Downgrade to Sell on growth and valuation concerns post recent rally Sell We are downgrading Tata Chemicals Ltd (TTCH) from Accumulate to Sell based on our recently reduced TP of Rs216 post the 4Q results concall, which suggested that its core chemicals business is likely to take 18-24 months to achieve normalcy in demand and supply. The company however remains hopeful that the disruption in the chemical supply chain due to COVID-19 itself may gradually abate with the easing trend in lockdown across key countries, including China, which controls more than 40% of global soda ash demand. The 4QFY20 consolidated results was a miss with PAT coming in at Rs1.84bn vs our/consensus estimates at...

Capex programme altered until demand outlook improves The company announced capex of around | 2400 crore last year to increase capacity for soda ash, soda bicarbonate, cement and salt by FY22-23E. It was about to spend | 900 crore this fiscal, part of the announced capex, which is expected to reduce due to demand challenges post Covid-19. The company would announce the altered capex schedule post Q1FY21E. Revise our rating from REDUCE to...

We are downgrading TTCH (now ex-consumer) from Buy to Accumulate with our reduced TP of Rs220 (-3.8% from CMP) post our aggressive cuts in FY20-22E. We have cut our earnings for FY20E by 13.2% on the marginal impact of the lockdown in March. We have cut our FY21-22E volume, price and margin estimates in Chemicals across all its geographies due to (a) the immediate lockdown impact due to reduction in all its operations, according to the company's recent exchange filing (Annexure - II) and (b) the risk of global demand destruction in key end use segments for its key product soda ash (75% of revenue) of at least 10% on average over the year due to the collapse in the global economy, particularly in key markets in the US and EU....

In our midcap universe of 11 companies, we expect Tata Chemical, VA Tech Wabag, Emmbi Industries and Kanpur Plastipack to be the most impacted stocks given that all these have revenue contribution in excess of 30-35% from the said geographies. We have envisaged the impact of Coronavirus (Covid-19) on our midcap coverage universe based on the revenue contribution from both the US as...

We value the domestic soda ash business at 5x FY21E EV/EBITDA and overseas at 4x EV/EBITDA. We arrive at a target price of | 360, excluding investment portfolio value, providing an upside of 14% over CMP of | 316....

TCL ventured into the silica, nutraceutical business with a capex of ~| 500 crore. The same is expected to generate asset turn of 1.5-2x, RoCE of ~1520%, which we expect to improve return ratio profile for the overall group in the medium to long run. Apart from this, strong growth visibility from cathode active material and Tata Chemical's position in the entire chemistry would put the company in a favourable position in the long run. All this, in...

Tata Chemicals' (TTCH) 3QFY20 consolidated results were reported for the continuing operations - i.e excluding the consumer business being demerged in favour of TGBL post the NCLT's approval for this transfer. We are maintaining our earnings model and valuations including the consumer business - pending the official transfer. We maintain BUY on our revised SOTP-based TP of 897 - post changes in our estimates that imply ex-consumer valuation of Rs462. The results (on ex-consumer basis) were a tad below expectation. Revenue was up 2% at Rs26.2bn the 40% growth in specialty (read Rallis) offset the 6% fall in basic chemistry segment. EBITDA margin came in 190 bps below expectations, with a 9% miss at EBIT level. The EBIT growth was driven by CPC subsidiary Rallis under specialty segment. The interest expense...

Crop protection chemicals and fertilizer cos. should see healthy demand and margins in 3QFY20E. The extended kharif and early sowing trends in Rabi supported by all time high reservoir levels augur well for UPL and CRIN. Tata Chemicals should be a steady performer with India seeing an uptick in chemical volume, along with an improved outlook for UK operations. Post the minority stake buyout in its US business, we expect TTCH to benefit from the additional 25% share of TCNA PAT that will be earnings accretive, effective this quarter. UPL: LatAm and India along with Arysta portfolio are likely to be in focus. We see good...

The Tata Chemicals (TTCH) management has guided for long term growth and improvement Sector: Chemicals in returns based on ongoing investments and new initiatives in Energy storage at the analyst meet on Monday. The latter includes Lithium battery project still on the drawing board stage, CMP: Rs664 pending tie up with JV partner. Management is reasonably positive on Soda Ash market over the next 12 months based on nil capacity addition and 4-5% growth in emerging markets Target Price: Rs798 (EM), including India. The company is stressing on its growth plans for Bicarb, which enjoys higher margins and growth prospects, especially in the Pharma segment, and flue gas Upside: 20.1% treatment. The company expects the ongoing new investments in Nutraceuticals, Silica and...

20 December 2019 Tata Chemicals (TTCH) has acquired the remaining 25% stake in TATA Chemicals Soda Ash Partners Holdings (TCSAP) from the Andover Group, Inc. for USD195m (thus, valuing 100% stake at USD780m) through its wholly-owned subsidiary, Valley Holdings Inc. With this acquisition, TTCH has increased its ownership in TCSAP to 100%, which is a move to simplify enterprise architecture. For FY19, TCSAP had a turnover of USD466m and EBITDA of USD101m. TTCH currently operates a capacity of 2.5MMT of natural soda ash in North America. The worlds largest deposits of trona used for manufacturing natural soda ash are found in the Green River Basin of Wyoming, North America. TTCH acquired the balance 25% stake in TCSAP for USD195m; of this, USD175m will be funded through debt and balance will be funded internally.

