Tatva Chintan Pharma Chem Limited has informed the Exchange about Transcript of Analysts/Institutional Investor Meet/Con. Call
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(cid:0) (cid:3) (cid:0) ( (cid:0) Q (cid:0) F (cid:0) O (cid:0) (cid:17) (cid:0) (cid:29) (cid:0) (cid:3) (cid:0) $ (cid:0) V (cid:0) (cid:3) (cid:0) D (cid:0) E (cid:0) R (cid:0) Y (cid:0) H (cid:0) (cid:3) (cid:0) (cid:3) (cid:0) (cid:3) “Tatva Chintan Pharma Chem Limited Q2 & H1FY23 Earnings Conference Call”
November 04, 2022
MANAGEMENT: MR. CHINTAN SHAH – MANAGING DIRECTOR, TATVA CHINTAN PHARMA CHEM LIMITED MR. ASHOK BOTHRA - CHIEF FINANCIAL OFFICER, TATVA CHINTAN PHARMA CHEM LIMITED
MODERATORS: MR. SANJESH JAIN – ICICI SECURITIES
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Tatva Chintan Pharma Chem Limited November 04, 2022
Moderator:
Ladies and gentlemen, good day and welcome to Tatva Chintan Pharma Chem Limited Q2 &
H1FY23 Earnings Conference Call hosted by ICICI Securities. As a reminder, all participant
lines will be in the listen only mode and there will be an opportunity for you to ask questions
after the presentation concludes. Should you need assistance during the conference call, please
signal an operator by pressing * then 0 on your touchtone phone. Please note that this
conference is being recorded. I now hand the conference over to Mr. Sanjesh Jain. Thank you
and over to you, sir.
Sanjesh Jain:
Thanks Michelle. Good evening everyone. Thank you for joining us on Tatva Chintan Pharma
Chem Q2 H1 FY23 Results Conference Call. We have Tatva Chintan management on this call
represented by Mr. Chintan Shah - MD and Mr. Ashok Bothra - CFO. I would like to invite Mr.
Dinesh Sodani, GM Finance to initiate with his opening remarks post which we will have
Q&A session. Over to you, Dineshji.
Dinesh Sodani:
Thank you Sanjeshji. Good evening everyone. We are pleased to welcome you all to our Q2 &
H1FY23 Earning call. Today, on call, we have with us Mr. Chintan Shah - Managing Director,
Tatva Chintan and Mr. Ashok Bothra - Chief Financial Officer to discuss performance of the
company during the quarter gone by followed by question and answer. Please note that a copy
of our disclosure is available on the investor section of our website as well as stock exchanges.
Please do note that anything said on this call which reflects our outlook towards the future or
which could be construed as forward-looking statement must be reviewed in conjunction with
the risks that the company faces in terms of uncertainty. With that I would like to hand over
the floor to our MD, Mr. Chintan Shah for his opening statement.
Chintan Shah:
Thank you Dineshji. Good evening and thank you to all the participants. We wish you all a
happy and a prosperous year. Thank you for joining us on our Q2 and H1 FY23 earnings call. I
trust everyone is back to work, more energized after a good break. I believe you have got a
chance to go through the investor presentation uploaded on the stock exchanges as well as the
company's website.
To begin with, let me brief you with the financial numbers on y-o-y and q-o-q basis. During
this quarter, the Revenue from operations was at ₹ 901 million, a decline of 27% YOY and
growth of 2% QOQ respectively. Please note that Q2FY22 was an outstanding quarter in
terms of business performance and product mix, it being the last quarter before the onset of
the effects of semi-conductor chip shortage across the world, hence, on a- y-o-y basis the
numbers are showing considerable decline. EBITDA during this quarter was ₹ 112 million, a
decline of 68% YOY and 27% QOQ respectively. EBIDTA includes forex loss of ₹ 31.85 million,
so the actual operational EBIDTA during the current quarter is ₹ 143.62 million which
translates into EBIDTA margin 16%. Forex loss is mainly because of MTM of forward contract
due to depreciating rupee. Net Profit after tax was ₹ 71 million, a decline of 78% YOY and 27%
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Tatva Chintan Pharma Chem Limited November 04, 2022
QOQ respectively. Comparing on QOQ basis, the profitability has dropped due to increase in
costs such as power and fuel by 32%, packing cost by 36%, and employee cost by 7% during
this quarter. In addition, changes in the product mix has also had some impact on profitability.
Now let me explain each of the product categories and take you through the developments
that took place in each of them during this quarter.
PTCs have registered quarterly revenue of ₹ 326 million in this quarter and half yearly
revenue of ₹ 729 million, contributing ~41% of the revenue and a growth of 69% YoY basis.
Demand for PTCs from various user industries continue to remain robust.
Electrolyte Salts registered a revenue of ₹ 45 million in this quarter and half yearly revenue of
₹ 115 million, contributing ~6% of the revenue and a growth of 846% YoY basis. During the
quarter, we have been formally approved by one more customer and are awaiting an
approval from another customer. Over the next two quarters, we anticipate dip in offtake by
one of our existing customer, as they are working on debottlenecking their plant productivity
to become ready for their upcoming large demands. With the strong increase in demand for
energy storage systems globally, over the next three years, we anticipate exponential growth
in this segment.
