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Tata Chemicals (TTCH)
Others
PAT boosted by other income. PAT adjusted for higher other income was 12% below
our est., marked by higher sales but poor margin at 15%, 230 bps lower than est. due
to (1) cost pressures continuing in soda ash operations and (2) poor urea/complex
fertilizer volumes. The former will ease starting 4QFY11E due to price increases effective
Jan 2011E. However, we foresee margin pressure remaining in FY2012E in (1) complex
fertilizers business on account of subsidy cut and (2) BMGL operations due to energy
cost increases and poor capacity utilizations. Maintain REDUCE with PT at Rs370.
3QFY11 sales at Rs29 bn, 6% above our estimate due to higher fertilizer sales
Overall sales at Rs29 bn was 6% above estimates due to higher fertilizer sales on account of
higher trading sales as urea/complex and IMACID sales were lower than our est. (1) Urea sales
volumes were 9% below our estimate due to minor flooding which resulted in loss of around
15,000 tpa and (2) lower complex fertilizer volumes, 30% below our estimate, were due to
unavailability of phosphoric acid for planned shutdown at IMACID JV plant. However, India soda
ash volumes were in line and chemical sales in India were 10% higher than our est., reflecting the
impact of price increases taken for soda ash in India. BMGL/GCIP sales were largely in line.
PAT at Rs1.6 bn, 3% lower than our estimate boosted by other income; margin lower than est.
EBITDA margin at 15.3% was 230 bps lower than our estimate due to (1) lower production
volume in fertilizers and (2) margin pressure due to cost increases in soda ash global operations,
which are likely to get mitigated starting 4QFY11E. Despite EBITDA being 8% lower than our est.,
higher income resulted in PAT of Rs1.6 bn, 3% lower than our est.
We leave our est. unchanged, we expect EPS of Rs26.8 in FY2011E and Rs35 in FY2012E
We leave our estimates largely unchanged and include the impact of (1) specialty fertilizers sales
which commenced this quarter, (2) expanded salt capacity, (3) Tata Swach, (4) de-bottlenecked
capacity of 0.1 mtpa at GCIP, (4) increase in soda ash prices taken to counter energy cost
increases, (5) branded pulses sales of Rs1 bn in FY2011E and (6) acquisition of British Salt.
Maintain REDUCE, PT of Rs370
We value TCL at (1) 9X FY2012E (5-year avg.) EPS of Rs35 and (2) investment value of Rs48. We
estimate non-cyclical businesses increasing to 60% in FY2012E (50% in FY2010), and estimate
chemicals to account for 57% of consol. EBIT in FY2012E. We foresee margin pressure in FY2012E
continuing in (1) complex fertilizers on account of 20% subsidy cut. TCL lacks skill in complex
fertilizers and has limited pricing power, and (2) continuing margin pressure in BMGL due to
increase in energy prices and poor capacity utilization at Magadi.
EBITDA margin improves 130 bps qoq to 15%; however, still lower than our est.
by 230 bps and reflects acute cost pressures
Operating margin at 15.3% was lower than our est. of 17.6%, down 400 bps yoy reflecting
Cost pressure in soda ash in BMGL; GCIP stable qoq. Even as GCIP EBIT margin was
maintained qoq at around 24%, soda ash operations in BMGL continue to be under
pressure due to (1) cost increase, (2) poor volumes at BMGL UK due to weather impact
and (3) poor capacity utilizations at Magadi. However, improved pricing in soda ash in
India led to margin easing qoq with chemical margin increasing to 15.5%, up 120 bps
qoq. According to our calculations, soda ash sales were up yoy despite flat volumes
due to price increase of around Rs1,500/tonne qoq.
Lower margin yoy in complex fertilizers due to increase in phos. acid prices . Operating
margin in fertilizers increased qoq to 8%; however, it was down 230 bps yoy due to
increase in phos. acid prices. According to TCL, prices have moved up to US$830/tonne in
3QFY11 versus US$750/tonne in 2QFY11.
Takeaways from conference call
Fertilizers
Customized fertilizer of 0.13 mtpa set up at a cost of Rs500-600 mn is commissioned in
Oct ’10 and sales have commenced. TCL will target 5 crops initially for upcoming kharif
season from this plant.
TCL expects margin pressure in phosphatics to continue on the back of hardening phos.
acid prices and has maintained that the company will shut down plant in case of
hardening input prices for phosphatics. However, it expects IMACID to post higher sales
realizations on account of increasing phos. acid prices.
Chemical
TCL will take price increases in its global soda ash operations starting 4QFY11E: US$13-
14/tonne for GCIP, US$20/tonne for Magadi, GBP8-9/tonne for BMGL, UK.
