ICICI Securities research report on Tatva Chintan Pharma Chem
Tatva Chintan’s Q4FY22 revenue declined 9.3% YoY and was 11% below our estimates on higher dip in SDA revenue. However, gross margin expansion of 280bps QoQ, despite inferior revenue mix, was a positive surprise. It anticipates SDA revival only in H2FY23, and has guided for flattish revenue for FY23. However, we expect an upside risk if auto production normalises, and benefits from pent-up demand and large inventory get liquidated. Despite lower SDA sales, Tatva Chintan expects good growth in FY23 contributed by other segments and start of flame retardant production. We are excited about its new product pipeline, which is niche, has high purity requirement and is thus, challenging. The company expects new facility (to be commissioned by Dec’22) to be utilised faster than earlier estimates, capex to continue and drive growth.
Outlook
We have cut our FY23E EPS estimate by 23% on lower SDA sales, but have cut only 4% for FY24E. We reduce target price to Rs2,875 (from Rs3,000; 40x FY24E EPS). Maintain BUY.
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