Pharma and Agro Intermediates and Specialty Chemicals registered a revenue of ₹ 427
million and half yearly revenue of ₹ 772 million, contributing ~43% of the revenue and a
growth of 45% YoY basis. In Monoglyme, the delivery of pilot stage equipment for continuous
flow chemistry has been delayed by supplier and is rescheduled to arrive at our facility in
Dec.22. Post receipt, the trial runs will commence. As discussed earlier for another product
on continuous flow basis, the trial runs have been successfully completed. We are now
awaiting to receive quality approval from the customer. Commercial supplies should take
about 15-18 months’ time to materialize. Regarding the new product in application area of
metal extraction, commercial supplies are set to begin from Q4FY23. We are pleased to
inform that we have successfully completed the lab development of one new product based
on continuous flow chemistry which is the key base raw material for multiple agro chemical
intermediates. We are progressing steadily with the development of few other products using
continuous flow application. Demand in this sector continue to remain robust and we see
strong growth under this product category over the coming years.
SDAs registered revenue of ₹ 98 million and half yearly revenue of ₹ 157 million, contributing
~9% of the revenue in H1FY23 and a decline of 88% YoY. The sale of SDA is gradually picking
up. We will see a better number on SDA revenue in Q3FY23 and strong numbers in Q4FY23.
Some of the customers are coming back on track with good demand. But still the overall
demand is not back to normal levels. They key reason behind this being about 50% drop-in
heavy-duty diesel engine commercial vehicles sales in China due to the on-going lockdown
situation in the country. Industry is expecting the Chinese demand to revive from late Q4FY23.
Now we have been formally given opportunity to cater plant scale trial material by a new
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Tatva Chintan Pharma Chem Limited November 04, 2022
customer. The trial material will be supplied in the end of Q3FY23. This may take 6-9 months
to convert into commercial business post successful trials. We continue to remain optimistic
on this product category and anticipate larger volumes over the coming years.
Regarding another product category of Flame Retardant, we are pleased to inform that we
have successfully established the product on plant scale very recently. I will be honest that
we have struggled a lot over the last couple of months to achieve the desired quality and
yields on plant scale. But now we can confidently announce that our product quality can
meet global standards.
The key factors we require to monitor is how the European energy crisis is rolling out over the
next few months and about the Chinese and European demand revival for heavy duty
commercial vehicles pans out.
Despite of all possible adversities we have faced during the current financial year, we expect
to close the current financial year with the top line in excess of Rs.400 crore with subdued
profitability as compared to previous year due to change in product mix and underutilization
of SDA facility.
The on-going capacity expansion of setting up additional facilities at our existing Dahej SEZ is
underway and we target to commission the facility by end of Q3FY23. The expansion of R&D
facility at Vadodara is underway and same is expected to be completed by the end of FY23.
During this quarter, we have successfully completed various projects which will have positive
impact in our performance going forward. Just to name a few:
-
Began re-using a large volume solvent at Dahej Sez by deploying a latest technology.
This will ensure competitiveness & cost saving in few products.
- We have formulated plans to set-up this similar technology at our Ankleshwar plant.
- We have successfully completed plant scale trials of flame retardants.
- We have successfully supplied from plant scale a new pharma intermediate to a
new customer for validation. This product is expected to commercialize in 2024.
- We successfully completed plant scale trial runs of a new product using continuous
flow chemistry. This product is expected to be commercialized by 2024.
- We successfully completed lab scale development of a very important starting
material for agro chemical intermediate.
We assure you that we shall focus and work hard in developing new products using latest
technology to ensure that we can continuously provide good products and solutions to our
customers.
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With this, I conclude my remarks and hand-over the call to our CFO, Mr. Ashok Bothra.Ashok Bothra:
Thank you, sir
and good evening everyone. I shall summarize the financial highlights for the quarter.
Tatva Chintan Pharma Chem Limited November 04, 2022
Revenue from operation was Rs. 901 million versus Rs. 1,236 million in Q2 FY22, decline
of 27% on Y-on-Y basis. Due to lower offtake in demand of SDA and also as base year i.e.
Q2FY22 was the best performing in our company's history.
EBITDA was at Rs. 112 million versus Rs. 355 million in Q2 FY22, decline of 68% on Y-on-Y
basis due to Forex loss and change in product mix.
EBITDA margin was at 12% versus 29% in Q2 FY22. The EBITDA number include Forex
loss of ~Rs. 32 million, so the actual operational EBITDA during the current quarter
comes to Rs. 144 million which translates into EBITDA margin of 16%. In addition, the
margin has got impacted due to change in product mix by drop in demand of SDAs which
is our high margin accretive product category.
PAT was at Rs. 71 million versus Rs. 324 million in Q2 FY22, decline of 78% on Y-on-Y
basis. PAT margin was at 8% versus 26% in Q2 FY22. The impact is also on account of
higher tax. Earlier, our Dahej facility has enjoyed tax holiday of 100% and now we are
enjoying 50% tax exemption for the next 5 years.
During Q2 FY23, export stood at Rs. 594 million contributing 66% on the revenue. The
export declined during the quarter by 41% Y-on-Y due to drop in sale of SDA which is our
major export contributor.
Total debt as on 30th September 2022 stood at Rs. 1,397 million with debt equity ratio
of 0.29 times, out of which 85% is on account of working capital debt.
Our of our net IPO proceed of Rs. 2,072 million, Rs. 1,338 million have been utilized as
on 30th September 2022.
That concludes my update on financial performance of Tatva Chintan. Dear moderator, now
we can open the floor for question-and-answer session.
Moderator:
Thank you very much. We will now begin with the question-and-answer session. The first
question is from the line of Mr. Sudarshan Padmanabhan from JM Financial. Please go ahead.
Sudarshan Padmanabhan: So, just want to understand, I mean you had talked about Rs. 400 crores for this year as a
guidance in sales for the full year for FY23?