There was a shortfall at DAP plant due to unavailability of phos. acid because of planned
shutdown of IMACID plant and brief flooding at Babrala (urea) which led to sub-optimal
production of 15,000 tons in October.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Tata Chemicals (TTCH)
Others
PAT boosted by other income. PAT adjusted for higher other income was 12% below
our est., marked by higher sales but poor margin at 15%, 230 bps lower than est. due
to (1) cost pressures continuing in soda ash operations and (2) poor urea/complex
fertilizer volumes. The former will ease starting 4QFY11E due to price increases effective
Jan 2011E. However, we foresee margin pressure remaining in FY2012E in (1) complex
fertilizers business on account of subsidy cut and (2) BMGL operations due to energy
cost increases and poor capacity utilizations. Maintain REDUCE with PT at Rs370.
3QFY11 sales at Rs29 bn, 6% above our estimate due to higher fertilizer sales
Overall sales at Rs29 bn was 6% above estimates due to higher fertilizer sales on account of
higher trading sales as urea/complex and IMACID sales were lower than our est. (1) Urea sales
volumes were 9% below our estimate due to minor flooding which resulted in loss of around
15,000 tpa and (2) lower complex fertilizer volumes, 30% below our estimate, were due to
unavailability of phosphoric acid for planned shutdown at IMACID JV plant. However, India soda
ash volumes were in line and chemical sales in India were 10% higher than our est., reflecting the
impact of price increases taken for soda ash in India. BMGL/GCIP sales were largely in line.
PAT at Rs1.6 bn, 3% lower than our estimate boosted by other income; margin lower than est.
EBITDA margin at 15.3% was 230 bps lower than our estimate due to (1) lower production
volume in fertilizers and (2) margin pressure due to cost increases in soda ash global operations,
which are likely to get mitigated starting 4QFY11E. Despite EBITDA being 8% lower than our est.,
higher income resulted in PAT of Rs1.6 bn, 3% lower than our est.
We leave our est. unchanged, we expect EPS of Rs26.8 in FY2011E and Rs35 in FY2012E
We leave our estimates largely unchanged and include the impact of (1) specialty fertilizers sales
which commenced this quarter, (2) expanded salt capacity, (3) Tata Swach, (4) de-bottlenecked
capacity of 0.1 mtpa at GCIP, (4) increase in soda ash prices taken to counter energy cost
increases, (5) branded pulses sales of Rs1 bn in FY2011E and (6) acquisition of British Salt.
Maintain REDUCE, PT of Rs370
We value TCL at (1) 9X FY2012E (5-year avg.) EPS of Rs35 and (2) investment value of Rs48. We
estimate non-cyclical businesses increasing to 60% in FY2012E (50% in FY2010), and estimate
chemicals to account for 57% of consol. EBIT in FY2012E. We foresee margin pressure in FY2012E
continuing in (1) complex fertilizers on account of 20% subsidy cut. TCL lacks skill in complex
fertilizers and has limited pricing power, and (2) continuing margin pressure in BMGL due to
increase in energy prices and poor capacity utilization at Magadi.
EBITDA margin improves 130 bps qoq to 15%; however, still lower than our est.
by 230 bps and reflects acute cost pressures
Operating margin at 15.3% was lower than our est. of 17.6%, down 400 bps yoy reflecting
Cost pressure in soda ash in BMGL; GCIP stable qoq. Even as GCIP EBIT margin was
maintained qoq at around 24%, soda ash operations in BMGL continue to be under
pressure due to (1) cost increase, (2) poor volumes at BMGL UK due to weather impact
and (3) poor capacity utilizations at Magadi. However, improved pricing in soda ash in
India led to margin easing qoq with chemical margin increasing to 15.5%, up 120 bps
qoq. According to our calculations, soda ash sales were up yoy despite flat volumes
due to price increase of around Rs1,500/tonne qoq.
Lower margin yoy in complex fertilizers due to increase in phos. acid prices . Operating
margin in fertilizers increased qoq to 8%; however, it was down 230 bps yoy due to
increase in phos. acid prices. According to TCL, prices have moved up to US$830/tonne in
3QFY11 versus US$750/tonne in 2QFY11.
Takeaways from conference call
Fertilizers
Customized fertilizer of 0.13 mtpa set up at a cost of Rs500-600 mn is commissioned in
Oct ’10 and sales have commenced. TCL will target 5 crops initially for upcoming kharif
season from this plant.
TCL expects margin pressure in phosphatics to continue on the back of hardening phos.
acid prices and has maintained that the company will shut down plant in case of
hardening input prices for phosphatics. However, it expects IMACID to post higher sales
realizations on account of increasing phos. acid prices.
Chemical
TCL will take price increases in its global soda ash operations starting 4QFY11E: US$13-
14/tonne for GCIP, US$20/tonne for Magadi, GBP8-9/tonne for BMGL, UK.
There was a shortfall at DAP plant due to unavailability of phos. acid because of planned
shutdown of IMACID plant and brief flooding at Babrala (urea) which led to sub-optimal
production of 15,000 tons in October.
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