At the time of the announcement, the deal valued the Consumer business at ~18x FY19 EBITDA, implying an EV of INR57.6b (INR226/share). As a result, the value/share of the consumer business being transferred to TGBL stands at INR342/share. Against this backdrop, we attempt to analyze the valuation at which the residual business is available. We back calculated the valuations at which the residual business is available factoring in the current market prices. According to our calculations, the enterprise value post demerger adjusts for the value of Rallis, quoted investments and value of TGBLs shares to be received by the shareholders of TTCH. We also adjusted EBITDA post the demerger of the Consumer business and Rallis (we have excluded Rallis EBITDA as we have done the same in our EV calculation). Thus, the residual business is available at 4.4x/3.7x FY20/21E EV/EBITDA.

31 October 2019 higher depreciation and lower other income. PAT was up 10% 1HFY20, revenue/EBITDA/PAT were up 5%/12%/7% YoY. Chemistry EBIT margin expanded strongly by 670bp YoY to 29.8% in the quarter. However, Consumer margin shrank 450bp YoY due to one-time demerger-related cost and higher ad spends. In 9% YoY, led by volume growth of 3% and the balance through realization improvement. EBITDA/MT increased 2x YoY to USD52 in the quarter on the back of improved efficiencies, lower input cost and reduced fixed cost. sales declined 5% YoY due to lower trading volumes, but EBITDA was up 36% YoY led by lower manufacturing cost (RM and energy). EBITDA/MT increased 48% YoY to GBP49. In the EBITDA/MT improved 6% YoY to USD47 (-7% QoQ) with realizations remaining flat YoY (-1% QoQ) and sales volume growth of 1% YoY. We largely maintain our estimates of revenue/EBITDA/PAT CAGR of 9%/15%/11% over FY19-21.

Q1FY20 revenue rose 5.6% YoY Rs. 2,897cr, primarily led by revenue growth in Consumer products (+13.0% to Rs. 495cr) and Specialty products segment (+8.9% to Rs. 634cr). Basic chemistry products revenue witnessed muted growth of 1.3 % YoY to Rs. 1,946, impacted by lower production of soda ash in Mithapur. By geography, strong performance in US (+10.5% YoY to Rs. 845cr), Africa (+32.3% to Rs. 123cr) and India business (+4.2% to Rs. 1,031cr) offsets weak performance in UK region (-10.8% to Rs. 307cr). EBITDA margins surged 256bps YoY to 20.4% primarily with improved margins for BCP with better realizations for Soda ash and lower costs. The company...

Tata Chemicals (TTCH) 1QFY20 results is better than NBIE estimates at EBITDA and PBT levels due to lower input costs and better-than-expected performance in Basic Chemistry segment (chemicals), driven by the US and Africa regions. These two markets have brought in 90% of the growth in EBITDA of Rs1bn YoY. This has resulted from 10% and 32% revenue growth, respectively from the US and Africa. Reported PAT is in line at Rs2.4bn. However, adjusted PAT, excluding the impact of discontinued operations, came in at Rs2.17bn vs. our forecast of Rs2.4bn. The company has guided for (i) stable to tight soda ash markets over the next 1-2 years based on 4-5% growth in global demand and no major capacity adds and (ii) capex of Rs16bn in chemicals...

Largely in-line revenue/EBITDA: Revenue grew 6% YoY to INR29b (our estimate: INR31b) in 1QFY20. EBITDA rose 21% YoY to INR5.9b (our estimate: INR5.6b), with the margin expanding 260bp YoY to 20.4% (our estimate: 18.1%). On a like-to-like basis, EBITDA was up 17% YoY to INR5.7b...

Our analysis of Tata Chemical's (TTCH) FY19 annual report (FY19AR) reveals that the company has given additional information on product capacities and break-up in sales revenue across different products in the basic chemistry segment. The FY19 AR also gives the split in revenue across reported segments for each geography it operates in. We also note the more detailed discussions on the functional foods and nutraceuticals business and the silica business. We have also pointed out other areas for improved disclosures that would enhance its appeal for long term institutional investors. We remain...

Tata Chemicals (TTCH), an Indian salt and soda ash giant, is navigating through new waters as it seeks fresh pastures. The recent decision to hive off its consumer business is positive as this transforms TTCH into a focused chemicals and specialties company. The growth from specialties including, nutrition, and silica, will likely gather momentum from FY21 based on new capacity being set up at a cost of Rs5.7bn. The crop protection chemicals (CPC) subsidiary, Rallis India, is the weak link that could surprise on the upside based on its impressive portfolio including new products launched in the past two years. Sustained operational gains, cost leadership, and high capacity utilization should support...

The board of TATA Chemicals (TTCH) has approved the demerger of its consumer products business and the transfer of the same to TATA Global Beverages (TGBL) in an all-equity transaction. As part of the transaction, TTCH would transfer the salt, spices, protein foods and certain other food & products businesses. However, the salt manufacturing facility, basic chemistry products and specialty products businesses will remain with the company. Existing shareholders of TTCH will receive 1.14 shares of TGBL for every 1 share held in TTCH.

4 May 2019 reported in-line, however adj. PAT came in higher than expected due to deferred tax benefit of INR462m which led to significantly lower than Revenue grew 10% to INR112.9b, with margin contraction of 280bp to 18.5%. Adj. PAT was down 10.8% YoY to INR10.9b. EBITDA/MT increased 43% YoY to USD53.3 in North America (realization up 5% YoY to USD226.3/MT) and 46% YoY to USD56.1/MT in Africa (realization up 3% YoY to USD255.3/MT). India business delivered 4% YoY growth in soda ash volumes and also improved realization, but profitability was marred by higher power and plant fixed cost.