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Tata Chemicals (TTCH.BO)
Neutral Equity Research
Growth initiatives gain momentum; maintain Neutral on valuation
What's changed
We met the management of Tata Chemicals (TTCH) recently for insights
into its upcoming growth initiatives. The key takeaways are:
1. Gabon project: The management confirmed that execution (and political)
risks relating to the urea project are minimal and financial closure for the
project is scehduled to be completed in Sept 2011 for commissioning in 2014.
With low gas prices (input) of less than US$1/mmBtu, we estimate that this
project will generate about US$300 mn EBITDA.
2. Pulses business: The progress on this initiative is satisfactory, although
facing hurdles in receiving timely approvals from respective state farm
yards—TTCH sold about 20,000 tons ytd and expects to ramp up to 1 mn tons
by FY15. Although it is a joint initiative with Rallis, TTCH said that it could
earn EBITDA margins of about 6%-7% from this initiative going forward.
3. Rallis: TTCH will continue to leverage the strong distribution network of
Rallis and improve its market share in its chemicals segment by pushing some
of its brands (in edible salt and water purifiers) into Rallis’ distribution channel.
Implications
We believe the above initiatives, on successful execution, will become key
earnings drivers for TTCH going forward. Moreover, its entry into the
pulses segment and crop protection market (through Rallis) will bring
about more stability in TTCH’s earnings , in our view.
Valuation
We maintain Neutral on TTCH as it is trading near mid-cycle multiples (7X
FY12E EV/EBITDA). We revise our 12-m SOTP-based TP to Rs276 (from
earlier Rs140) and revise our FY12E-FY14E EPS to Rs28.81/Rs29.98/Rs32.65
from Rs17.48/Rs18.41/Rs18.99 as we update our earnings model to reflect:
1) value of Gabon project; 2) 50% stake in Rallis; 3) higher EBITDA margins
for its core business primarily driven by its consumer chemicals segment.
Key risks
Volatility in soda ash prices and higher/lower fuel costs are key risks.
INVESTMENT LIST MEMBERSHIP
Neutral
Coverage View: Cautious
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Tata Chemicals (TTCH.BO)
Neutral Equity Research
Growth initiatives gain momentum; maintain Neutral on valuation
What's changed
We met the management of Tata Chemicals (TTCH) recently for insights
into its upcoming growth initiatives. The key takeaways are:
1. Gabon project: The management confirmed that execution (and political)
risks relating to the urea project are minimal and financial closure for the
project is scehduled to be completed in Sept 2011 for commissioning in 2014.
With low gas prices (input) of less than US$1/mmBtu, we estimate that this
project will generate about US$300 mn EBITDA.
2. Pulses business: The progress on this initiative is satisfactory, although
facing hurdles in receiving timely approvals from respective state farm
yards—TTCH sold about 20,000 tons ytd and expects to ramp up to 1 mn tons
by FY15. Although it is a joint initiative with Rallis, TTCH said that it could
earn EBITDA margins of about 6%-7% from this initiative going forward.
3. Rallis: TTCH will continue to leverage the strong distribution network of
Rallis and improve its market share in its chemicals segment by pushing some
of its brands (in edible salt and water purifiers) into Rallis’ distribution channel.
Implications
We believe the above initiatives, on successful execution, will become key
earnings drivers for TTCH going forward. Moreover, its entry into the
pulses segment and crop protection market (through Rallis) will bring
about more stability in TTCH’s earnings , in our view.
Valuation
We maintain Neutral on TTCH as it is trading near mid-cycle multiples (7X
FY12E EV/EBITDA). We revise our 12-m SOTP-based TP to Rs276 (from
earlier Rs140) and revise our FY12E-FY14E EPS to Rs28.81/Rs29.98/Rs32.65
from Rs17.48/Rs18.41/Rs18.99 as we update our earnings model to reflect:
1) value of Gabon project; 2) 50% stake in Rallis; 3) higher EBITDA margins
for its core business primarily driven by its consumer chemicals segment.
Key risks
Volatility in soda ash prices and higher/lower fuel costs are key risks.
INVESTMENT LIST MEMBERSHIP
Neutral
Coverage View: Cautious
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