TGV SRAAC erstwhile Sree Rayalseema Alkali

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Capacity in Solar has recently moved up from around 23 MW to now 35 MW. Brings down cost of power due to substitution of electricity purchase from the Andhra SEB (Rate of Power will be Rs 7+ per unit from the SEB)

The capacity increase in CMS is 250 TPD moving to 380 TPD. Forward integration of Chlorine will be hugely beneficial. Other caustic companies in their recent concalls have mentioned negative realizations of Rs 9000 to Rs 10000 per tonne of Chlorine. Even if CMS sells at breakeven price, the negative realization of chlorine will be absorbed by forward integration efforts.

With commissioning of both the abovementioned investments the company will claim additional depreciation on assets and defer its tax payout thus positively impacting cash flows.

(This shows up as deferred tax liability in the P&L but actually is a non cash expense representing taxes that need to be paid in the future. Historically this deferred tax shows when they commission some capex). One needs to look at PBT or EBIDTA growth to get a better perspective of financial performance.

These structural changes will benefit future quarterly profits and cash flows. Basically ROCE profile of the company is improving which will help in better profitability across cycles.

Disclosure: Biased, Invested, Post for educational purpose only and I am not a SEBI registered analyst.

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128

Good results YoY, but not sure why profit dipped QoQ even when caustic prices were better in Q3, could be because of power cost which increased by 30% QoQ for 6% increase in revenue:

  • Revenue up by 13% YoY
  • EBITDA up by 27% YoY
  • PAT up by 57% YoY

Other announcements:

  • Company will decommission 4.8 MW wind mill unit at Ramgiri as the cost of running it more than the revenue. In latest annual report, they reported that this unit haven’t generated any income from this unit in FY24, hence not much impact in my view.
  • To add 450 MT Caustic Soda and 400 MT of Chlorine at an approximate cost of Rs. 350 Crores
129

From Notes to results

Power Expenses were inflated by Rs 36.5 crore on account of some imposition of earlier dues for FY23 by APERC which the company has already contested against in the Appellate Tribunal for Electricity in New Delhi.

Dues of another Rs 40 crores for FY24 have also been levied which will also get expensed some time in the future.

The company has had a history of litigation esp with APERC. When they win the case they write back the amount like in FY24.

If you adjust for this pre emptive writeoff the adjusted PBT would have been Rs 68 crores and adjusted EBIDTA would have been Rs 92 cr for the quarter.

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130

This they are quoting from last 2 years in annual report, I guess its impact has already come in FY24 financials.

How they plan to mitigate this as this is recurring thing? Will their recent additions of solar capacity will make them self sufficient in terms of procuring power?

I think 12MW plant could generate 150 lakh units. Assuming rate of power is 7 per unit, this could bring saving of 10-12cr, right?

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131

The impact of additional CMS capacity will be seen during FY26 as the new facilities get ramped up.

One can only be reactive to retrospective charges by the regulator. Not much the company can do other than take legal route to protest unfair demands.

The dependence on SEB, either thru direct purchase or wheeling of grid power, will continue to remain high in the foreseeable future. The savings from Solar will just keep trickling in incrementally.

12 MW plant will generate (12 X 24 X365 X1000 X.2) >> assuming 20% efficiency so approx 2.1 crore units of power. Assuming some operational cost saving will be around Rs 12 crores annually. But depreciation and deferred tax will increase.

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…A bit of buying from promoters

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Adding link to call with Lords Chloro management for some perspectives around
A. Capacity being put up by Reliance and Adani
B. Pricing outlook

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134

Yes. very insightful. Give confidence to invest in this company.

How TGV is geared up to increase their power plats is to be seen? if any idea will be useful.

Thank you

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Promoter buying continues, bought 3,93,000 shares since the start of the Feb. Buying price is in the range of 97-100 per share.

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Operationally the company would have performed well this quarter with higher production from their new CMS capacity. Prices have also been more or less similar across most product lines. Also they have commissioned some more solar facilities whose incremental savings shall start trickling in.

But expect write-offs to continue:

  1. Additional power costs levied by APERC for FY 24 to the tune of around Rs 40.48 crore. (they had mentioned this in their notes last quarter).
  2. 5MW Wind mill which the company is decommissioning.