Chintan Shah:
Yes. We are expecting the Chinese demand revival by February, so if that happens we may
exceed that forecast, but as a precaution, I will prefer to remain as I guided for excess of Rs.
400 crores.
Sudarshan Padmanabhan: Just to understand the anecdotes, one is that we are getting new capacity coming in the second
half of this year and we basically used to run at around Rs. 55 to Rs. 60 crores on a quarterly
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Tatva Chintan Pharma Chem Limited November 04, 2022
run rate last year, so just to understand with that capacity coming in and what should be the
kind of SDA that one should look at as far as revival is concerned and from an ongoing basis,
the kind of demand that we can see beyond FY23?
Chintan Shah:
Basically, the SDA demand is now reviving back, so one of our customers has gone back to
almost full scale demand scale and another customer is yet to revive. The third customer is
now slowly starting and they have started putting in demand, so I believe by end of this
financial year the demand should be back to normal. In that scenario, we should see a strong
growth coming in the next financial year and also with these new capacities, we will
commercialize the Flame Retardants products, so that will also have an enhanced impact on
the revenues of next financial year.
Sudarshan Padmanabhan: But the newer capacities, I mean we should be able to utilize the newer capacities as well, so
the number should be better than what we had done in the last year given that number one,
there would be some kind of pent-up demand of this year and probably that should kind of
move ahead?
Chintan Shah:
Yes.
Sudarshan Padmanabhan: Sir, on this Flame Retardants side now that we were able to get the product characterization
more or less in line with the quality, again should we expect some kind of revenues to trickle
down by this year and what is the kind of utilization that one can expect say in the next 2 years?
Chintan Shah:
We should expect revenue in this product category from December and revenue actually
picking up from January when the new facility will start operating. So, we should see a decent
demand for this in Q4 from the Flame Retardant category. We are about to execute the first full
scale order from two customers, so this should be in a range of couple of 100 tons of this
product, so that would be a good beginning to start and then we are approaching other
customers as well. So, we are in queue in terms of approving our product.
Sudarshan Padmanabhan: And sir, with respect to glyme getting the purity levels, where are we in terms of the
electrolyte as well as glyme decline?
Chintan Shah:
Yes, so that is also one good development I forgot to mention that we did is, we actually now
achieved the lower moisture levels, so we are submitting the samples to the customer and so
we also had to work a lot of packaging issues, so as we are able to transport this product to the
customer. So, all those issues we could resolve during this quarter and now we are actually
about to just send the sample out to the two customers for approving the MonoGlyme for
battery applications with very low moisture levels and high purities. So, we are through with
kind of that.
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Tatva Chintan Pharma Chem Limited November 04, 2022
So, ideally speaking, we should take about 5 to 6 months to get a formal approval and then of course the start should be slow
because they would not want to transfer lot of their demands to us, so beginning probably a
year should be a slow, gradually picking up and then we should see about in a year and a half
to go to a full-scale demand in the battery application area.
Moderator:
Thank you very much. We take the next question from the line of Mr. Sanjesh Jain from ICICI
Securities. Please go ahead, sir.
Sanjesh Jain:
Few from my side, first again starting with the SDA, the real revival will happen only once
Chinese heavy duty truck sale start, is that the right assumption?
Chintan Shah:
That is absolutely the right assumption when it will actually start growing up the demand, so
right now what I am saying is that two of our customer have revived and one is still not
reviving, the one which is not reviving is particularly because of lack of demand in the Chinese
market.
Sanjesh Jain:
And this is despite we adding one customer last year and we are in a process to add another
customer, right in the SDA segment?
Chintan Shah:
Yes. so, the new customer which we are adding up is going to consume this product into
multiple application area, so we are submitting two different SDAs to this customer, so we are
about to execute that order actually. By end of November, we expect to dispatch both these
products and these are into automotive application area and plastic refining area.
Sanjesh Jain:
Just on the guidance of Rs. 400 crores in this context, because in first half we have done close
to Rs. 175 crores and we are talking of Rs. 400 crores which really doesn’t suggest that we are
looking at a significant jump from all this, so basically most of the benefit will come starting
SDA sales only in FY24, right?
Chintan Shah:
No, we will see a significant rise in SDA sales beginning from Q4FY23, so offcourse Q3FY23
will also not be that bad as what we have seen in Q1FY23 and Q2FY23, but significant growth
in SDA demand will be seen coming back in Q4FY23 as firm orders have been set for
Q4FY23, so there is no reason not to believe that we will not achieve this number.
Sanjesh Jain:
From the inventory perspective, I also see that we are carrying close to Rs. 200 crores of
inventory and most of it should be SDA, right?
Chintan Shah:
Right, I am estimating about Rs.60 to Rs.65 crores reduction in inventory by end of this
financial year because we will be able to sell the inventory with all these existing orders that
we have on hand.
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Tatva Chintan Pharma Chem Limited November 04, 2022
Sanjesh Jain:
There is no risk of write-off in this inventory, right, you can store it over the longer period of
time?
Chintan Shah:
Yes, these have been tested to be stable for more than 5 years.
Sanjesh Jain:
More than 5 years, got it, that is on the SDA, second on the opportunities that we have
disclosed are lot more on the product validation, new product, your pharma intermediate, your
agrochemical intermediate, new agrochemical product in the continuous flow, can you help us
understand what is the total addressable market or what is the revenue size, all these products
put together can be achieved at the peak, I am not talking in the year one or year two, what is
the potential of this product to add to our revenue to our next 3 years or 4 years timeframe?
