Tata Chemicals: Buy :: Business Line

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After drifting aimlessly in the first half of 2014, the Tata Chemicals stock has gained over 30 per cent in the last four months.

Expectation of a turnaround in the agri-input major’s operations in Kenya and the UK, improvement in the urea segment’s profitability and healthy growth in other businesses — consumers (salt and pulses) and agrochemicals (Rallis India) have aided this. At ₹394, the stock trades at about 10 times its estimated 2015-16 earnings.

Though the stock rules close to the upper end of its historical band of 8-11 times, improving prospects for the international soda ash business and recovery in the phosphatic fertiliser segment by early next fiscal can lead to its re-rating. Investors can buy the stock.

Cost-cutting measures

Restructuring efforts at its Kenya and UK soda ash plants, which commenced last year, will start paying off from the second half of this year.

Tata Chemicals has completed a VRS scheme for over 200 employees at the Kenya plant; the $8-9-million charge for this will reflect in the September quarter results. The cost saving on account of this will be visible from the December quarter; Kenya operations are expected to turn profitable at the operating level this year, and at the net profit level by 2015-16.

Likewise, efforts to trim costs in the UK business by closing the Winnington soda ash plant last year, and the ongoing steam turbine project may boost profitability from this year.

Soda ash demand in Europe is picking up on the back of an improved economic outlook. Domestically, a pick-up in construction activity and auto sales should aid soda ash volumes.

Soda ash realisations in the US market are expected to trend up in the forthcoming quarters, following upward revision of contract prices, to adjust for higher gas prices.

The volume improvement, coupled with cost rationalisation efforts in key markets, have helped the company improve the operating margin for its inorganic chemicals.

From 6.7 per cent in June 2013 quarter, the segment’s operating margin has improved to 8.2 per cent this year; thanks to the the cost-cutting measures, margins may move up further in 2015-16.

New urea policy soon

Despite higher gas costs and lower margin on the urea produced beyond 100 per cent of the capacity (that is linked to international prices), the urea segment performance has been stable in the June quarter.

The industry has been pushing for a modification in the policy for additional production achieved through revamp to compensate urea-makers for gas cost escalation. If this happens, it can boost Tata Chemicals’ profitability.

If gas prices are finalised below $8/mmbtu and availability of domestic gas improves, that may also lift the company’s profit margin.

Revenues of the company’s consumer goods division (salt, pulses and Swatch water purifier) continue to grow at a steady pace. Tata Chemicals’ market share in the branded salt segment stands at 57 per cent.

Despite the weak monsoon this year, revenues for Tata Chemicals’ crop protection subsidiary, Rallis India, grew 14 per cent to ₹465 crore in the June quarter, helped by two product launches and healthy growth in export sales. Strong operating performance enabled Rallis grow its net profit by 35 per cent to ₹37 crore.

While the rising phosphoric acid price is a challenge for the company, the operating margin for complex fertilisers has improved significantly in the latest June quarter compared with the year-ago period.

From 6.7 per cent in June 2013, the overall fertiliser segment’s operating margin improved to 8.2 per cent this June.

Tata Chemicals’ revenues grew 27 per cent to ₹2,116 crore in June quarter, compared with the same period last year.

Operating profit margin, after declining for over four quarters, improved by 2 percentage points to 13.2 per cent. Net profit grew 27 per cent to ₹170 crore.

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Technical 7th Oct: Everest Industries, Tata Chemicals, Himachal Futuristic, Mercator Lines, Hexaware, GSK Consumer, TVS Motor:: Business Line

Technical: Everest Industries, Tata Chemicals, Himachal Futuristic, Mercator Lines, Hexaware, GSK Consumer, TVS Motor:: Business Line

Kotak India Daily: Results - Tata Chemicals, KEC International

Results

Tata Chemicals: Disappoints across the board

l Margins under pressure across the board l FY2014E looks like another subdued year; no positive triggers in the near term

KEC International: Weak margins though improving sequentially; strong on other counts

l Strong revenues but margins still remain weak, though sequentially better l Domestic T&D, power systems, cables lead; margin up despite higher contribution from new segments l Scope for margin improvement; expects meaningful improvement in 2HFY14E l Revise estimates; reiterate BUY (TP: Rs70) as near-term negativity is likely priced in

Tata Pure Equity: Invest :: Business Line

Tata Chemicals: Buy :: Business Line

Focus on core businesses, capacity expansion in key products — soda ash and salt — and reasonable valuations make Tata Chemicals a good investment idea from a two-to-three year perspective.