I have noticed that the company is very quick to pounce on any write-off opportunity when times are decent (ideally you would like to show some matters as contingent liabilities). In tough times there are reversal of earlier legal matters that they win.

Last quarter adjusting for Rs 36.5 crore APERC writeoff, the adjusted EBIDTA stood at Rs 92 crores. Will be interesting to see the adjusted EBIDTA number for the current quarter too. My expectation is that it would be similar or higher.

Hopefully no more write offs during 1QFY26. Promoter Buying helps with optimism.

Views welcome.

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As expected. great results by TGV. Further these are after recognizing the 40.5cr of FPPCA adjustments. Excluding that company would have done EBITDA of 100cr & PBT of 70cr. As per this company can make PAT of 200cr in FY26, hence trading at 5x forward earning. Going further in FY27 or FY28, company would get further boost from new capacity addition announced earlier. Overall, looks positive.

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138

thanks for update. I was looking for this 40.5cr FPPCA adjustment note in their results but i could not find the same. Can you please let me know from where did you get this?
They have mentioned the same in their Q3 results but nothing is mentioned in Q4.

Thank you
Prashant

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Clarified with mgmt.

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ok. Thank you. But it is supposed to be in the note with the results.

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Snippet from the latest Environmental Assessment Report submitted by TGV SRAAC.

Showcases its expansion plan in caustic to 1620 TPD.
Mentions plans to further diversify business into new areas like PTFE, CPVC, Poly Aluminum Chloride, Hydrogen Peroxide

Full report available at AP Pollution Board website

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Board has approved further installation of 40MW of solar plant - total CAPEX would be around 120cr. Besides this, installation of 22.10MW is work in progress.

Besides saving in energy cost, these should reduce dependence on power from state board & their FPPCA adjustments

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143

Great start for FY26
Revenue growth of 29% YOY
EBITDA growth of 124%
PAT growth of 182% (on continuing operations)
EPS of 3.6 for quarter

Note: company has changed the useful life for depreciation which has lead to lower profits. Its around 16cr. EPS would have been 4.7 without this.

If company keep this momentum for remaining part of the year, company is trading at 8x forward earning (after taking into account the adjustment of useful life) or 6x forward earning (without adjustment of useful life).

Further, company is continuously adding solar capacity which will boost the profits further.

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Paradigms of the caustic soda market:

The caustic soda market in India IMHO seems near mid cycle. Current biggest worry is large capacities by Reliance and Adani expected in 2027 and 2028.

Alternative way of looking at the market:

Large capacities planned have forced traditional caustic companies to make investments in forward integration and other areas, leaving investment in caustic soda light.

Demand for chlorine and linked derivatives will keep increasing in India whereas the new entrants are forward integrated into PVC. Expect non-PVC chlorine product demand supply gap to reduce, helping with better ECU realizations. A temporary dip in caustic prices maybe in mid 2027 can eventually get offset by better chlorine realizations.

Domestic caustic soda market is growing 5-6% annually and exports are also firming up. (medium term demand for alumina, pharma, paper remains positive; domestic textiles looks weak but could translate into export opportunities to intl textile players for eg in Bangladesh)

The new entrants are aware of the dynamics of the market and will have more export facing operations eventually. Given the current weak trends of PVC pricing they should not be in any tearing hurry to reach maximum capacity. Domestic production of PVC will put more pressure on international PVC Prices.

With consistent high power cost and overheads, capacities in power intensive industries in Europe are starting to shut down. Europe along with emerging African markets can help absorb a major chunk of the new capacities.

China as a country is focusing inwards and hence now capacity addition should be in line with domestic growth. (more so for PVC and chlorine derivatives as this creates bottlenecks in production)

In the near term, the monsoon quarter is generally sluggish for caustic soda prices. Towards the end of Sept and heading into festive season expect the demand to improve.

How things will turn out finally only time will tell. But being overly pessimistic about prospects could be a mistake.

Views biased and apply to entire industry. Impact of the above will be more visible where caustic soda is bulk of sales and profits like TGV SRAAC and some others as well.

My assumptions may be or could go wrong. Welcome to get any feedback or counter views.

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