Chintan Shah:
I would say on a 4 years’ time, because this will take about a year and a half for these products
to actually get approved and go to the commercial state and of course the start, first year would
be a slow because they would be trying us and then it would go to a full stage. On a four year
horizon, this product opportunities, the four products what I am talking about can lead to a
revenue in the range of Rs. 800 to Rs. 1,000 crores.
Sanjesh Jain:
These also include the BFR, right?
Chintan Shah:
No, I am not talking on the BFR side, I am just talking on the PASC.
Sanjesh Jain:
This is purely on the continuous flow chemistry opportunity?
Chintan Shah:
Yes.
Sanjesh Jain:
And a significant portion of it comes from MonoGlyme or it will be equal in all these products?
Chintan Shah:
No, the new product that we have launched, the ones which we have completed successfully
and there is one more product which we are now just about to complete where the catalyst has
worked very successfully. The only issue we are currently facing is separation of the product
which probably we are very close to the solution as well. So, these 4 products put together is
what I am saying that this has very large potential opportunities.
Sanjesh Jain:
So, just to clarify the four products, the two agrochemical intermediates and two pharma
intermediate and the one new agrochemical intermediate, these are the products are we talking,
this doesn’t include MonoGlyme, this doesn’t include the BFR, right?
Chintan Shah:
Yes, out of these two products, have already submitted for approval basis and now we are
working on the three products, so this intermediate what we have developed on continuous
flow basis becomes my own key raw material and then I have to synthesize the forward
integration into agrochemical intermediate.
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Tatva Chintan Pharma Chem Limited November 04, 2022
Sanjesh Jain:
So, we are doing intermediate as well as AI in this entire value chain?
Chintan Shah:
No, not AI, but advanced stage intermediate.
Sanjesh Jain:
And what is the potential opportunity in MonoGlyme?
Chintan Shah:
MonoGlyme, we believe that we can hit about 2500 to 3000 tons of volume over next 3 to 4
year's timeframe and that is what is the capacity we are looking to set up once these pilot trials
are done.
Sanjesh Jain:
So, we will go with that kind of a scale from day 1, 2500 to 3,000 metric tons?
Chintan Shah:
So, in continuous flow chemistry, you don’t have option to kind of buildup capacity gradually,
so it has to happen at one go.
Sanjesh Jain:
And then we will start selling, but any initial test that we have done on the product now that we
said that we have achieved the low moisture?
Chintan Shah:
Yes, we are running this continuously in our R&D since probably now almost 9 months,
continuously, day and night operation done since last 9 months. This is unfortunate that this
pilot equipment is getting delayed, which we have to import from Germany which is causing
this delay. So, once this is in place, we will continuously again run the product for the next 3 to
4 months on pilot basis and then go for commercialization.
Sanjesh Jain:
And you said that in the BFR we face that in challenges what were those challenges which we
faced and now that we are said that this could have been resolved and our expansion plant is
also commissioning in end of Q3FY23, so what is the potential volume we are looking in for
FY24 in BFR?
Chintan Shah:
FY24, we are looking anywhere between 1400 to 1800 metric tons a year.
Sanjesh Jain:
And what was the challenge?
Chintan Shah:
Challenges what we were facing is basically the first set of challenges we faced when we went
from R&D scale to pilot scale, so there was some mismatch in terms of the yields or in terms
of certain quality parameters, so it took us a while to resolve those issues. Then, when we went
from pilot to plant scale, so that was the final scaleup that we did, so again we had lot of
challenges that we faced in terms of operating at a different volume scale which led to certain
impurity profile changes or certain yield losses, so again we have to do a lot of, probably we
have taken 16-17 odd batches to overcome all these issues and now we are very confident that
we are through with launching this product on a commercial scale.
Sanjesh Jain:
And that commercial product has been approved by the customer, right?
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Tatva Chintan Pharma Chem Limited November 04, 2022
Chintan Shah:
Yes, we have received two formal approvals from the sample and now we are said to receive
commercial supply orders. We have sent is 5 to 10 kg scale of samples from the plant and now
we will execute few container loads of products which will go actually from our production
scale and basically that will be intended for their full plant scale trial.
Sanjesh Jain:
One last question from my side, on this PTC side, this year has been phenomenal 50%, what
should be the steady run rate, I know that we were not having capacity previously and that was
de-prioritized, but what should be a steady run rate from FY24 onwards in the PTC?
Chintan Shah:
So, we are steadily also adding few customers in PTC segment also, some new application
areas into which we were able to identify new customers, so this has been growing and this is
what is happening that year-on-year basis we have been growing at 15-20% rate and that is
what I expect, so this we can consider as a benchmark and grow from here at that rate.
Moderator:
Thank you very much. We take the next question from the line of Mr. Gaurav Chopra from
Union AMC. Please go ahead.
Gaurav Chopra:
Firstly, on the SDA, sir,
in one of the previous concall, you have mentioned that the
contribution from the non-automotive segment is roughly 20-25%, so if you look at the first
half number of SDAs, I think you have done Rs. 15-Rs. 16 crores so is the decline also coming
in the non-automotive segment because based on the revenues of Rs. 225 crores in FY22, you
probably would have contribution of Rs. 50-Rs. 60 crores from non-automotive segment itself?
Chintan Shah:
Typically, the revenue mix is kind of 80:20 between automotive and the other segment and the
automotive segment is such where there is a continuous demand whereas in the other segments,
it is always kind of a campaign run basis, so demands will continue to fluctuate, so most of this
whatever we have catered during this Q1 and Q2, most of this is going for the other application,
nonautomotive applications.
Gaurav Chopra:
So, automotive would be zero?
Chintan Shah:
Almost, fair to say that yes, it is almost zero in last two quarters and that is what is now
reviving.
