Accumulate Tatva Chintan Pharma Chem; target of Rs 1487: KR Choksey

KR Choksey's research report on Tatva Chintan Pharma Chem

For Q3FY24, TATVA revenue was INR 842 Mn which declined by 30.2% YoY and 12.9% QoQ. The revenue missed our estimates by 23.1% due to continued subdued demand for the specialty chemical industry and financial year end for global end customers. The 9MFY24 revenue was INR 2,952 Mn which declined by 1.3% YoY. • The EBITDA for the quarter was INR 110 Mn which declined by 38.6% YoY and 45.7% QoQ. The EBITDA was expected at INR 213 Mn but missed our estimates by 48.5% due to a significant increase in employee costs and other expenses and lower-than-expected revenue. The EBITDA margin for the quarter contracted by 180 bps YoY and 789 bps QoQ to 13.1%. We expected EBITDA margins to be 19.5% but it was lower by 640 bps. For 9MFY24, EBITDA was INR 526 Mn which grew by 18.7% YoY. The EBITDA margin expanded 300 bps YoY to 17.8%. • Adj PAT for the quarter was INR 35 Mn which declined by 70.3% YoY and 55.6% QoQ. The Adj PAT was expected at INR 107 Mn but missed our estimates by 67.7% due to weak operating performance. The Adj PAT margin contracted by 553 bps YoY and 395 bps QoQ to 4.1%. We expected Adj PAT margin to be 9.8% but it was lower by 570 bps. For 9MFY24, Adj PAT declined by 27.3% YoY to INR 207 Mn. The Adj PAT margin contracted by 251 bps YoY to 7.0%.

Outlook

Currently, the stock is trading at PE multiples of 48.3x/26.1x based on FY25E/FY26E EPS estimates, respectively. We have introduced FY26E estimates and expect the revenue to grow at 30.9% CAGR over FY23-FY26E, with PAT growing at 37.9% CAGR over FY23-FY26E, with growth expected to pick up from FY25E. We arrive at a target price of INR 1,487/share (P/E multiple of 27x to FY26E EPS) and we maintain our rating to accumulate. We factor the significant uncertainty which persists over the ability of the Company to get back on track as revenue growth and margins remain under pressure.