multibagger stock: This smallcap multibagger debutant has lost steam. Upside limited, say analysts
Tatva has several PASC (pharma & agrochemicals specialty chemicals) and electrolytes segment products in the pipeline. It is also looking to manufacture flame retardants, which could be among the company’s steps to replace the likely loss of SDA revenues, said analysts, who noted margins for these products may stay lower than SDA’s.
On Tuesday, the scrip hit a low of Rs 2,250 on BSE, down 10 per cent. With this, the scrip has fallen 24 per cent from November 2021 high of Rs 2,975.55.
The company said its profit tanked 17 per cent to Rs 17.51 crore for the March quarter on a 9.33 per cent drop in sales at Rs 98.53 crore. Ebitda margin came in at 22.3 per cent against 22.7 per cent in the previous quarter and 22.5 per cent in the year-ago quarter.
While expecting the greenfield capacity at Dahej to be commissioned only in December, analysts have downgraded the stock following an uninspiring March quarter results.
Analysts said Tatva Chintan’s consolidated gross profit came in marginally below estimates despite significantly lower-than-anticipated sales. They said Ebitda missed consensus estimates by 10 per cent on account of increase in other expenses.
SDA demand has been severely impacted since the last couple of quarters due to continued semiconductor chip shortages, said JM Financial.
The management expects SDA demand to remain weak in H1FY23 and sees SDA revenue to be flat in FY23 with a strong recovery in H2FY23.
“To account for 4QFY22 results and commentary, we have cut our FY23 and FY24 revenue, Ebitda and PAT estimates by 4-5 per cent as we believe decline in SDA revenue would not be fully replaced with other low-margin product categories. As a result, our March 2023 target price has been lowered to Rs 2,530 from Rs 2,650 earlier. We continue to maintain hold amid weak SDA demand and limited capacity till December 2022,” it said.
Nirmal Bang Institutional Equities said that Tatva was able to pass on the input cost and freight cost burden to the majority of its key clients, including new ones.
In the PASC segment, Tatva said it is working on multiple new products apart from Monoglyme, which should enable strong growth in this segment in the coming years.
“We expect the margin profile of PASC to improve on the back of process innovation. Electrolyte salts for supercapacitor batteries are expected to witness strong growth considering the potential client additions in the RE space,” it said.
The brokerage, which has ‘accumulate’ rating on Tatva said while it continues to remain bullish on the growth potential in SDAs, Tatva is aggressively working on other segments wherein the margin profile would be relatively lower.
“Therefore, we expect blended margin to remain at the current level for the next two years. Despite near term challenges like chip shortage, RM cost inflation and deteriorating freight scenario, the stock has not corrected materially and future growth is a function of success of multiple new products which are in the pipeline,” Nirmal Bang said while suggesting a target of Rs 2,650 on the stock.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