Gaurav Chopra:
Sir, in the last conference call, you had of course mentioned that the SDA sales could be
similar to FY23 level that of course is not?
Chintan Shah:
That is what we were expecting, but because of this drop in demands from the Chinese market
which has led to revise my forecast on that, but this would again be, once this Chinese
situation is back to normal. So, what I would say, there is no lack of confidence in terms of
whether this demand will ever happen or not, so in the backdrop, the demand continues to
remain strong. Customer keeps on talking to us now quite frequently as well, but everyone is
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just waiting for that cycle to restart. So, it is just a matter of time and patience. So, out of three
odd customers, two of them have already revived and started putting in orders and one
customer is yet to revive, so still they are not budging at all and they expect to have some
demands beginning at the end of Q4FY23.
Gaurav Chopra:
But we are from visibility for the fourth quarter of fiscal 23?
Chintan Shah:
Yes, absolutely.
Gaurav Chopra:
So, with the expanded capacity also coming online, is it fair to assume that fiscal 24 we can
touch base the revenue base of SDAs of Rs. 225 crores in FY22 or is it still?
Chintan Shah:
That is what I am expecting to happen.
Gaurav Chopra:
Sir, secondly on the PTC side, in the first quarter I think what we have seen is the revenue
from the PTC picked up sharply and I think the understanding was that the SDA facility is kind
of fungible, so we can cater to the additional demand of PTC, but in the second quarter, we
have seen sequential drop from I think Rs. 41 crores to close Rs. 33 crores in the PTC, is it due
to seasonality or anything?
Chintan Shah:
Some of these customers, for example, let us say, an agro customer who would run their
products on a campaign basis, so when they put in orders, it is continuous order for 6 months
and then virtually no orders for may be next 3 months, so it depends on how they are running
them, but the demand, overall demand continues to remain very strong and we are also seeing
very good next financial year demand for PTC as well.
Gaurav Chopra:
So, lastly sir, on the Electrolyte Salts, there also we have seen sequential drop in the revenues,
anything on that how does the rest of the year looks like for Electrolyte Salts?
Chintan Shah:
So, that is what I already told that we may see certain drop because one of our large customers
is struggling to meet the overall demand from their existing plant, so they are kind of trying to
debottleneck their plant and they are going into a shutdown, so just from this month, or mid of
November we have been asked to stop supplies until early February or late January 2023, so
maybe we will lose some sales in next 2.5 months’ timeframe and then we expect this demand
to come back much more strongly than what we have been doing in the past quarters and
overall if you look that demand for energy storage systems is now increasing very rapidly, so
our customers have been discussing about certain projects which are in queue to get approvals
for supplies for their battery storage system. I would say 2025 is the year when we may see
huge, so gradually from FY23, FY24, FY25, we may see an exponential growth happening
over next 3 years in this particular sector.
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Moderator:
Thank you. We take the next question from the line of Nirali Gopani from Unique Asset
Management. Please go ahead.
Nirali Gopani:
Sir, question is on the EBITDA margin for the quarter, so if we see sequentially the EBITDA
margin has dropped from 17% to roughly 12%, now when we see the last quarter i.e. Q1 also
had a Forex loss of Rs. 5 crore and the other expenses are not that significantly high, so my
understanding is that this is largely because of raw material, so if you can elaborate on the
same?
Chintan Shah:
Not really raw material because if you see the raw material consumption might have increased
by probably 1% number in terms of consumption of raw material, so that is not the factor, the
key factor that has raised is significant rise in energy cost, so our electricity cost as well as our
fuel cost, that has gone up significantly and that is probably not only for me as a unique case,
but probably across the industry everyone is facing that challenge. Second challenge we really
faced was in terms of packaging material because with some of our very sensitive products, we
are compelled to use the imported packing materials and with very high freight rate cost the
suppliers had to adjust their prices for packing material accordingly so as to observe these
increase in freight cost, so we had been paying very significantly higher price on packaging
products which also led to a severe raise in terms of packing material cost. So, these two I
would say are the key elements which have given rise to this kind of drop. Secondly, a good
part of this is that particularly from month of November, this very month compared to October
and now coming into November, there is a very significant drop in terms of ocean freight, so
typically just to put a number, last month for the 45 feet container, typically we were paying
for the European sectors somewhere close to $8,000 which has now dropped to below $3,000
and again in the US sector where you are paying close to $9,000 to $10,000 has come down to
about $6,500 to $7,000. So, now we will see a consistent drop in freight cost as well as in
terms of packing material cost because we will have to readjust the price to lower levels
considering lower freight cost, but fuel and energy crisis, we don’t expect to drop in a short
term or a medium term, so that we will continue to absorb because for these kind of factors we
also honestly cannot approach customers asking for a price raise because these are not actually
significant part of the overall costing model which we normally discuss with customers. So,
unless and until there is a significant movement in prices of raw material, it really is not taking
any sense to approach or disturb the customers, so we continue to observe that cost for next
few months. That probably now from November, we feel that we are coming into a comfort
zone and also if you consider we have virtually not been operating our SDA facility since last
few months. So, that is also an unexpected cost that is piling up, so that is also leading to stress
on your profit ability. So, now since the SDA demand is coming up, the plant utilization starts
picking up that will also reflect in our profitability numbers again coming back to normal
levels.
Nirali Gopani:
Sir, this Rs. 400 crores revenue that we are guiding, what kind of margin can we expect?
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Chintan Shah:
So, I would say slightly better margin than H1FY23 because we will have decent size of SDA
sales in the Q3 and Q4 put together, but not the kind of margins that we have seen in the last
financial year, of course, so EBIDTA margins in H2 should be in the range of 20%/22% is
what I am expecting.