At the current price of Rs 317, the stock looks attractive at eight times its estimated FY-14 earnings. Over the last five years, the company has consistently paid dividends to shareholders. It declared 100 per cent dividend in 2011-12, translating into a dividend yield (dividend as a percentage of the current stock price) of 3 per cent.

Tata Chemicals Ltd Near term headwinds are adequately priced in, Upgrade to ‘Buy’ : Sunidhi

Tata Chemicals reported Q4FY12 results. Topline and EBIDTA numbers were in line with estimates. Sales at `34650 mn was up by 30%, while EBIDTA went up by 11% YoY. EBIDTA margin improved to 15.9% from last quarter’s low of 14.6%. Exceptional items include notional forex loss of `246.9 million, impairment of assets at `259.3 million.

Result Update: Tata Chemicals, McNally Bharat Engineering, Reliance Power, Cipla Ltd:: Emkay

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Click in link to read report: Result Update

Tata Chemicals Reco: ACCUMULATE CMP: Rs 363 Target Price: Rs 400 Cautious outlook; maintain Accumulate ·      Q3FY12 consol results were in line with revenues of Rs 38 bn, +32% yoy and EBITDA of Rs 5.6bn, 26% yoy (with margins of 14.6%). TCL reported APAT of Rs 2.3 bn, +70% yoy ·      US subsidiary reported strong results driven by higher topline. However, European business disappointed due to lower margins. Standalone performance remained strong ·      Though demand remained strong across most products, however rising input costs exerted cost pressures  ·      Management maintained cautious outlook. Increased soda ash supply in China will put pressure on prices; decline in phos acid prices will impact IMACID. Maintain Accumulate

McNally Bharat Engineering Reco: HOLD CMP: Rs117 Target Price: Rs 135 No re-rating catalysts, Downgrade to Hold ·      Standalone revenues up 30% yoy to Rs4.9 bn. EBITDA margins stable at 6.5%. Net profit growth at Rs10% yoy to Rs125 mn – ahead estimates ·      MSE disappoints with revenue decline of 28% yoy, EBITDA loss of Rs29 mn and net loss of Rs98 mn. CMT business net profit ahead estimates at Rs32 mn ·      Order inflows dismal at Rs1.4 bn. Order book down 8% qoq to Rs36 bn. But L1 in orders worth Rs8.6 bn. Debt continues to rise – up 46% over Mar’11 to Rs4.2 bn ·      Cut earning estimates by 20% for FY12E and 8% for FY13E. Foresee no re-rating catalysts in near term. Downgrade to Hold with revised target of Rs135 per share

Reliance Power Reco: BUY CMP: Rs 107 Target Price: Rs 155 Continues to deliver on timelines; Reiterate buy ·      PAT of Rs2.04bn above estimates on better profitability at Rosa and higher other income ·      Factor in better profitability from Rosa and higher other income in FY12E (upgrade earnings by 16%) but maintain our FY13E earnings ·      3Q progress – (1) Rosa unit 3 commissioned, (2) Sasan coal mine- own equipments also put to work; considerable overburden removed, (3) Indo mines - JORC report for IInd block and trial barge transportation and (4) Tilaiya mine R&R initiated and section 24 notification in exp. In next 2 months ·      Building solidity - (1) huge cheap captive coal, (2) merchant capacity in captive coal plants only, (3) plants near load centers (PoC), (4) minimizing cost of capital & (5) low to reasonable tariffs - offtake and payment risk minimized  ·      Solidity & positive triggers ignored with stock at 30% discount to fair value. Foresee RPL as the most sustainable private power utility; Reiterate ‘Buy’ with TP of Rs155/Share

Cipla Ltd Reco: SELL CMP: Rs 342 Target Price: Rs 318 No Earnings Catalyst – Downgrade to Sell ·      Cipla’s Q3FY12 results were below expectation with a) Revenues up 14% to Rs17.1bn b) EBITDA up 23% to Rs3.9bn and c) APAT up 16% to Rs2.7bn  ·      Revenues were driven by 18% growth in domestic biz. EBITDA margins declined 215bps QoQ despite strong growth in domestic biz and INR dep ·      Going forward with no favorable impact of currency, we believe gross margins will return to ~55% from current levels of 58%, thereby restricting EBITDA margins to 21-22% ·      On account of delay in Indore SEZ ramp-up and weakening in margins going ahead – we downgrade the stock to Sell with a target price of Rs318 (18xFY13 EPS of Rs17.6)

