TGV SRAAC erstwhile Sree Rayalseema Alkali

Stock Opportunities
104

Now the promoter is the minister in the TDP government in Andhra Pradesh. I believe this company might get some benefits from the government in future. The share price of most of the companies related to TDP (Heritage, ARE&M) increased drastically after TDP won the AP state elections and this one also appreciated marginally from Rs 75 to Rs 90. If it gets some benefits then the share price might appreciate in future.

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105

Nothing fundamental, just spray and pray strategy. Amara is in green energy / battery sector which has PLIs and can benefit from a favorable political affiliation, what’s the trigger for TGVSL?

106

Agree with you. As it is a deep value buy as mentioned by Dhruv Bajaj we can just spray and pray. The downside risk is very minimum, and it has high probability of getting some favors from the Government. This is similar to Heritage where nothing has changed fundamentally but stock went up crazily after election results.

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107

The company has reported decent number for 2QFY25 with an EBIDTA of Rs 68 crores assisted by better realizations in both caustic soda and MDC prices have assisted realizations.

But the actual increase in prices in both of its key commodities have taken place from mid Sept so the benefits will show in Q3 numbers.

Currently Caustic Soda prices are ruling above Rs 40. The company produces ~750 TPD which means that Q3 EBIDTA should increase by Rs 22 crores on account of caustic soda price change (assuming Rs 3 per MT of net change conservatively).

Gujarat Fluorochemicals in its latest presentation has mentioned that it expects MDC prices to move up further. Will be great if some other member can share some light on these prices as this could result in greater earnings upsides.

The company could be in position to report a Quarterly EBIDTA of ~Rs 90 crore if prices sustain.

This is impressive as currently the caustic market at best is in mid cycle.

2 structural changes are at play.

1) Phased expansion of its Solar capacities that are resulting in savings in power cost. According to their FY24 annual report the company has installed 22.75 MW Solar Power Plant adjacent to the Factory. Plans are in anvil for further increase of the capacity by another 17.25 MW.

2) Addition of another 125 MT Chloromethanes capacity which will facilitate greater inhouse consumption of chlorine and drive further profit growth. Combined capacity in Chloromethanes will move upto 374 MT per day when the new capacity gets commissioned.

At the end of 1H FY25, the company has net debt of Rs 300 crore which gets us an EV of Rs 1500 crores based on CMP. At ~4x EV EBIDTA on an Annual Basis valuations look throw away. Strong cash flows from operations will keep reducing the EV multiple further.

Views welcome.

Disclosure: Invested and Biased

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109

EPS growth is seen in this quarter. However, the share price is still not reflecting the same. There is a probability that market expects that EPS growth might not sustain. another thing being, the chart structure looks good to move up. Volumes coming u=in the stock. Let’s wait and watch.

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111

From where have you got this figure?
How do you check caustic soda price per kg? Any link will be helpful. I check the WPI data that’s all.

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112

How do you check caustic soda price per kg in Rs?

113

Check last years annual report for production numbers. Caustic Soda + Caustic Potash is around 280,000 MT.
Price from various broker reports for chemical channel checks.

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115

Does caustic soda and caustic potash price varies in similar fashion? .

116

DCM Shriram in its call mentioned that Chlorine currently has a negative realization of Rs 9000 per tonne as compared to ~Rs 6800 average for 2QFY25. The western part of the country has seen huge capacity additions by all major players like DCM Shriram, Gujarat Alkalies over the last couple of years. The massive increase in chlorine production is going to keep chlorine prices significantly negative for the medium term.

TGV Sraac will be a major beneficiary as it soon will be one of the highest chlorine integrated companies in the country.

According to an AI answer one tonne of Chloromenthanes requires 1.5 tons of chlorine.
(if any one has direct technical knowledge please add to or correct this AI generated answer).
So 375 TPD of total CMS will take up 560 TPD of Chlorine.
As mentioned earlier the company produces ~750 TPD of caustic which means that it will produce 680 TPD of chlorine. Thus in house consumption post expansion will be ~80%.

Beneficial structural change as play!!!
Disc: Invested and Biased

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117

Disclaimer which applies to all my posts:
They are not recommendations. I am not a SEBI registered analyst. My views are biased. All posts for educational purposes only.

118

In simple terms the sales for the caustic SBU on a per MT basis is the sum of caustic and chlorine realizations. So if caustic realizations are Rs 40000 per tonne and Chlorine realizations negative Rs 9000 per tonne, the ECU realization is Rs 31000 per tonne. (this what applies currently to the lesser integrated manufacturers).

If in-house capacity for Chlorine consumption is high the negative impact from Chlorine on the ECU will be much less. The company is better off forward integrating it into downstream products like Chloromethanes, etc even if they are breaking even on the product.

More importantly the problem of negative realizations for Chlorine for the industry is going to sustain as end markets for Chlorine in India is not fully developed.

Firmer environmental rules if implemented could eventually lead to production bottlenecks or much higher cost for chlorine disposal.

Better integrated players like TGV SRAAC are in a sweet spot!!!

Disclaimer alert:
This post is not a recommendation. I am not a SEBI registered analyst. My views are biased. All posts for educational purposes only.

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119

From Electrolysis of 1 Ton of NaCl we get 684 gNaOH and 607 kg Cl2 17.25 kg of H2

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120

Industry is seeing CAPEX from other players like Lords Chloro Alkali, etc. How that is going to affect the pricing going forward, knowing that demand is increasing only at 5-6% annually

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121

Right now inflation is coming back. Rupee is Depriciating. It’s a very good thing for comodites. So there is nothing to worry. Also we will get monthly WPI data of Caustic soda prices. If there is some global event happening that can act as a trigger then comodites will fall. Like before 2008 crysis comodites gave a rally then plummeted after the crash. Things like that can not be predicted.

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122

Players who are not fully integrated from power and chlorine perspective would find very difficult to sustain the competition

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123

The above projects were announced when PVC prices were in a very different trajectory. Your articles are from 2021 and 2022 post which tremendous caustic capacity has got added by the established players. This has already led to over supply and poor ROCE for the less integrated players. (not TGV Sraac who is adequately forward integrated)

Would you have any status updates on these projects or have these projects been further shelved ? Will be great if you can share as one definitely needs to keep a watch.

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124

Adani capacity will be live by Dec’26. Reliance capacity is also said to come live by same time, however there people are expecting some delay in execution.

As per CRISIL, in next 5 years, capacity would be around 9MTPA

image

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Adani was going to commission its project in 2 phases. 1mn tonnes by Dec '26 was their earlier statement but this is yet 2 years away. Again not much information available about on ground construction.
There is a great opportunity to export caustic to Europe which is getting riddled by high unit energy cost which players on the west coast look to capture especially as a China substitue.

1.6mn tonnes of caustic soda capacity was added between FY 22 and FY 24 yet industry today is at 80% capacity utilization.

As of FY 24 end the caustic capacities in India are around 5.8mn tonnes (according to AMAI). CRISIL reference is from some old report which mentions FY24E and is erronous.

Capacity additions when they come do create some disruption but additions in my view will get partially offset by increasing European / Export opportunities.

Near term performance will have a greater bearing on stock price than anticipated capacity addition risks 2 or more years down the line.

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126

Few recent capacity addition:

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