Nirali Gopani:
And sir, if you can just talk about what will be the growth drivers for our SDA business over
the next 2, 3, 4 years, obviously you have increased the capacity by roughly 50%, so we do
expect a strong growth, so what will be the different growth drivers for the same?
Chintan Shah:
I have already talked about this in the past because now we are gradually moving from BS6 to
BS7, Euro 6 to Euro 7, so we are currently, see the major impact of SDA is which is currently
happening to us is because we are also locked into technically geography of India and China
and with China suffering in terms of demand, we are also suffering simultaneously. When
going from BS6 to BS7, our geographical barrier is bound to go away because we are already
in queue for approvals for all the applications for BS7, so this geographical barrier once it has
gone, so this will have a good impact in terms of our getting larger market share, so that will
automatically become a driver to push demands for that project and secondly with the new
applications for these SDA products coming in the newer application areas like plastic refining,
so this is again going to become a large growth driver for this particular segment.
Nirali Gopani:
I was just saying that we are doing a number of new initiatives, new products, so what kind of
growth at the company level can we expect over the next 2-3 years or any revenue guidance
that you would give for FY26?
Chintan Shah:
I would not go that long, but I can tell you very confidently that the products that have been
successfully developed and which are about to be developed in a very short span of time, all
these products have a large potential downside application area, very large, in both application
areas, in agrochemical as well as one in pharmaceutical area. So, these are all large potential
products which we are getting into and some of these molecules have applications into
multiple, so this becomes a key raw material for 3 to 4 different intermediate products, so that
is what we are focusing on.
Moderator:
Thank you very much. We take the next question from the line of Mr. Krishan Parwani from
JM Financial. Please go ahead.
Krishan Parwani:
Sir, just 2 or 3 clarification from my side, so the first is that you have lowered sales guidance
from around Rs. 520 to Rs. 530 crores, to almost Rs. 400 crores now, so this entire drop is only
on account of SDA sales, is that understanding correct?
Chintan Shah:
See, if you see all the other three sectors have grown very handsomely and that continues to
grow, but the whole of this guidance is coming in because we were expecting only Q1, Q2 to
be subdued that now coming to Q3, Q4, of course we are going to see very good numbers on
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Tatva Chintan Pharma Chem Limited November 04, 2022
SDAs, but not what we were anticipating because one of the key customers is still not reviving.
So, that is what is bringing in this kind of forecast in terms of SDA that we should see very
handsome numbers of SDAs going into the next financial year. That is for sure.
Krishan Parwani:
Sir, just to kind of elaborate on that, so we are also going to have some newer capacities, right
which are coming on stream from this month, so are we on track on that on those capacities?
Chintan Shah:
Yes, we expect to start water trials between 7th and 15th of December 2022.
Krishan Parwani:
So, are we expecting any kind of growth from those numbers because I think we are already?
Chintan Shah:
Technical commercially of this facility will start and the facility will start to generate revenue
from Q4FY23.
Krishan Parwani:
And would we have, let us say, in the beginning months we ideally, we normally see the
utilization rates at lower?
Chintan Shah:
Of course, it will gradually pickup, but we expect certain portion of the plant to be fully
occupied with Flame Retardant products, so that is one part which has been locked in, so lot of
capacities we will start getting consumed from beginning of FY24.
Krishan Parwani:
Sir, the question that I had was that because of the lower utilization would our margins be
impacted in the next two quarters as well?
Chintan Shah:
I am pretty sure that we will almost consume the existing capacities in Q4FY23 for sure. For
Q3FY23 also, we are getting pretty much busy, so Q3 in terms of capacity utilization is better
and Q4 we will be operating the existing capacities at full scale and the new capacities will
start getting busy with the Flame Retardant products and that again depends on if the Chinese
demands revival comes up as we are anticipating by February 2023, so if that happens then the
new plant also starts becoming occupied.
Krishan Parwani:
And I think, a small clarification here, did you guide for 22% EBITDA for the full year?
Chintan Shah:
Not for the full year, I am saying for the coming half year.
Krishan Parwani:
And for the other expense, I think you mentioned that there was an increase, but I think it is
almost the same as the last quarter, Rs. 25 crores last quarter, Rs. 26 crores this quarter, so I
think is there anything that we are missing here?
Chintan Shah:
No, what I am saying is this consistent increase, now, basically when your plant is less
occupied doesn’t mean that your power cost is going down because most of your boilers, your
cooling towers, your chilling plant, they are all continuously under operation, right, so
percentage of the power cost to the product, individual product or this is the kind of impact you
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start taking earlier, so the more your plans get occupied, all these numbers start getting coming
back to the realistic level and if you see the power cost in Dahej SEZ since we are in a SEZ we
have lesser electricity duty, so earlier our power cost was Rs. 4.4 per unit and today it is at Rs.
6.6 per unit, so nearly 50% raise in power cost that has slowly and steadily it has built up over
last 6 months’ time frame. Also, the fuel cost, the LDO, probably let us take the scenario of
December or January or maybe February of 22 was in the range of Rs. 48 to Rs. 50 a liter and
today it is in the range of Rs. 82 a liter, so that is also very significant raise and hit that we are
taking.
Moderator:
Thank you. We take the next question from the line of Padma Raju Mathi from SBI Life
Insurance. Please go ahead.
Padma Raju Mathi:
I just wanted to check on this gross margins level, so this quarter SDA and PASC contribution
has gone up sequentially, despite that our gross margins and gross profits have come down
sequentially, so just wanted to check whether there is any element of inventory loss in this
particular quarter or I am missing something?
