Tatva Chintan - A catalyst for growth

Tatva Chintan has four business segments:

  1. Phase Transfer Catalysts
  2. Structure Directing Agents
  3. Speciality Chemicals
  4. Electrolyte Salts

1. Phase Transfer Catalysts

In chemistry, reactions often require very specific conditions. Changing your background conditions (such as temperature) affects the rate of the reaction, the kind of by-products formed, and even different final molecules. Organic chemistry is an art for this reason.

To make your life easier, one employs catalysts. Almost every single chemical made in the world uses them in some stage of production. The basic idea is that their use significantly improves reactivity and required conditions.

Basic examples:

  1. If a reaction only works at say 500ºC, perhaps there’s a catalyst one can add which facilitates the reaction at a much lower temperature, say 120ºC, which saves a ton of energy and costs at the industrial scale.

  2. Perhaps an ordinary reaction may take 12 hours to finish. Adding a catalyst could bring this down to 4 hours. This means that you can optimise your production per annum without additional capex, just by finding the right catalyst.

Tatva Chintan makes one subclass of catalyst known as a phase transfer catalyst.

Phase-transfer catalysis (PTC) is a powerful tool in many areas of chemistry. It is a technique for conducting reactions between two or more reagents in two or more phases, when reaction is inhibited because the reactants cannot easily come together. A “phase-transfer agent ” is added to transfer one of the reagents to a location where it can conveniently and rapidly react with another reagent.

This is echoed below in the DHRP. They claim that a push in green chemistry will lead to the increased adoption of such PTCs, as they reduce by products.

  • Competitors in this segment include Sachchem in the USA, Tokyo Chemicals and Nippon in Japan, Dishman group in India, Solvay in Belgium, and Volant-Chem from China.

Phase Transfer Catalysts have evolved over the years from merely being an agent used during chemical transformation to a more useful catalyst which is following a still sharply‐increasing learning curve, with the development of new uses, methods, concepts, theoretical development, and world‐wide recognition. The future of the product is expected to be bright, not through its simple extension to old chemical reactions but because it provides a tool to handle future chemical problems in highly material and energy‐efficient ways.

  • Tatva Chintan is the largest producer of Phase Transfer Catalysts in India and one of the leaders across the globe. It is also among the top 2 manufacturers producing an entire range of Phase Transfer Catalysts.

2. Structure Directing Agents

There is a type of catalyst known as a zeolite. It has the special property of being like a cage, trapping a certain target molecule and allowing for micro reaction sites.

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Tatva Chintan makes an agent used in the production of these zeolites, known as a structure directing agent. Here’s a representative image:

Zeolites are indispensable in many catalytic processes like fluid catalytic cracking, hydrocracking, dewaxing, production of octane boosters, hydrodesulphurization, Fischer–Tropsch synthesis, methanol-to-olefin reaction, aromatic alkylation, nitration, halogenation, nucleophilic substitution and addition, and many others.

More interestingly, the DHRP highlights the following application:

  • So the DHRP highlights that Zeolites are an effective solution to the NOx problem from diesel vehicles. They haven’t made the link between a reduction in sulfur content in BS-VI fuel, and the effect this has on NOx production. If anyone on the forum has expertise in catalytic converters and whether Zeolites are expected to benefit from the new fuel, please share.

  • With extremely few players in the Indian and global market, the company is the largest and only commercial manufacturer of SDA for Zeolites in India. It also enjoys the second largest position globally.


3. Speciality Chemicals

The DHRP doesn’t tell us enough about the speciality chemicals made by Tatva Chintan. Some highlights:

  • Engaged in manufacturing of a variety of Disinfectants, Catalysts, Agro and Pharmaceuticals intermediates and other specialty intermediates, Tatva Chintan has 51 products across sectors of Agrochemicals, Pharmaceuticals, Personal care, etc.

  • Is the largest producer of Glymes in the world, and third largest in India.

  • They’re into epoxy resins and speciality amines.

4. Electrolye Salts

Tatva Chintan’s products are used in supercapacitors. According to their pre IPO interview, these supercapacitors are not substitutes for batteries, but are used alongside them, whenever you need a large storage of energy which is to be used in short bursts. The management said that they’re used in stop/start buttons in a car, and in renewable energy grids, as voltage stabilizers, absorbing high fluctuations.

Supercapacitor market in India


  • Clients include Merck, Bayer AG, Asian Paints, Ipox Chemicals KFT, Laurus Labs, Tosoh Asia, SRF, Navin Fluorine, Oriental Aromatics, Atul, Otsuka Chemicals, Meghmani Organics, Divi’s Laboratories, Hawks Chemical Company, Firmenich Aromatics, Jiangsu Guotai Super Power New Materials, and Jade Chem Co.

Financial Statements

Revenue from segments

Segment 9MFY21 FY20 FY19 FY18
SDA 33.28% 38.62% 12.30% 14.60%
PTC 29.71% 28.46% 41.88% 47.12%
Spec. Chem 34.44% 29.06% 42.39% 36.08%
Electrolyte 1.18% 1.76% 1.55% 0.65%
  • Transformed from nearly a 50-50 split in FY18 to a 3 segment basket today.

