Recommendation from Chemicals Sector

This section gives a recommendation of a stock having stock price below Rs 150 with sound fundamentals and expected to give handsome returns over a one-year time horizon.[EasyDNNnews:PaidContentStart]

TGV Sraac Ltd : POWERING GROWTH WITH INTEGRATION & RENEWABLE EDGE

HERE IS WHY
✓ Integrated operations enhance resilience
✓ Renewables lower power costs
✓ Attractive valuation, recovery ahead

I ndia’s chemical industry holds the 4th position globally, with a strong presence in international trade. Within this framework, the caustic soda market, a key product segment, is projected to grow at a CAGR of about 5 per cent from 2024 to 2030, driven by expanding industrial applications and rising infrastructure investments. However, the industry remains inherently cyclical.

Nevertheless, with chlorine prices under pressure, companies like TGV SRAAC are capturing value by internally consuming chlorine for chloromethane production. Expansion of chloromethane capacity by 125 TPD from the existing 250 TPD is underway, strengthening flexibility and downstream integration.

Incorporated in 1981, TGV SRAAC Ltd (formerly Sree Rayalaseema Alkalies and Allied Chemicals Ltd) is the flagship company of the TGV Group. It is a leading manufacturer and exporter of chlor-alkali products, chloromethane, castor derivatives, and fatty acids. The company operates across Chemicals, Oils & Fats, and Power segments, supported by a 28 MW captive power plant. Its integrated business model leverages process by-products as raw materials for downstream products, ensuring operational efficiency and partial insulation against cyclicality. With a client base spanning over 200 companies in textiles, pulp & paper, detergents, alumina, pharma, agrochemicals, and water treatment, and a global footprint, TGV SRAAC enjoys strong market positioning.

The company is actively investing in renewable energy to optimise costs. Following approval for a new 40 MW solar plant (₹120 crore investment), renewable capacity will exceed 100 MW, including earlier projects (37.9 MW operational, 22.1 MW under implementation). Since power accounts for nearly 50 per cent of production costs, renewable expansion is expected to materially lower long-term energy expenses and enhance margins. In FY24, the average power cost declined to ₹6.69/ kWh from ₹6.93/kWh, reflecting efficiency gains from higher solar contribution and open access sourcing.

Financial performance has been resilient despite industry headwinds. In FY25, revenue rose 13.1 per cent to ₹1,749 crore from ₹1,546 crore in FY24, while operating profit jumped 68 per cent to ₹225 crore and net profit surged 51 per cent to ₹92 crore, aided by margin expansion. Q1FY26 continued this momentum, with revenue up 30 per cent year-on-year to ₹495.7 crore, operating profit more than doubled year-on-year to ₹99 crore, and net profit climbing 178 per cent to ₹39 crore, reflecting strong operating leverage. Over the last five years, TGV SRAAC has delivered an 11 per cent CAGR in sales and a 14 per cent CAGR in profits, highlighting execution strength.

Valuation remains attractive, with the stock trading at a P/E of 12.2x, significantly below the industry average of 23.2x. Key return ratios, while modest (ROE 8.1 per cent, ROCE 10.2 per cent), are expected to improve with cost optimisation and industry cycle recovery. The company maintains a comfortable capital structure with a debt-to-equity ratio of 0.30x and healthy interest coverage of 6.91x, providing financial flexibility for expansion. Promoter holding of 63.8 per cent further strengthens confidence.

With integrated operations, renewableled cost competitiveness, diversification across end-user industries, and early signs of recovery in caustic soda prices, TGV SRAAC is well-positioned to capture cyclical upturns and enhance profitability. Considering these growth drivers and attractive valuations, we recommend a Buy.

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