Chintan Shah:
I would not say an inventory loss, but as i already mentioned we took about 16-17 odd batches
for the Flame Retardants at a plant scale where we were struggling with the quality and so we
had to do lot of rework to bring it back to the desired quality levels to make it sellable product,
so all those kind of added cost was definitely involved during this quarter. Also, we did a very
good product in terms of piloting that product, so that also involved lot of modifications at the
pilot scale level and new raw materials coming in, so when you are bringing in lesser volumes
less than container load we are paying significantly higher prices, but these I would say are
very significant, so probably it may lead to 1 or 2% of your raw material cost going up, but not
more than that considering the overall 90 days’ timeframe for the time.
Padma Raju Mathi:
Most of the modifications with respect to this Flame Retardants everything getting stabilized
and all, is it that most of these stabilized?
Chintan Shah:
Gradually we had to do modifications to adapt to this process and that is the reason why we
had to take so many batches to stabilize the product because that modification at plant scale
also had to be done simultaneously. So, we were losing lot of hours in terms of productivity as
well, so one of our plant remain occupied with these kind of trials for almost I believe 60-65
days and now everything is in place and the last three validation batches we went through with
what we were expecting a similar growth in the R&D levels.
Moderator:
Thank you very much. We take the next question from the line of Mr. Rohit from Progressive
Shares. Please go ahead.
Rohit:
Chintan bhai, few queries, you did touch upon energy storage and devices plus the applications
and if I do a market research, some of these have been picking up already, I think some Lexus
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Tatva Chintan Pharma Chem Limited November 04, 2022
and Merc GLC with turbo hydro tech models, your thoughts on that? By when do you think
that it can start rolling out for TCPCL?
Chintan Shah:
This has already started rolling, so one of our large customers, presently we are now
commercially selling this product to two different customers. We have been recently approved
with the third customer and the fourth customer we are in queue of approval, so we have
submitted our samples. Now, when I say one customer is from a super capacitor application,
one customer is coming from the energy storage application. So,
this energy storage
application customer, so the next two customers are also coming in from the energy storage
sector and these people are talking of very exponential growth over next 3 years. So, basically
what is happening is, now various governments across the world are setting up these energy
storage devices systems and they are talking of kind of let us say 100-megawatt kind of energy
storage systems for park. So, now depending on what kind of order scales my customer would
get and that would translate directly into demand for our electrolytes also. We expect very
significant, significant is probably not the right word, we expect exponential growth in this
area in next 3 years.
Rohit:
So, can this contribute around Rs. 100 crores or Rs. 150 crores run rate over the next year plus
the exponential factor that you are saying?
Chintan Shah:
So, up to 2025, I would say the number would be much larger than that.
Rohit:
The metal Acetylacetonate or Glycidyl Esters if Tatva Chintan is thinking or working on those
lines?
Chintan Shah:
No, not as of now.
Rohit:
You did mention about Electrolyte Salts, so currently how many customers are there in
pipeline?
Chintan Shah:
Totally, we have commercially already working with two, the third customer has just placed
their plant scale trial order which we are about to start production and execute and the fourth
customer we are in queue for approval. So, we have submitted the samples and awaiting
approval decisions. So, we have been working currently with four customers in practicality and
we are discussing with 2-3 other customers, so it is still in a very primitive stage, but the kind
of spectrum that is now getting in terms of application area for this geographically, so that
geographic spectrum is growing very rapidly in terms of energy storage device applications.
Rohit:
And by when do you think that we should start in the P&L just an assumption or some industry
and other phase if you can share that?
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Chintan Shah:
No, so I would say from next financial year, we will see this as a quite decent number in terms
of percentage of revenue and FY24-25 it may become a significant number in terms of overall
revenue percentage.
Rohit:
My last question is related to MonoGlyme and the related products, so by when do you think
that these will be commercially sold in the market to the customers by us?
Chintan Shah:
So, we are now about to send samples for this battery application area of MonoGlyme
applications, so we expect probably in 9 to 12 months timeframe when we should actually start
commercial supplies. I mean approval would typically take 5 to 6 months from this type of
customers, then probably another 4 months for commercialization.
Rohit:
And this can also add around Rs. 100-Rs. 150 crores for us?
Chintan Shah:
That would take time, probably it should take about 2 to 3 years to scale up to that level.
Rohit:
But the assumption is right, Rs. 100-Rs. 150 crores after 2 years or so for MonoGlyme?
Chintan Shah:
Rs. 100 crores definitely, yes.
Moderator:
Thank you very much. We take the next question from the line of Ms. Isha from VT Capital.
Please go ahead.
Isha:
My question is regarding continuous forex loss that we are witnessing, so is there any strategy
that the company would take to hedge the contracts going forward or would we have any
hedging strategy?
Chintan Shah:
So, this loss is happening because of the hedging strategy, so typically once you have certain
committed orders from customers, let us say, over a span of next 6 months or you have certain
export sales estimates for a period of next 6 months, so typically we hedge incoming foreign
currency over a span of coming 6 months, future 6 months, so that is what it translates to. So,
theoretically I would say of course in terms of accounts, I agree that this reflects as a loss, but
if you see from an entrepreneurs' point of view, I have sold my dollars at the point in time
when I have negotiated a certain price with my customer, so for me basically I am securing my
sale price at the point when I am about to get the order, so in a depreciating rupee arena this
translates into a loss because even as of today, we have hedging done up to March 2023. So, if
the rupee continues to depreciate, we continue to have this MTM losses, but in case of let us
say the rupee starts appreciating and if you are not covered, then you actually have a hit on
your margins because sales realization will start dropping directly, so at least as a strategy, we
are securing our next 6 months of sales in forward contracts. That is what the strategy we
typically do, 80% of our expected revenue is always there.