  • Lots of headroom for the electrolyte segment. The management (in the pre IPO call) said it’s a function of awareness that will drive growth.


Other Details

  • Raw materials are tertiary amines, alkyl halides, general solvents, and general and fine chemicals. In Fiscals 2018, 2019 and 2020 and in the nine months ended December 31, 2020, the cost of raw materials consumed represented 54.56%, 57.34%, 55.52% and 53.69% respectively, of our revenue from operations in the same periods.

The following table speaks highly of the quality of their products, with less than 0.25% of products returned:


Key risks

  1. No long term contracts with raw material suppliers, largest expense. There are also a limited number of such suppliers.
  1. A subsidiary in Europe hasn’t been audited by the auditors. Page 193 of the DHRP.

  2. Manufacturing plants are concentrated in Ankleshwar and Dahej in Gujarat.

  3. No long term agreements with customers (however they’ve explained customer stickiness, with most of their business being repeat for over five years).

  4. Face a (very) long term horizon with NOx emissions if there is significant EV adoption.

  5. Listing valuations could make this incredibly unattractive, will edit the valuations in after listing.

  6. The effect of rising shipping costs will hurt them in the short term if they’re unable to pass on costs to customers. (71% of revenue is from exports)


TL/DR Thesis:

Very interesting company that’s truly into green chemistry. Produces intermediates that are important not only to reduce emissions, but to improve efficiency for relevant manufacturers. A lot of their product portfolio is the direct consequence of invested R&D, and there is significant headroom for growth in electrolytes and other business segments.

Link for DHRP

Disclosure: Considering investing depending on listing valuations, not a recommendation.

Inviting others to share their notes on the business and management. Thread is a work in progress, will add further notes in a while :slight_smile:

Questions for later:

  1. What can we expect margins to look like in a few years? EBIDTA margins have gone up from 17% in FY19 to 23% in FY21. If they manage the entire value chain, and are leading producers of their products, can they command even higher margins?
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Thank you sir for such detailed information.
In valuation segment can you please add competitors if possible ??

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The competitors have been spoken about at various points of the DRHP.

On the Zeolite segment:

In the PTC segment:

The speciality chemicals segment doesn’t have as much disclosure in the DRHP, I haven’t studied the exact product list, but if they’re into agrochemicals and speciality amines, listed players in this space (ranging from Deepak Nitrite to Alkyl Amines) could be potential competitors, but we need a product list before we can say more.

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Any idea why CFO of the company has resigned? The company has not made any disclosure as to why he has resigned and leaving at short notice?

The smallest segment is Electrolyte Salts: Some extract from last Concall about Electrolyte Salts.

  • Manufacturer of the electrolyte salts for supercapacitor batteries (heart of those batteries)
  • a new category, the commercial applications are just beginning to be explored and deployed so this is kind of an initial phase of the technology adoption and going forward we may see some interesting times to come. revenue from that is only 1% or 2%. sole manufacturers in India.
  • Uses In regular automotive cars for the start and stop function
  • already existing commercial applications into hybrid EV vehicles
  • very strong upcoming demand in terms of applications into solar energy storage devices.
  • despite of electrolytes salts just having about 1 or 2% of our overall revenues, we still continue to show it as a separate category and not merge it into specialty chemical category this precisely the reason where we feel this is kind of a destructive technology that is coming up in terms of energy storage devices and we are also equally optimistic as you sound and we hope for the best to come in the near future.
  • Basically when you talk of conventional batteries, you are talking of charging discharging cycle running into 1000s of times, probably 10 to 15000 times of charging discharging cycle so these batteries typically last you for 2.5, 3, 3.5 years so every 3, 3.5 years we end up changing the batteries in our automotive. Now when you talk of this kind of supercapacitor batteries, the beauty of these batteries is where you have this kind of batteries which run for a charging discharging cycles running into 100000 times and even larger so typically about 25 to 30,000 times of charging discharging cycles and running into few 100000 times so theoretically and this is where you know good quality of electrolyte comes into picture, so let us assume that your electrolyte has certain inherent impurities then this will tend to kill the battery sooner so this is the reason why it is such a super strong entry barrier area where the quality of the electrolyte will eventually define the life of the battery, so this is where we are coming into picture into the super pure grade of electrolyte salts without which you will not have a long life of the battery. So your certain level of impurities can even end up into explosions of the batteries, which you typically sometimes hear in the news that this battery exploded so this is one of the prime reason where the electrolytes solution is not up to the mark or of the desired quality or having certain impurities typically moisture, which leads to generation of hydrogen or oxygen gases and then it ends up into an explosion.
  • already China is growing very rapidly and our products are very well accepted into this market also probably supercapacitor end use may not be in China it may be elsewhere in the world but most of the supercapacitor production as of today is coming out from China and Korea, those are the tough markets to crack or to be into but we are pretty much successful in pushing our electrolyte salts and gaining popularity in terms of acceptance, in terms of good quality but I am not very sure probably whether one or two years down the line you may see a large scale supercapacitor manufacturer in India but yes four to five years’ timeframe for the Indian market is a fair estimate.

