Tatva Chintan Pharma drops 8% as margin disappoints

Consolidated EBITDA dropped 26 percent YoY to Rs 16.27 crore while operating margin contracted sharply to 13.07 percent from 22.32 percent a year ago.

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Shares of Tatva Chintan Pharma Chem slipped 8 percent on May 8 as the company’s quarterly performance disappointed the investors. At 1:54 pm, shares of the company fell to Rs 1704.15, down 6.6 percent on the BSE.

Consolidated EBITDA dropped 26 percent YoY to Rs 16.27 crore while operating margin contracted sharply to 13.07 percent from 22.32 percent a year ago.

Structure Directing Agents (SDAs) are the highest margin portfolio for Tatva Chintan Pharma Chem and Nirmal Bang Institutional Equities were of the view that a decline in SDAs due to semiconductor shortage issue is the major reason for margin drop. Now, the management expects SDAs to return to FY22 levels in FY24.

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Meanwhile, net profit slipped 3.2 percent at Rs 16.95 crore, however, consolidated revenue rose 26 percent YoY to Rs 124.5 crore.

Post earnings revision, Nirmal Bang Institutional Equities has downgraded its rating on shares of Tatva Chintan Pharma Chem to ‘sell’ with a revised target price of Rs 1,600 from Rs 1,950, valued at 25 times FY25 earnings.

While the management elaborated in detail regarding various products across segments (mainly Pharmaceutical & Agrochemical Intermediates, and other Specialty Chemicals) and their development cycle along with client approvals, a large part of the new products would need at least 12-15 months to scale up commercially, the brokerage firm said.

“Improving mix of SDA should ideally lift up the margin profile, however the management has guided for around 18-20 percent EBITDA margin for FY24, which is significantly lower from FY22 levels,” the brokerage firm said. It believes that in majority of the company’s portfolio, per kg EBITDA is not protected and hence in a declining pricing scenario, earnings growth should be moderate.