Shares of Tatva Chintan Pharma Chem have been in a lull this year, but analysts at ICICI Securities see a comeback as they expect the company’s structure directing agents (SDA) business to bounce back.

The Tatva Chintan Analyst: The Sanjesh Jain-led analyst team at ICICI Securities maintained the “buy” rating on the stock, but revised down the price target of ₹2,000 from ₹2,110. However, the revised target still indicates a 26% upside from the stock’s last closing price of ₹1,583.45.

The Tatva Chintan Thesis: The analysts noted that over the past six quarters, SDA revenues have faced challenges due to a decline in China’s commercial vehicle (CV) sales and destocking by catalyst producers. However, the brokerage firm remarked that there’s been a slight recovery in China’s CV volumes in the current fiscal year, and this trend is expected to continue gradually.

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Additionally, the specialty chemicals maker is in the process of qualifying as a supplier for a large customer and anticipates commencing commercial supplies in early 2024. This development is expected to boost SDA revenues significantly.

The brokerage added that another bright spot is the European Union’s proposed stricter pollution norms known as Euro-7 for heavy-duty vehicles. These new regulations could potentially drive higher sales for SDAs, as the Euro-7 norms will require approximately 40-50% more SDA per vehicle. It is expected that Euro-7 norms will be implemented from July 2027.

Price Action: Tatva’s share price was down 0.095% to trade at ₹1,581.95 in the early hours of trading on Thursday.

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