Tata Chemicals Strong performance ::Prabhudas Lilladher

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􀂄 Better‐than‐expected Q2FY12 result: Tata Chemical’s (TCL’s) net sales grew by
19.7% YoY to Rs35.7bn (PLe: Rs31.3bn), primarily led by better volumes and
realization in both, the businesses i.e. inorganic chemical and fertilizers. EBITDA
grew by 57.3% YoY to Rs6.7bn (PLe: Rs6.1bn). PAT grew by 134.3% YoY to
Rs2.9bn (PLe: Rs2bn).
Inorganic chemical’s sales grew by 27.2% YoY to Rs16.4bn, primarily on account
of better volume (soda ash volume up by 4.2% YoY and 3.2% QoQ) growth and
realization across the geographies. Fertilizer sales grew by 13.7% YoY to
Rs14.2bn on account of higher volume (urea volume up by 16.3% YoY despite
having shut down of plant for 15 days) during the quarter and higher farm-gate
prices of non-urea fertilizers. EBIT margin of inorganic chemicals and fertilizer
stood at 21.4% and 10.9%, respectively. Company has received subsidy related
to earlier years during Q2FY12. Hence, fertiliser calculated EBIT stood at 9.1%.
Company has provided MTM forex loss on its loan of Rs472.7m and has profit on
sale of investment of Rs305.1m (considered as exceptional item). Hence,
reported PAT stood at Rs2.8bn.
􀂄 Key Highlights for the quarter: During Q1FY12, company has not recognized
subsidy income of Rs14cr (H1FY12: Rs45cr) on opening stock of raw materials
for non-urea fertilizers according to DoF. Company has increased strategic stake
in EPM Mining Ventures Inc. to 30.6% to secure supplies and access low cost
sulphate of potash. TCL has formed joint venture with FMC Corporation and
Church & Dwight to set up a 4.5Lac TPA manufacturing facility to produce Trona
sorbents with an investment of US$60m.

􀂄 Maintain ‘Accumulate’: Post several weak quarters, TCL has reported strong
performance during Q2FY12. We are cautious and believe that Soda Ash
business could face challenge on account of rising input cost and slow down in
Europe/US primarily in Auto/Infrastructure sector, going forward. Further, we
expect that company’s agri input business would perform better in
short/medium term, primarily on account of better Rabi crop prospect in India.
At present, stock is trading at stock is trading at one year forward P/E of 8.6x v/s
5year band of 7x-11x. We maintain our ‘Accumulate’ rating on the stock, with
the target price of Rs405. (i.e. 10.5xFY13E EPS).

Tata Chemicals Upgrade earnings on strong results : :Emkay

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Tata Chemicals

Upgrade earnings on strong results

ACCUMULATE

CMP: Rs327                                        Target Price: Rs400

---

n     Q2FY12 results were above estimates with revenues of Rs 35.7 bn, +19% yoy and APAT of Rs 2.9 bn, +25% yoy with positive surprise at EBITDA margins at 18.9%

n     Subsidiary in US with PAT of Rs 770 mn (+43%yoy) and in UK with PAT of Rs 190 mn (+171% yoy) along with strong domestic margins contributed to profit growth

n     Upgrade FY12E estimates by 11% to Rs 35.7 on back of strong H1FY12 results however our outlook on global soda ash demand remains cautious

n     Reiterate Accumulate rating with price target of Rs 400 at current valuations of 9x FY12 earnings, lower than historical average of 11x

Buy Tata Chemicals : Price target: Rs400 :: ekamber

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Tata Chemicals
Cluster: Vulture's Pick
Recommendation: Buy
Price target: Rs400
Current market price: Rs331

