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Demand pressures persist in short term; maintain Hold

* TTCH’s Q1 consolidated revenues were down 9% yoy (but above estimates) on sluggish demand in the domestic and international markets, led by a soda ash volume decline of ~25% globally. This was partially offset by favorable pricing in some international markets.

* Consol. Basic Chemicals sales fell 14% yoy, mainly due to lower volumes on weak enduser industry demand, with some support from the Salt/Nutraceuticals business. Specialty Chemicals grew 6.6% yoy, primarily due to growth in the subsidiary Rallis (up 6% yoy).

* The focus is on value-added mix in performance materials and prioritizing capex plans in Agri Science/Nutraceuticals. Mithapur plant expansion remains on track (to commission by mid-2022), and any upswing in the soda ash business will be driven by improvement in economic conditions.

* Short- to medium-term pressure in soda ash should continue to be an overhang on overall performance of the business, mainly due to soft demand from end-user industries. We continue to maintain Hold rating with a TP of Rs302, Retain UW stance in EAP.

Economic slowdown reflects in Basic Chemicals: Consolidated sales fell 9% yoy to Rs23.48bn, as a result of a volume decline of ~25% across the international markets. Overall, Basic Chemicals declined 14.2% yoy, while Specialty Chemicals inched up 6.6%. The decline in the Basic Chemicals segment was attributed to weak performance in India (-12.6% yoy) and subsidiaries - TCNA (-27% yoy), and TCML (-21% yoy), resulting from volume loss and subdued pricing in some markets. TCEL, despite a decline in volumes, reported 3% yoy growth on favorable pricing.

Volume drop across geographies: Consolidated EBITDA fell 30.1% yoy to Rs3.6bn and margin contracted 460bps yoy to 15.3%, as a result of gross margin loss of 700bps yoy, partially compensated by lower energy costs. Sales volumes for the soda ash business came in at 712kts, down 20% yoy. Region-wise, sales volumes in India were down 28% to 118kts, TCEL down 9% to 62kts, TCML down 10% to 57kts, and TCNA down 28% to 387kts. A lack of reasonable demand for flat glass in automotive (domestic) and construction (international) sectors remain the headwinds on soda ash demand.

Soda ash demand outlook soft; maintain Hold: We believe that the near-term softness in soda ash demand due to the scaling-down in operations globally across various sectors and the structural weakness in the automotive sector will weigh in on TTCH’s earnings, partially mitigated by a firm salt business. The recovery in TCNA’s export market is important for gaining ground on the margin front. We continue to maintain Hold rating with a TP of Rs302 (June-22E), and maintain UW position in EAP. The key risk to our estimate is a faster-thanexpected recovery in soda-ash volumes.

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