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UBS Investment Research
Tata Chemicals
Floods washed positive Soda Ash price increase
Q2FY11 results hurt due to Floods at Mithapur and Babrala plants
Floods impacted the operation of the Mithapur Soda Ash and Salt plant. The
power consumption increased due to dilution of saltwater used to produce salt.
Additionally, floods impacted production at the Urea plant in Babrala (North
India). The Babrala plant also had production downtime in order to fix Ammonia
blaster issues.
Company took a USD20/MT price increase in GCIP
In our note on Aug 18, 2010, we pointed out that Soda Ash fundamentals had
troughed. TTCH has taken a USD20/MT price increase in GCIP. We believe this
is a significant positive that has been masked by floods, the fuel cost increase, and
production issues at Babrala. TTCH has also taken a Soda Ash price increase of
Rs600/MT in India.
GCIP Soda Ash price increase – more important than fuel inc. in long run
The fuel cost increase in Mithapur plant is permanent in nature. However, as our
detailed analysis shows, we the Soda Ash price increase in GCIP will more than
compensate the fuel cost increase.
Valuation
We are reviewing our estimates. However, we are confident that the Soda Ash
price increase is a bigger positive than the short term flood issue and fuel cost
increase. We reiterate our Buy rating and Rs500 price target (based on SOTP
methodology).
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