Fortune Scrip

Published: Mar 15, 2022
Updated: Mar 15, 2022

Ruling the roost in special chem

TATVA CHINTAN PHARMA CHEM

FOR this fortnight, we have selected Tatva Chintan Pharma Chem – a little known Gujarat-based company just six months ago — as our Fortune Scrip. Though it was an unknown name when its IPO came in the beginning of the second half of 2021, it met with an overwhelming response – the shares were offered at Rs 1,087, were listed at Rs 2,111 and then shot up to nearly Rs 3,000. The stock took a jolt after the start of the Russia-Ukraine war but is still quoted around Rs 2,100 — higher than the listing price.

Ankleshwar (Gujarat)-headquartered Tatva Chintan Pharma Chem is a world-renowned manufacturer of speciality chemicals such as structure directing agents (SDAs), phase transfer catalysts (PTCs), electrotype salts for super capacitor batteries, and pharmaceutical and agrochemical intermediates and other speciality chemicals (PASC).

The company has two modern plants at Ankleshwar with a capacity of 90 kilo litres (kl) and at Dahej with a capacity of 190 lakh kl. The plants are integrated models comprising a world-class manufacturing infrastructure complex and multiple chemical processes, warehousing facilities and chemically sound R&D capabilities (at Vadodara), enabling the company to achieve high operational efficiency and quality to innovate and customize, as well as to ensure sustainable operations with wide offerings.

With global MNCs beginning to follow the ‘China plus one’ policy, several companies in the US, Germany, South Africa, the UK, and even China among others, have started buying from Tatva Chintan Pharma. Today, it exports to 25-plus countries and its exports account for around 75 per cent of its revenues, the balance 25 per cent coming from domestic clients. Among the leading clients of the company’s products are Merck, Bayer AG, IPOX Chemicals, Laurus Labs, Navin Fluorine International, Atul, Otsuka Chemicals, SRF, Hawks Chemical Company, Fironenich Aromatics and Divis Laboratories.

SALES SKYROCKET

Even on the financial front, the company is going from strength to strength. During the last four years, its sales turnover has expanded from Rs 136 crore in fiscal 2018 to Rs 300 crore in fiscal 2021, with the profit at the net level shooting up by more than four times – from Rs 12 crore to Rs 52 crore during this period. The company’s financial position is very sound, with reserves at the end of March 2021 standing at Rs 146 crore – more than seven times its equity capital of Rs 20 crore.

But we have not picked this company as the Fortune Scrip just because of its past laurels. Its future prospects are even more exciting and promising. Consider:

• The demand for Tatva Chintan’s products is on the rise at home as well as abroad. Last month, the company acquired two large customers for its SDA, which should help accelerate volume offtake, and only one large customer is now left to approve its product. The management is seeing an increased order book for Q4 FY2022 and Q1FY2023.
• With a view to meeting the rising demand for its products, Tatva Chintan has chalked out a plan to expand the reactor capacity from the current level of 280 kl to 480 kl. For this expansion programme, the company plans to increase the assembly lines from the current 17 to 39 in its 5 lakh sq ft area. For this, a capex of Rs 160 crore has been earmarked and the company raised this amount through a public issue in July 2021. The Dahej expansion is expected to be completed by November 2022.
• If the company is ruling the roost in its space, it is because of the growing popularity of its products. Today, it is the second largest global player in SDAs. At the same time, it is the only player in electrolyte salts domestically and has a 25 per cent global marketshare. SDA is a category of salt that helps in the formation of zeolites which help control emission in the automotive industry. Of late, the government’s tightening of environmental norms and the improvement in automotive technologies have created a significant opportunity for zeolites. The management expects the revenues from this segment to grow at a CAGR of 22.8 per cent to Rs 151 crore by fiscal year 2024.
• The company’s other major product, PTC, is used in a variety of industrial processes in developed countries, and developing countries are also adopting such techniques to reduce industrial pollution. During the last three years – 2019 to 2021 — the company’s revenues from this segment grew at a CAGR of 117.6 per cent to Rs 120 crore. As governments all over the world are taking various initiatives to reduce industrial waste, the demand for PTCs is expected to improve globally going ahead. Revenue from this segment is expected to grow at a CAGR of 11.6 per cent to Rs 167 crore by fiscal 2024.
• Prospects, including global demand, for the company’s third major product – electrolytic salts – which are used in the manufacturing of super capacitor batteries used in automobiles, aerospace, locomotives and consumer electronics – are highly encouraging. Global auto companies have started using such super capacitors in electric vehicles to reduce charging time and improve efficiency. This is expected to be a big boost to Tatva Chintan as it is is one of the largest producers of electrolytic salts globally.

A ‘BUY’ FAVOURITE

Tatva Chintan’s growth prospects are highly promising because of its dominant market position in the SAD and PTC spaces globally, its diversified product portfolio, a global market presence with a customer base across industries, its strategically located plants in Gujarat with close proximity to Hazira port, and an excellent performance track record with a strong and healthy balance sheet and negligible debt. Little wonder that several equity research units have given a ‘Buy’ rating. KR Choksey has placed a price target of Rs 2,902 and ICICI Securities has worked out a target price of Rs 3,110. The stock, which was issued at Rs 1,083 in July 2021 and made a bumper debut on the stock market at Rs 2,111.85, is now quoted around Rs 2,130.