Buy This Specialty Chemical Stock With A Target Price of Rs. 2,920: ICICI Securities

The brokerage’s take on Tatva Chintan Pharma Chem

In its research report, the brokerage has claimed that "Tatva Chintan is a strong play on 'smart and green' chemistry with not only a portfolio of products that help reduce pollution but also processes that are efficient with a lower generation of effluents. Its largest product group, SDA, goes into reducing NOx emissions from transport vehicles and we expect other NOx-producing industries also to progressively adopt the technology. PTCs improve efficiency in processing chemicals. In the PASC segment, Tatva Chintan plans to come up with intermediates using continuous flow chemistry. Super-capacity batteries are likely to increase the lifecycle of energy storage."

According to ICICI Securities "While the chemical industry is growing at 3- 4% CAGR, Tatva Chintan does business with an industry that is growing in double digits. SDA market is growing at ~25% CAGR and with the rising regulations, the growth is likely to sustain. The Super-capacitor battery segment is growing at 26% CAGR, which will drive similar growth in the electrolyte salt business. Within PASC, 'green chemistry' is growing at >10% CAGR, which will boost demand for production using continuous flow chemistry. Demand for glyme (an organic solvent used in lithium-ion batteries) is also on the fast growth path. Underlying industry tailwinds will help Tatva Chintan to grow at an even faster clip for many years."

The brokerage has also stated that the "Global SDA market is growing in double digits on the back of adoption of China 6a and 6b emission standards. Euro-7 is likely to be introduced in 2025, which should help drive higher volumes for SDAs. Tatva Chintan will benefit from an improved market share with the approval of new vehicle models. Considering that SDAs are largely used in commercial vehicles, EV penetration in Automotives (largely PVs) does not pose an immediate threat. SDA to be used in Euro-7 may be novel / patented product(s) unlike Euro-6 which came on non-patent thus will restrict competition."

Buy Tatva Chintan Pharma Chem With A Target Price of Rs. 2,920

As per the brokerage's research report "We initiate coverage on Tatva Chintan with a BUY rating and target price of Rs2,920 (based on 40x FY24E EPS). The company is active in niche chemistries such as PTCs, SDAs and battery chemicals wherein it uses 'smart and green' processes. Tatva Chintan is a unique play wherein industry revenues are growing in double digits (unlike 3-4% p.a. for the chemical industry). Such a growth rate makes us confident of sustained growth over the longer term for the company. Further, Tatva Chintan's largest product group (SDAs) is in a sweet spot with only two credible manufactures worldwide amid a growing opportunity."

ICICI Securities has further added that "The SDA business has high entry barriers due to stringent regulations and its high importance for customers. We have not factored in the rising opportunities from glyme (battery chemical) and new product introductions based on the continuous flow process. Despite the conservative nature of our estimates, EBITDA and net profit CAGRs are at 48.9% and 45.7% respectively over FY21-FY24E."

Disclaimer

The stock has been picked from the brokerage report of ICICI Securities. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.