One link Describing SuperCapacitor (where Electrolyte Salts used) : Supercapacitor Explained In HINDI {Science Thursday} - YouTube

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Deeply impressed by the company but not confident about the market size of the opportunity. It seems to be a market leader in a very niche sector, seems more like a cash cow in BCG quadrant. Will continue to follow the sector growth more than anything and then decide.

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This is not true. Look at global market & their revenue as a percent. There is at least a 100x opportunity topline wise. They dont even have 1% share of global market. They dominate indian market not global. Also recently looking to ramp up US and EU sales, so the opportunity is actually getting realized.

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Thanks for sharing your view. I actually did the calculations again and below is the data:
Global market size
PTC : USD1 Bn
SDA: USD 1 Bn
Electrolyte: USD 2.4 Bn
Supercapacitor: 1.4 Bn
I am excluding speciality intermediates which forms 30% of sales since could not get much data about market size of the products they are in. Glyme is the top product for them for which they are 3rd largest producer in the world.
Considering remaining 70% of sales, it means they do USD 28 Mn in USD 5.8 Bn market implying around 0.5% market share which provides a great runway for growth. Plus business of speciality chemical will add further. Current PE of 100 maybe irrelevant if this growth actually comes through, not suggesting i will buy at current levels :grinning:

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This is actually only optically expensive.

  1. See mar-21 and jun-21 numbers
  2. Assume normalized tax rate
  3. Assume bottomline does not grow from these levels.
  4. Calculate pe. Imo this is a conservative estimate

Imo it’ll be closer to 60 not 100. It only looks optically expensive due to the covid disruptions which won’t happen against next year.

I still chose not to invest because even 60 is too high a earnings multiple to pay in my books. I could be wrong. But need more conviction on the longevity of growth before I decide to pay 60 p/e for a company.

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For good stocks, when it’s already Q3, it’s better to start factoring in current year results and see the valuation from that perspective. In Q3, (after Q2 results are out) one will have half the years earning to make a more reasoned and educated guess about the full year earnings and current PE.
May be the multiples are now at 40-50x current year ? :wink:

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Yes if you annualize 20 Cr PAT it is around 60 PE. 100 PE on trailing and 12X sales which is overvalued for me specially for a company which has just entered public markets, confidence build needs time to buy at such valuations.

Agree thats what i mentioned if the growth continues it becomes irrelevant, entire question is around the confidence one has on future growth.

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Q1 call provides some very good perspective on this. How the company prepares itself based on the forecast system from it’s clients. How the capex are put up keeping in mind this forecast etc etc… suggest reading that. One can get much more clarity on this aspect. But of course nothing like doing scuttlebutt and confirming the same from independent sources.

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Yes i did go through the DRHP and listened to their pre-IPO pitch and Q1 call. Generally forecasting system like ARIMA, R programming works well for stable demand scenarios like in FMCG or for autos where it is derived demand basis the production plan of final products. Hence top FMCG cos. operate at 35-40 days of inventory and autos are on JIT. I do not have internal data for company to split total 170 odd day inventory into RM and final product but it seems high to give meaningful importance to forecasting system etc. Generally B2B companies maintains high inventory not to loose any order since the demand is lumpy. With upcoming capex they are going to increase capacity by 80% which gives confidence on demand scenario. To me there are 2 risks 1) The large China business which is vulnerable to geopolitics 2) The products are in highly innovative sectors and innovation can be disruptive for innovator as well if someone comes up with a better alternative. Personal thought : It does not take much weight in my thought process if i like a company if it is at 70 vs 100 P/E if growth justifies it and probability of it sustaining is above average. Yes if its a call between 20 and 100 it becomes a big factor. Hence i think of valuation looking at alternatives and not in absolute. Thank you.

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I never buy a stock even if it is fantastic if I dont find a MOS. In a bull market themes, stories take precedence over earnings. Hence a very high valuation is justified. One has to be careful about this.

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Valuation is a subjective topic most will not align to each other’s thought so it is ok to agree to disagree :grinning_face_with_smiling_eyes:

I guess, I got slightly mis-understood. We started from having some kind of view on the future growth potential (say for 1-2 years) and thereby making some safe assumptions about the earnings & earnings multiple for FY22 & FY23. My reply to that point was, their capex plans to increase production by 80% gives us some view in this regard, since they don’t do capex without a good guidance/forecast from their customers . Am not sure, if the point about inventory is relevant in this context. Yes, FMCG, Auto have different and lesser inventory taking into account their proximity to supplier base, nature of product etc.

My understanding here is, say, if customer X has an annual requirement of a chemical for 100 cr. which was being sourced from, let’s say, 3 vendors, in ratio of 20:40:40 and the least amount being from Tatva. So everything else being equal the customer does have the data in hand to ask Tatva to be ready with production capacity for 30 cr next year and 40 cr next to next year as he intends to change the purchase ratio between his vendors.

See these 3 snippet from last concall, you can relate to what am saying.

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