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Tatva Chintan Pharma Chem Ltd (TCPCL), established in 1996, is one of the leading companies engaged in the manufacturing of green chemicals such as structure directing agents (SDA), phase transfer catalyst (PTC), electrolyte salts for super capacitor batteries, pharmaceutical & agrochemical intermediates, and other specialty chemicals. For the products SDA, PTC and electrolyte salts, TCPCL is the largest producer in India, while it ranks 2 nd globally for Zeolite. SDA and PTC products have various applications in ‘Green Chemistry’, which is relevant considering the growing focus of developed and developing countries on green and sustainable technologies to reduce emission and industrial discharge.

To cater to the increasing demand requirements for all the above products, the company is undertaking a capex of ~INR 160 cr, which is expected to be operational by November 2022. Accordingly, we expect TCPCL to sustain its revenue growth rates of 20.2% to INR 522 cr over the period of FY21-24E. Exports contribute over 70-75% of TCPCL’s total business, while the rest comes from the domestic market.

EBITDA and net profit over the same period are set to grow at a CAGR of 17.2% to INR 106 cr and 13.6% to INR 77 cr, respectively. EBITDA and net margin are expected to deteriorate by 253bps (to 17.1%) and 270bps (to 14.7%), respectively, since the operationalization of the new facilities would lead to an increase in overhead costs. As a result, return ratios RoE and RoIC are expected to be at 13.6% (-1786bps) and 15.6% (-375bps), respectively, by FY24.

The company operates two manufacturing facilities in Gujarat at

* Ankleshwar – Capacity of 90 kilo liters

* Dahej – Capacity of 190 kilo liters

TCPCL has a dedicated in-house R&D facility at Vadodara (Gujarat) recognized by The Department of Scientific & Industrial Research. The ongoing capex is coming up at the Dahej facility, which will increase the total aggregate capacity of TCPCL by 200 kilo liters to 480 kilo liters (an increase of 71.4%).

Valuation

At the offer for sale price of INR 1,083, the stock is valued at 31.3X FY24 earnings. The high valuations are justified given the

* high growth potential

* dominant producer status

* exposure to green energy

* strong balance sheet

Upcoming expansion plan will increase the company’s aggregate capacity by 200 kilo liters (71.4%), which is a significant expansion and could impact profitability and return ratios in the next 2-3 years. We recommend a SUBSCRIBE for listing gains.

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