IGI Logo

Pricing pressure continues to hurt performance

Operating performance misses our expectations

* TTCH’s 1QFY25 consolidated EBITDA declined 45% YoY, due to subdued operating performance across geographies, with India/US/UK/Kenya reporting EBITDA decline of 19%/58%/84%/61% YoY.

* Factoring in weak 1Q performance and pricing-led margin pressure across geographies, we cut our FY25/FY26 EBITDA estimates by 6%/3%. Reiterate our Neutral rating with an SoTP-based TP of INR980.

Broad-based revenue decline

* TTCH reported total revenue of INR37.9b (est. INR39.5b) in 1QFY25, down 10% YoY, due to lower realization YoY across regions. EBITDA margin contracted by 960bp YoY to 15.1% (est. 16.5%) due to adverse operating leverage; EBITDA stood at INR5.7b (est. INR6.5b), down 45% YoY. Adj. PAT was down 74% YoY at INR1.35b (est. INR1.8b).

* Basic Chemistry Products revenue declined 12% YoY to INR29.7b, EBIT fell 62% YoY to INR3b, and EBIT margins stood at 10% (down 1320bp YoY).

* Specialty Products revenue declined 2% YoY to INR8.2b, EBIT declined 8% YoY to INR600m, and EBIT margins stood at 7.3% (down 50bp YoY).

* India standalone/TCNA/TCEHL/TCAHL revenue declined 8%/14%/19%/15% YoY to INR10.5b/INR12.8b/INR5.3b/INR1.5b. Rallis revenue was flat YoY at INR7.8b.

* EBITDA declined across the board, with TCEHL/TCAHL/TCNA declining the most by 84%/61%/58% YoY to INR180m/INR250m/INR1,980m, followed by India Standalone/Rallis down 19%/13% to INR2.4b/INR960m. EBITDA margins for India Standalone/TCNA/TCEHL/TCAHL contracted 3pp/16.6pp/14pp/ 19.7pp/1.8pp YoY to 22.4%/15.5%/ 3.4%/16.9%/12.3%. EBITDA/MT of TCNA/TCAHL declined by 63%/69% YoY to ~USD40/~USD43.

* Gross/net debt stood at ~INR63.8b/INR47.9b as of Jun’24 (vs. ~INR55.6b/ INR41.6b as of Mar’24).

Highlights from the management commentary

* Demand-Supply scenario: Overall, soda ash demand is balanced and is expected to remain similar for the next couple of quarters. However, the company is watchful of demand from China, which has been fairly good so far.

* Guidance: The company has commissioned 230KMT/330KMT/70KMT of soda ash/salt/bicarb capacity as per its ongoing expansion plan. It expects ~INR4b of incremental EBITDA in FY26 from new capacities. It will incur ~INR20b of capex over FY25-28E to increase soda ash capacity by ~20%, bicarb by ~30% and silica by 5x.

* TCNA: Domestic prices in the US are likely to remain stable until Dec’24. Export prices will be in sync with the market. Margins in export orders is likely to increase due to better realization.

Valuation and view

* There are certain short-term challenges in the soda ash demand-supply dynamics owing to weak demand in Western Europe, which result in suppliers (majorly from Turkey) exporting soda ash beyond Europe (impacting global prices adversely). However, the situation is expected to balance out in the medium term, with the emergence of new applications, such as solar glass and lithium-ion batteries.

* Factoring in weak 1Q performance and pricing-led margin pressure across geographies, we cut our FY25/FY26 EBITDA estimates by 6%/3%. Reiterate our Neutral rating with an SoTP-based TP of INR980.

For More Motilal Oswal Securities Ltd Disclaimer http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html

SEBI Registration number is INH000000412