UBS: Tata Chemicals: Improving Soda Ash and Urea fundamentals: target Rs 500

Tata Chemicals: Improving Soda Ash and Urea fundamentals
􀂄 Soda Ash prices have improved
Light Soda Ash prices FOB China have increased from average of USD
190/MT average in Q1FY11 quarter to 200-205 $/MT currently. Our estimates
have been based on USD 190/MT base price.
􀂄 Improvement in Urea fundamentals
Middle East FOB Urea spot prices have increased from average of USD
252/MT in Q1FY11 to USD 325-340/MT now. The benefit of higher Urea
prices will benefit TTCH in Q4 FY11, after its Urea sale volume grows beyond
957k mt. Our model are based FOB Middle East Urea price of USD 271/MT
as compared to current spot price of USD 325-354/MT as per Fertecon data.
􀂄 Government has increased anti dumping duty on Soda Ash derivative
Indian Government has increased the anti dumping duty on Sodium Tripoly
Phosphate (STPP) imports from China from USD 0.307/kg to USD 0.671/kg.
While TTCH’s STPP volume is low (14k mt in FY10), we believe this will
help address the market’s worry about risk of reduction in anti-dumping duty
on Soda Ash.
􀂄 Valuation and price target
We maintain our estimates and continue to value TTCH using SOTP methodology.
We reiterate our Buy rating with a Rs 500 price target.