Q2FY2012 results: First-cut analysis

Result highlights

   Operating performance significantly higher than expectated: Tata
Chemicals Ltd (TCL)'s revenue from operation during Q2FY2012 was
significantly higher than our expectation mainly due to a higher than
expected growth in the volume offtake and a higher realisation across
the segment. The operating profit margin (OPM) at 18.9% shows an
increase of 450 basis points compared to Q2FY2011 due to an increase
in the realisation of products across segments and geographies. The
adjusted profit after tax (PAT; after minority interest) increased by
134.3% to Rs293.2 crore aided by margin expansion and higher than
expected other income during the quarter. There was an extraordinary
expense including a marked-to-market (MTM) foreign exchange (forex)
loss of Rs47.3 crore on foreign debt and a profit of Rs30.5 crore from
the sale of assets.
   Revenue growth driven by higher volume and realisation: The
revenue for the quarter grew by 19.7% year on year (YoY) to Rs3,571.0
crore. The revenue from the chemical segment grew by 27.2% to
Rs1,638.2 crore and that from agri inputs jumped by 27.9% to Rs513.7
crore. On the other hand, a higher volume offtake of customised
fertiliser helped the revenue from the fertiliser segment to increase
to Rs1,416 crore, showing an increase of 13.7% YoY.
   A sharp increase in OPM gives boost to bottom line: The operating
profit margin (OPM) during the quarter saw a significant increase of
450 basis points to 18.9% because of the improving realisation of
products combined with efficient operation and distribution of
products and access to low-cost resources. An increase of 580 basis
points in the margin of the fertiliser segment to 8.5% and an
expansion of 680 basis points in the margin of the inorganic segment
to 21.4% helped the company to post a considerable growth in the
bottom line. Going forward, the margin may come under pressure due to
a further rise in the input cost and the company's inability to pass
on the same to the consumer beyond a certain limit.
   Reported PAT increased by 116% during quarter: The reported profit
after tax (RPAT) during the quarter increased by 116% to Rs275.4
crore. The net profit was dented to the extent of Rs47.3 crore due to
an MTM charge toward foreign currency debt and Rs10 crore for non-
recognition of inventory gains on phosphoric and potassic fertilisers
in accordance with the circular issued by the Department of
Fertilizers.
   Outlook and valuation: Despite the input cost pressure, the
company's ability to manage cost and access to low-cost resources is
expected to help it deliver a strong performance on the back of a
relatively healthy demand for soda ash and an increase in the offtake
of the customised fertilisers. Consequently, we maintain our Buy
recommendation on the stock with a price target of Rs400. We value TCL
at 9x FY2013E earnings per share (EPS) and investment value of Rs41
per share.

--

Tata Chemicals:: Mahurat Picks for Diwali 2011 ::ShareKhan

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Tata Chemicals
Remarks : Tata Chemicals is a diversified Tata group company with presence in fertilisers, chemicals and consumer
products. Tata Chemicals also owns a 50.06% stake in Rallis India, a leading Indian pesticide company.
The company is the second largest soda ash producer in the world (after Solvay) and owns 8% of global
soda ash capacity; more importantly, 48% of its soda ash capacity is low-cost natural soda ash-based. Tata
Chemicals owns 23% of global natural soda ash capacity.
The company is also one of the leaders in the India agriculture input space: it contributes 6% of India’s
urea production and has 12% market share in the fast-growing, high-margin pesticide business (through
Rallis India).
Tata Chemicals has multiple growth levers, specifically: (1) growth in high-margin businesses such as
customised fertilisers and Swach water purifier; (2) continued growth in salt; (3) urea volume and realisation
growth on debottlenecked urea capacity; and (4) potential volume growth at the low-cost Lake Magadi
soda ash business.

click link below for COMPLETE list, details of other company in Mahurat Picks for Diwali 2011 ::ShareKhan

Mahurat Picks for Diwali 2011 ::ShareKhan

Tata Chemicals – Evolving natural resource play ::RBS

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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.

Tata Chemicals – Evolving natural resource play ::RBS

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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.

Tata Chemicals (TTCH.BO, Buy, PT Rs 450, 36% upside) UBS: India Mid-Caps TOP PICKS - September 2011

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• Stock at 14% cash flow yield at mid cycle assumptions -- half
of Chinese Soda Ash producers (~18% of global producers)
just recovering cash costs.
• Current 5.2m mt Soda Ash, 1.26m mt UREA, 0.8m mt of
DAP/SSP, 0.5m mt of salt –
•Globally second largest producer of Soda Ash, 10% of
global capacity and 21% of global natural soda ash
capacity
•Owns 50% stake in Rallis, leading pesticide producer in
India
• Soda Ash and Urea generate stable and robust cash flows
• Assumptions: 1) Soda Ash prices stabilize at these levels. This is
conservative assumption as one competitor has taken
$20/Tonne price increase in USA. 2) Tata Chemicals is able to
obtain gas supplies for Urea production.
• Shareholding: Promoter 31%
• Valuation: SOTP methodology using multiple based approach.
We value Soda ash/fertilizers/IMACID business at 7x FY13E
EV/EBITDA and value cement business at 6x FY13E EV/EBITDA

CLICK HERE TO RETURN TO LIST OF UBS TOP PICK

Tata Chemicals: Buy:: Business Line,

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Companies with a large overseas leg to their operations may look unappealing to investors after recent global events, but Tata Chemicals may prove to be an exception. Through a series of acquisitions, the company has managed to secure the supply of inputs and substantially reduce costs for both its chemicals and fertiliser businesses.

