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Sequential recovery improves 2H prospects

Operating performance in line with expectations

*  TTCH’s 2QFY25 consolidated EBITDA declined 25% YoY, due to lower realizations YoY, higher freight costs and unfavorable operating leverage across geographies, while sequentially it improved by 7.7% on recovery across geographies, except India.

*  As per the management, soda ash prices have bottomed out (also last price cut was in Nov’23 for domestic market by TTCH) and can improve going ahead, with stable demand-supply scenario globally.

*  We maintain our FY25/FY26 EBITDA estimates as we anticipate a steady recovery in the soda ash demand-supply scenario globally. Reiterate our Neutral rating with an SoTP-based TP of INR1,070.

Margin under pressure YoY across geographies

*  TTCH reported total revenue of INR40b (est. INR40.2b) in 2QFY25, flat YoY, due to lower realization YoY across regions. EBITDA margin contracted by 500bp YoY to 15.5% (est. 16%). EBITDA stood at INR6.2b (est. INR6.45b), down 25% YoY. Adj. PAT was down 45% YoY at INR1.9b (est. INR2.1b).

*  Basic Chemistry Products revenue declined 3% YoY to INR30.4b, EBIT fell 51% YoY to INR2.6b, and EBIT margins stood at 8.4% (down 840bp YoY).

*  Specialty Products business grew 10% YoY to INR9.6b, EBIT grew 15% YoY to INR1.2b, and EBIT margins stood at 12.7% (up 60bp YoY).

*  India standalone/TCEHL revenue declined 5%/13% YoY to INR10.1b/ INR5.3b, while TCNA/TCAHL/Rallis revenue grew 5%/8%/11% YoY to INR13.9b/INR1.7b/INR9.3b.

*  EBITDA declined across the board, with India standalone/TCNA/TCEHL/ TCAHL declining by 23%/30%/77%/16% YoY to INR1.4b/INR2.2b/INR260m/ INR430m. However, Rallis EBITDA grew 23% YoY to INR1.6b.

*  EBITDA/mt of TCNA/TCEHL/TCAHL declined by 41%/76%/34% YoY to ~USD42/~GBP17/ ~USD67. EBITDA margin for India Standalone/Rallis contracted/expanded 3.4pp/1.7pp YoY to 14.3%/17.9%.

*  Gross/net debt stood at ~INR64.8b/INR51.9b as of Sep’24 (vs. ~INR55.6b/ INR41.6b as of Mar’24).

*  For 1HFY25, revenue/EBITDA/adj. PAT declined 5%/36%/62% YoY to INR77.8b/INR11.9b/INR3.3b. Based on our estimates, the implied revenue/EBITDA growth for 2HFY25 is 9%/33% YoY. The higher EBITDA growth estimate in 2HFY25 is due to a lower base and an expected recovery across geographies

Highlights from the management commentary

*  Demand-supply scenario: The company is not witnessing any major moderation in overall demand for soda ash in Oct’24. The softness in demand from container and lithium batteries is offset by healthy demand from solar. The management expects prices likely to have bottomed out.

*  Outlook: TTCH expects 2H to be much steady in operations vs. an erratic and volatile 1H. The management is bullish on demand in Indian and the US

*  India standalone business: Margins were hampered by unprecedented heavy rains during the quarter, which impacted inventories and plant & equipment at Mithapur. The total cost impact was ~INR400-440m with a production loss of ~30KMT/40KMT of soda ash/salt.

Valuation and view

*  Soda ash industry has witnessed a challenging 1HFY25, led by unfavorable demand-supply dynamics. However, with soda ash prices bottoming out across regions in 1H, we expect a steady recovery in 2H, led by healthy demand from solar glass and stable demand for other end-user industries.

*  We expect 2HFY25 to witness further recovery in margins, led by healthy volume across geographies and favorable operating leverage. We reiterate our Neutral rating with an SoTP-based TP of INR1,070.

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