Tata Chemicals has registered a 3% growth in sales for 3QFY02. Operating profit has grown at a faster clip of 8% due to improvement in operating margins. Sales for the nine months are however, showing a dip mainly on account of fire at Mithapur due to which the factory remained closed for a couple of weeks. The net profit has recorded a dip due to higher other income in previous year.
Operating Profit (EBDIT)
Operating Profit Margin (%)
Profit before Tax
Provision and Contigencies
Profit after Tax/(Loss)
Net profit margin (%)
No. of Shares (eoy) (m)
Diluted Earnings per share*
P/E (at current price)
There was a huge other income component in the third quarter of last year due to profit on sale of investments. This huge one time revenue was mainly on account of sale of its subsidiary's (Sabras Investments') stake in ACC to Gujarat Ambuja. Sabras Investments was subsequently merged with Tata Chemicals last year. Excluding other income component PBT has grown at 33%.
The improvement in operating margins was mainly due to recovery in soda ash prices from September last year. Chinese dumping resulted in soda ash prices touching rock bottom levels before the government levied an anti-dumping duty. Soda ash prices have firmed up since then. Besides, the company is undertaking a massive cost reduction excerise.
While the urea business of the company remained sluggish, the company maintained its leadership position in the branded salt business with a market share of 37% inspite of stiff competition from HLL. Tata Chemicals is considering entering the lucrative export market for branded salt, particularly in the Middle East. The company is exiting from both its non core business viz, detergents and cement. The company has already signed an understanding with Jyothi Labs for sale of its detergents business. The company is also aggresively eyeing opportunities for inorganic growth.
Though, the company is attempting to become one of the lowest cost producers of soda ash globally, the fact remains the company's financials remain prone to commodity cycles. At the current market price of Rs 43, the stock trades at 5.5x our expected earnings for FY02 and a market capital to sales ratio of 0.4x. The expected interest cost savings due to retiring of its high cost debt (including 17% debentures) is evident from the results. Tata chemicals has paid an average dividend of Rs 5.5 in last ten years with an average dividend yield in the range of 11-15%.
The company has reviewed its earlier approval for buyback of its shares. According to the new proposal, the company would seek the open market route to buyback shares at a maximum price of Rs 60 per share. This would be with a condition that the aggregate consideration for the buyback shall not exceed 10% of the company's equity and free reserves.
Considering that the company's current networth is estimated to be around Rs 20 bn, the amount allocated for the buyback would be around Rs 2 bn. Assuming an average price of Rs 45 per share for the buyback, this could translate into a buyback of 45 m shares or 25% of its current outstanding equity shares. The EPS of the company thus, might see a sharp spurt post buyback. Tata Chemicals has adequate funds at its disposal to fund its buyback.
LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.
SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.
Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India. Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: email@example.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407