These should pay off in the form of improved margins and better resilience to economic downturns over the next three-four years. Subsidiary Rallis India, fast growing player in pesticides, seeds and micronutrients, also holds great promise.

At its current market price of Rs 335, the Tata Chemicals stock trades at a modest price-earnings multiple of about 13 times its trailing 12-month earnings. The price discounts expected earnings for 2011-12 by about 10 times.

SODA ASH: PRICING IMPROVES

Soda ash accounts for about 38 per cent of Tata Chemicals' consolidated revenues and is used in the manufacture of glass, detergents and other industrial chemicals. After its acquisitions, Tata Chemicals has emerged the second largest soda ash manufacturer in the world with facilities spread across North America (General Chemicals), Europe (Brunner Mond UK), Africa (Magadi Soda) and India. The buyouts have allowed it to manufacture nearly 70 per cent of its soda ash through the natural route, making it one of the lowest cost producers of soda ash in the world.

This has also endowed Tata Chemicals with a diversified user base across four continents, helping ride out cyclical blips in demand. For instance, while Tata Chemicals' European operations took a hit from a severe winter over the past two quarters, North American operations delivered strong growth, with 30 per cent-plus profit margins.

Globally, tight supplies of soda ash have resulted in producers taking a price increase in July 2011, the third such rise since last year.

Higher realisations at Tata Chemicals' European and African operations may help offset pressures from spiralling energy costs. Recently concluded repairs at Brunner Mond Europe and the April 2011 acquisition of British Salt (which ensures brine supplies to this plant) may improve the cost structure at the European operations, even if demand remains muted.

FERTILISERS: LINKAGES SECURED

If Tata Chemicals' soda ash buyouts helped it diversify, its moves in the fertiliser business aim at securing raw material availability for its Indian fertiliser business, which brings in 36 per cent of its top line.

Tata Chemicals currently manufactures urea, phosphatic and complex fertilisers. The company's 33 per cent stake in IMACID, a phosphoric acid venture in Morocco, has recently been supplemented by a stake in EPM Mining Ventures — a large potash miner in Canada. This secures availability of two key inputs for complex fertilisers in a scenario of global shortages and rising feedstock prices.

The fertiliser business offers scope for sustained volume growth, given the large domestic deficit of fertilisers. Though recent policy moves to free pricing of fertilisers has resulted in a blip in phosphatic fertiliser sales, this may prove temporary. An extended monsoon, recently increased procurement prices for output and the inclusion of urea in the Nutrient Based Subsidy (NBS) umbrella may result in demand staging a revival over the next few months.

NBS is designed to link manufacturing costs for each fertiliser product to import parity prices, with the difference being reimbursed as flat subsidy to producers.

The ability to produce urea at globally competitive costs will, thus, hold the key to profit margins post-NBS. Tata Chemicals is well-placed on this score, as a gas-based producer with the highest energy efficiency among domestic players.

This apart, a big shot in the arm may come from the company's decision to invest $290 million to acquire a 25.1 per cent stake in two 1.3 tonne per annum urea projects at the Republic of Gabon. This project enjoys access to natural gas through a 25 year fixed price contract with additional sops such as a 10-year tax holiday. The Gabon project may enable Tata Chemicals to participate actively in the global fertiliser market at a time of rising prices and demand. The company estimates each urea project to generate $300-350 million in annual operating profits, of which 25 per cent (roughly Rs 350-400 crore) will flow to it.

Finally, the consumer products business made up of iodised salt, low cost water purifier and recently pulses, provides steady cash flows and a non cyclical element to the company's operations.

NO BALANCE-SHEET WORRIES

Though it has pursued overseas acquisitions with fervour, healthy profitability of its foreign subsidiaries and the sizeable cash flows have kept Tata Chemicals' balance sheet in good health.