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Isha:
Sir, my next question would be since the company is export oriented, so globally the fear of
recession that is coming up, so are we seeing any impact on the demand like on the SDA front
it is visible, but on the rest of the segments, is our visibility positive or we do see any
curtailment in the order book going ahead?
Chintan Shah:
Typically from European sector, we are seeing that kind of a phenomena happening where we
see certain order postponements happening for few months, altogether directly for few months,
and for delivery schedule for December, now the customer is asking to deliver in March, so
those kind of scenarios are happening with European customers, but I would say we are little
fortunate because at the good time the SDA demand is now reviving back and also very good
and fortunate part for us is typically the agrochemical demand is holding up quite well, so that
particular sector is not seeing kind of any recessionary mode as of now. So, these two are very
good signs or kind of by grace of God, we shall remain protected even during this time of
crisis. So, of course from the pharmaceutical and let us say the resin or the epoxy resin kind of
industries, polymer industries we are seeing this kind of frequent phenomena happening as of
now where particularly the European sector customers are postponing the orders very
frequently.
Moderator:
Thank you very much. We take the next question from the line of Dhruv Muchhal from HDFC
MF. Please go ahead.
Dhruv Muchhal:
Sir, just a bit clarification on the previous point, the forex impact is because you had already
hedged and now that you selling, so your sales are also higher and there is an offseting impact
of forex, so on an EBITDA basis the forex item is not impacting you?
Chintan Shah:
We are showing forex loss of around Rs. 3.2 crores, otherwise our profit would have been
higher, EBITDA would have been higher.
Dhruv Muchhal:
Yes, but the hedging is a normal practice, I am trying to understand?
Chintan Shah:
In any time, whether it is appreciating, depreciating, we don’t look at that. As a policy, we
continue to hedge our future sales.
Dhruv Muchhal:
And the second point was, the MonoGlyme that we are developing, if I am not wrong, this also
had some pharma application and we were working with the pharma customer?
Chintan Shah:
That is already ongoing.
Dhruv Muchaal:
I think that was also yet to approve because I think the grade and because this was a different
route, so any development there, any progress there?
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Chintan Shah:
Yes, in terms of development part on the different route, the development work has been done
since quite few months now. We are just expecting the delivery of that equipment which is
being steadily delayed by the supplier, so equipment supplier is struggling with some electrical
part which is importing from Germany, so this equipment is getting delayed. Now, he has
promised to deliver this equipment before 15th of December 2022, so once this is in place, we
will start highlighting of that product on a larger scale.
Dhruv Muchhal:
I might have missed this, the battery application for MonoGlyme is different in the?
Chintan Shah:
Pharma application, they are two different things, basically pharma in terms of purity levels
they are more or less the same, but when you talk of battery applications, there are certain
impurity profiles which change and also you have very specific requirement of very low
moisture product, so that is one part of the challenge which I am happy to tell you that we
overcome during this quarter. So, there was lot of work involved in doing that multiple trials,
not multiple, I would say lot of trials to ultimately arrive at a moisture level of below 15 PPM
levels. So, that was a big task, big challenge which I am happy that we could do this and now
we are submitting our samples for the battery application area with this specific quality
requirements.
Dhruv Muchhal:
And sir, in brief if you can help whether this MonoGlyme go in the battery or probably we can
take it later in a separate call, but whatever is comfortable?
Chintan Shah:
Basically, MonoGlyme becomes a solvent for dissolving the Electrolyte Salts, so it goes into
the like how in our conventional car batteries you have acids into your battery, so let us say in
a lithium battery you have Electrolyte Salts for this, you cannot fill up with solid electrolyte
salt, so you have to dissolve them into something, so there are certain solvents like Dimethyl
carbonate and Propylene carbonate, so one of the similar solvent is MonoGlyme which is we
use in application.
Dhruv Muchhal:
And this is the product which, I mean if this is Electrolyte Salt dissolution, this has already
been used, but we are developing the product in a separate route or is this, just trying to
understand what is the different?
Chintan Shah:
So, far we were not meeting that specific quality requirement for the battery application, now
we have successfully completed the development product.
Dhruv Muchhal:
And in terms of production cost and the other things it is comparable or probably better than
the conventional MonoGlyme that is available in the market for that product quality?
Chintan Shah:
Yes, with this continuous application that we have developed for that, we will have better
saving in terms of raw material cost in operating this product.
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Tatva Chintan Pharma Chem Limited November 04, 2022
Dhruv Muchhal:
So, this would be a very different route than what it is conventionally currently what is there in
the market?
Chintan Shah:
Yes, completely different than what we are doing currently.
Moderator:
Thank you. Ladies and gentlemen, that was the last question for the day. I would now like to
hand the conference over to Mr. Chintan Shah - MD for closing comments.
Chintan Shah:
Once again, thank you everyone for joining us and for your continued support and trust on
Tatva Chintan. We hope to deliver and see the SDA product category see improvement. We
hope that we have been able to address most of your queries. You may reach out by writing to
Mr. Ashok Bothra, our CFO or our Investor Relation Advisor, E&Y for any further queries
that you may have and they will connect with you offline. Thank you Mr. Sanjesh Jain for
hosting our call today. Everyone, please have a great evening. Thank you.
Moderator:
On behalf of ICICI Securities, that concludes this conference call. Thank you for joining us
and you may now disconnect your lines.
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