Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Tata Chemicals has been building cost efficiency through acquisitions and strategic expansions.
Cash flows from stable businesses – fertiliser, salt and agrochemicals – have helped offset those
from the cyclical soda ash. We initiate coverage with a Buy rating and target price of Rs380.
Recent ventures are aimed at strengthening cost competitiveness
TTCH’s recent acquisitions, such as British Salt and EPM Mining in the US and a minority stake
in Gabon urea plant, are aimed at building a low-cost base in the medium to long term. This
should help the company weather a downturn better, in our view. Even the company’s existing
operations and capacities are likely to be expanded in low-cost locations, such as the US for soda
ash and India for salt.
Global subsidiaries’ profitability has been trending up
Both GCIP (the US subsidiary) and Brunner Mond (the European subsidiary) have been
improving profitability driven by higher prices and cost rationalisation. We expect this trend to
continue in the near term. The company should benefit from proposed urea subsidy scheme due
to its high energy efficiency. Salt capacity expansion should also strengthen cash flows.
Forecasting lower debt and a 17% EPS CAGR in FY12-14; stock at a discount to peers
We expect soda ash price realisations to be flat in FY13/14 and operating rates to decline
marginally. We forecast free cash flow generation of Rs15bn annually, which should reduce net
gearing to 37% by FY13. ROE should also improve to 16% by FY13 from 14% in FY11. We value
TTCH using SOTP as it has many businesses. We value Tata Chemicals’ standalone chemicals
and US businesses at 5x FY13F EV/EBITDA—at par with global specialty chemicals companies
due to its low-cost advantage plus the presence of its domestic salt business. We value fertiliser
at 6.8x FY13F EV/EBITDA—at par with global peers —and UK business at 4.5x FY13F
EV/EBITDA—a 10% discount to global comps (as synthetic soda ash). Also, we value its Rallis
stake at a 20% holding company discount.
Key risk is an extended global slowdown
Historically, the price of soda ash has been less volatile than that of commodity chemicals, as
most sales are through long-term contracts. However, a protracted global slowdown, especially in
China, could create a surplus and depress prices and operating rates.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Tata Chemicals has been building cost efficiency through acquisitions and strategic expansions.
Cash flows from stable businesses – fertiliser, salt and agrochemicals – have helped offset those
from the cyclical soda ash. We initiate coverage with a Buy rating and target price of Rs380.
Recent ventures are aimed at strengthening cost competitiveness
TTCH’s recent acquisitions, such as British Salt and EPM Mining in the US and a minority stake
in Gabon urea plant, are aimed at building a low-cost base in the medium to long term. This
should help the company weather a downturn better, in our view. Even the company’s existing
operations and capacities are likely to be expanded in low-cost locations, such as the US for soda
ash and India for salt.
Global subsidiaries’ profitability has been trending up
Both GCIP (the US subsidiary) and Brunner Mond (the European subsidiary) have been
improving profitability driven by higher prices and cost rationalisation. We expect this trend to
continue in the near term. The company should benefit from proposed urea subsidy scheme due
to its high energy efficiency. Salt capacity expansion should also strengthen cash flows.
Forecasting lower debt and a 17% EPS CAGR in FY12-14; stock at a discount to peers
We expect soda ash price realisations to be flat in FY13/14 and operating rates to decline
marginally. We forecast free cash flow generation of Rs15bn annually, which should reduce net
gearing to 37% by FY13. ROE should also improve to 16% by FY13 from 14% in FY11. We value
TTCH using SOTP as it has many businesses. We value Tata Chemicals’ standalone chemicals
and US businesses at 5x FY13F EV/EBITDA—at par with global specialty chemicals companies
due to its low-cost advantage plus the presence of its domestic salt business. We value fertiliser
at 6.8x FY13F EV/EBITDA—at par with global peers —and UK business at 4.5x FY13F
EV/EBITDA—a 10% discount to global comps (as synthetic soda ash). Also, we value its Rallis
stake at a 20% holding company discount.
Key risk is an extended global slowdown
Historically, the price of soda ash has been less volatile than that of commodity chemicals, as
most sales are through long-term contracts. However, a protracted global slowdown, especially in
China, could create a surplus and depress prices and operating rates.
No comments:
Post a Comment