Tatva Chintan Pharma Chem Ltd Q3 FY22 Earnings Conference Call Summary

Key highlights from Tatva Chintan Pharma Chem Ltd (TATVA) Q3 FY22 Earnings Concall

Management Update:

• TATVA said the company saw strong export growth and it has contributed nearly 80% of revenue on a nine month basis. The company also expects that its export revenue for FY22 will exceed the full year total revenue of FY21.

• The company also commented that during the quarter, it purchased a new industrial plot in Dahej measuring about 5 lac sq. ft. in an industrial area, which will help the company meet its growth for 3-4 years by which time the TATVA expects to saturate its capacities at its existing plant locations.

Q&A Highlights:

• Sudarshan Padmanabhan  of JM financial asks about the cost split. Ashok Bothra CFO said that as far as other expenses are concerned there is increase in power and fuel cost of about 2.5% as a percentage of sales. Rate has increased by 2.2%. In employee cost there is an increase towards gratuity and induction of two positions at senior level of CFO and CTO.

• Sudarshan Padmanabhan  of JM financial also asked about when the company would see visible contribution from the two new contracts on the SDA side. Chintan Shah MD said that it is by May that the demand is expected to go back to full swing. In 4Q, the company expects to see similar demand as in Q1 and Q3. In mid of Q1 next year, TATVA expects to see a steady rise of demand in SDAs.

• Sanjay Jain of ICICI enquired about margin expansion despite an unfavorable product mix. Ashok Bothra CFO answered that it’s not purely because of absorption of increased cost going into the customer. Even within individual product segment, these are large basket of product and sale of specific product increase marginally can also lead to better revenue realization. However, the real change from Q2 to Q3 is purely because of changes in SDA sales going down from 62% to 51%.

• Sanjay Jain of ICICI also enquired about the demand and product outlook for the electrolyte salt. Ashok Bothra CFO commented that for Q4, TATVA has similar kind of orders already punched in like Q3. For April to June quarter, there is slightly higher forecast coming from the customer. The volume is expected to increase steadily.
• On another question by Sanjay Jain on the SDA side, with the acquisition of two large customers, if the company is the dominant player globally for all major supplier, Chintan Shah MD said that one of the largest customer is where the company is still in the approval phase and that is expected to happen in 2022.

• Nakshita Mehta  of Credent Global asked about the topline for next quarter, considering SDA being a major contributor of revenue. Chintan Shah MD said that the company expects it to be almost similar or slightly better, but within the same range.

• Isha Agarwal of VT Capital Market queried about the market share globally in all the product the company has and the competition faced from China. Chintan Shah MD said that the company is enjoying a leadership position with 30% share in the industry. In terms of SDAs the company is the second largest player and in terms of electrolyte salts there are three known commercial players and the only player in India is TATVA. In PASC, the company expects 25-30% of market share.

• Krishan Parwani from JM Financial Ltd asked about the capacity utilization during the quarter and how much more the company could grow from the current capacity. Chintan Shah MD answered that in terms of SBAs the company is utilizing close to about 60% of capacity and about the other part (conventional rectors etc.) of the plant is nearly about 90% of capacity.

• Anurag Patil of Roha Asset Managers asks about the revenue potential for Dahej facility and the target to utilize the capacity fully. Ashok Bothra CFO answered that typically revenue potential, asset revenue ratio would in the range of about 3. And to utilize this capacity fully the company expects three years for which it has bought a land in Dahej.

• Manish Jain of Moneylife Advisory Services enquired about EBITDA margins expected in the range of 24-27% and if it’s expected to be maintained going forward and any update about order visibility for next 6 months. Chintan Shah MD commented that TATVA is confident of remaining in that margin range over the next quarters. On order visibility, TATVA said demand is very strong but semiconductor shortage is slowing down the business on SDAs.

• Sabyasachi Mukerji of Centrum asked if there is globally any other technology that is being used other than the zeolite based technology for NOx control that TATVA is into. Chintan Shah MD said that power plants use different technology for NOx control. As of now there is no other commercial technology other than what TATVA is using, which is called SCR (Selective Catalytic Reduction) technology.

• Alisha Mahawla from Envision Capital asked when the company can expect to be more like a INR1,000 crore kind of company. Chintan Shah MD said that the company expects to achieve this in the next 3-4 years.