The company's net debt:equity stood at a moderate 0.74:1 by end- June 2011, down from 1.11:1 levels three years ago, as the company paid down debt and expanded equity, even as it made new acquisitions. Interest costs have steadily fallen in the last six quarters, with the interest cover at a comfortable 5.5 times.

The company remains well-placed to fund its capex programmes at existing facilities. Its consolidated sales have averaged an 18 per cent growth and operating profits a 14 per cent growth over the last five years, while the per share earnings have vaulted from Rs 14.7 to Rs 26.1.

Operating profit margins on a consolidated basis (17-19 per cent) have consistently remained higher than those for the parent company

Tata Chemicals: In-line quarter::Kotak Sec,

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Tata Chemicals (TTCH)
Others
In-line quarter. PAT before exceptionals at Rs2 bn was 4% higher than our estimate
due to lower tax. Operational performance was largely in line with sales 5% higher
than our estimate although margin declined 260 bps qoq to 17% due to lower fertilizer
margin with chemical business sustaining profitability. We leave our FY2012-13E
estimates unchanged. We foresee margin pressure continuing in FY2012E in fertilizers.
Maintain REDUCE with PT at Rs385 (was Rs380), 9X FY2013E and investment
value/share of Rs40.


1QFY12 sales at Rs14 bn, 5% above our estimate due to higher agribusiness sales
Overall sales were 5% above our estimate due to higher sales at Rallis (due to consolidation of
seeds business which is highly seasonal) and IMACID on account of higher pricing. Fertilizer sales
in India were up 4% yoy on account of trading sales which remained steady yoy. Sales volumes of
manufactured complex fertilizers were affected due to potash unavailability and the company
expects the impact to continue in 2QFY12E. Chemical business sales were up 17% yoy on a
reported basis; however, excluding Rs710 mn sales from British salt acquisition, sales growth was
11% yoy driven by mainly price increases taken from January 2011. Soda ash sales volumes were
steady in GCIP/India while Europe business saw decline in sales volumes. The company expects
normal production levels to resume from 2QFY12E.
PAT before exceptionals at Rs2 bn, 4% higher than our estimate due to lower tax
EBITDA at Rs5 bn was largely in line with our estimate although EBITDA margin at 17% was 100
bps below our estimate and dropped 270 bps qoq due to lower fertilizer margin. PBIT margin in
chemical business increased to 20.5% reflecting (1) impact of the soda ash price increase taken
from January 2011 and (2) British Salt acquisition which reported margin at 52% versus 38% last
quarter and (3) higher profitability at Magadi which saw margin dipping in FY2011 due to higher
energy costs.
We leave our estimates unchanged
We leave our FY2012-13E estimates unchanged. We include the impact of following initiatives in
FY2012-13E (1) expanded salt capacity which will become operational by March 2012E, (2) Tata
Swach, (3) debottlenecked capacity of 0.1 mtpa at GCIP by March 2012E, (4) increase in soda ash
prices, (5) branded pulses sales and (6) British Salt acquisition.
Maintain REDUCE with PT at Rs385 (9X FY2013E EPS)
We value TCL at (1) 9X FY2013E (5-year average) EPS of Rs38.8 and (2) investment value/share of
Rs40. We foresee margin pressure continuing in FY2012E in complex fertilizers on account of
sharp input price increases but estimate chemical business margin sustaining at 20% in FY2012-
13E.

Goldman Sachs, -- Tata Chemicals-- Growth initiatives gain momentum; maintain Neutral on valuation

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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

Tata Chemicals - Results in line with estimates : ACCUMULATE ::Emkay

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Tata Chemicals

Results in line with estimates

ACCUMULATE

CMP: Rs351                                        Target Price: Rs400

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n     Q1FY12 results were in line with estimates with revenues of Rs 29.5 bn, +17% yoy and APAT of Rs 2.04bn, -15% yoy

n     US Subsidiary (TCNA) surprised with 33% profit growth (Rs 770 mn) while UK subsidiary (HFUK) performance (PAT Rs 100 mn) was affected due to lower sales volumes

n     Despite price increase in soda ash across the markets by US$ 40-50 / mt (25-30% yoy), chemical segment margins are likely to remain stable due to higher input cost

n     Though we expect, company to benefit from urea decontrol going forward but contribution to bottomline remains muted (~10% to profit). We maintain Accumulate rating on the stock