In FY23, Tatva Chintan (TATVA) earnings were hurt from a downcycle in its SDA business, which should resume growing FY24 onwards.

The addition of a significant new customer to its SDA has the potential to propel growth in the near future. PASC segment will likely reap the benefit of products under qualification and long-term growth on the back of a robust pipeline and cleaner chemistry positioning.

Electrolyte salt business anticipates inflection from CY25, as its customers win commercial projects, alongside TATVA establishing itself as a supplier for energy storage solutions in super-capacitor, zinc and sodium batteries. Flame retardant customers have indicated start of purchase soon, finding strength in bromine prices recovering, and China’s TBBA inventory normalising.

SDA revenues to recover; likely impetus from customer addition

SDA revenues through the past six quarters were hurt from a slump in China’s commercial vehicles (CV) sales, and de-inventorisation by catalyst producers (refer case studies 2&3). China’s CV volumes have been seeing a slight resurgence (FY24-TD), and will likely continue building on gradually. Separately, TATVA is going through ‘qualification’ with a large customer and anticipates commercial supplies from early-24 – this should enable thicker SDA revenues. TATVA’s earnings earlier were mired in higher-cost inventories, now being liquidated, and infrequent operation of assemblies, which will likely benefit from volumes recovery.

European Union (EU) has proposed Euro-7 norms – stricter pollution norms for heavy duty vehicles, which could potentially drive higher sales for SDAs (new norms require ~40–50% more SDA/vehicle). Euro-7 is likely to see implementation from Jul’27. TATVA is also in the process of developing SDAs for a circular economy (plastic wastes); and ultra-purity chemicals for semi-conductor application – these have high option value, in our view.

PACS new products pipeline maturing; could drive growth in FY25E

TATVA has been focusing on applying its strength of cleaner processes in producing new products. Company is shifting its largest product monoglyme to continuous flow manufacturing, thereby reducing cost, improving impurity profile, and applying cleaner/greener processes preferred by MNCs. 

TATVA has begun supplying the-much-awaited earth metal extraction chemical for its large export customer. Company has been sharing commercial-scale samples of its early-stage agrochemical and pharmaceuticals intermediates from Q2FY24. It anticipates to commence production of agrochemical intermediate from early-24; and pharmaceutical intermediate from early-25.

We would closely watch TATVA’s PASC business. We believe the segment offers strong sustained growth opportunity as innovators will prefer intermediate produced from cleaner chemistries, which could become a sustained competitive advantage for TATVA.

Electrolyte salt business to see inflection from CY25

TATVA has significantly invested in developing organic electrolyte salt for super-capacitor batteries, which are expected to see increased adoption in both automotive and renewal energy application. It has also developed electrolyte salt for zinc and sodium batteries, which are preferred solutions for energy storage systems for renewal energy.

Company has been working with four customers, and has supplied samples to another two. TATVA anticipates that two of its customers are now applying these solutions for commercial projects, which should drive revenue growth. We believe TATVA is creating a niche for itself in non-lithium electrolyte solutions.

FY22–25E EBITDA/EPS to grow at 25.6%/15.6% CAGR

We expect 25.5% revenue CAGR for TATVA over FY22–25E, notwithstanding disruption in FY23. We see growth being driven by recovery in SDA (CAGR: 15.6%), PASC (35%) and electrolyte salt (112%, on low base). Gross profit margin is unlikely to reach the 55% levels of FY22 as SDA –highest margin business– contribution will likely be ~40% (vs. 52% in FY22) during the forecast period; and flame retardant (new segment) has lower margins versus company average. EBITDA margin can attain historical levels of 25% due to operating leverage. Tax rate is likely to increase as Dahej-1 plant tax benefit has shifted to 50% rebate (vs. 100% earlier).