification and long-term growth on the back of a robust pipeline and cleaner chemistry positioning.

Electrolyte salt business anticipates inflection from CY25, as its customers win commercial projects, alongside Tatva Chintan establishing itself as a supplier for energy storage solutions in super-capacitor, zinc and sodium batteries.

Flame retardant customers have indicated start of purchase soon, finding strength in bromine prices recovering, and China’s TBBA inventory normalising.

We incorporate Tatva Chintan’s fund raise, and equity dilution into our estimates and cut our FY24E Ebitda by 7.5%, but increase FY25E by 3.3%.

Our earnings per share cuts of 22%/5% for FY24E/FY25E entail the equity dilution hit. Consequently, our revised target price stands at Rs 2,000 (earlier Rs 2,110) with an unchanged 30 times FY25E price-to-earning multiple. Maintain 'Buy'.

Risks:

• Failure to qualify for large PASC products, and add new customer in SDA.

• Lower-than-expected margins.

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