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Tata Chemicals: Extraordinary dents the bottomline - Views on News from Equitymaster
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Tata Chemicals: Extraordinary dents the bottomline
Feb 4, 2014

Tata Chemicals has announced its December quarter results. The company has reported consolidated topline growth of 10% YoY while a small loss has been reported at the net profit level

Performance summary
  • Consolidated topline for the quarter grows 10% YoY, standalone topline grows 6% YoY
  • Operating margins on a consolidated basis shrink by 1.9%, leading to a 6% drop in operating profits
  • Bottomline goes into the red on the back of poor operating performance and higher interest and tax outgo
  • Net profits on a standalone basis slump 39% YoY on the back of poor operating performance and lower other income
  • Consolidated profits for the 9 month period slump 67% YoY despite a 7% growth in topline

  Consolidated Standalone Consolidated
(Rs m) 3QFY13 3QFY14 Change 3QFY13 3QFY14 Change 9mFY13 9mFY14 Change
Net sales 41,646 45,805 10.0% 25,137 26,721 6.3% 113,827 122,004 7.2%
Expenditure 36,284 40,763 12.3% 22,243 23,986 7.8% 96,903 107,104 10.5%
Operating profit (EBDITA) 5,362 5,042 -6.0% 2,894 2,735 -5.5% 16,924 14,900 -12.0%
EBDITA margin (%) 12.9% 11.0%   11.5% 10.2%   14.9% 12.2%  
Other income 1,467 177 -88.0% 1,549 263 -83.0% 2,299 809 -64.8%
Interest (net) 1,184 1,656 39.9% 516 464 -10.0% 3,572 4,580 28.2%
Depreciation 1,378 1,226 -11.0% 550 395 -28.2% 4,147 3,572 -13.9%
Profit before tax 4,267 2,337 -45.2% 3,377 2,139 -36.7% 11,503 7,558 -34.3%
Extraordinary items (813) (1,017) 25.0% (501) (238)   (1,553) (1,167)  
Tax 733 926 26.4% 454 424   2,341 2,639 12.7%
Profit after tax/(loss)  2,722 394 -85.5% 2,422 1,477 -39.0% 7,609 3,752 -50.7%
Share of loss of associate 8 7 -18.3% - -   20 26  
Minority Interest 473 547 15.6% - -   1,705 1,789  
Net profit after minority interest 2,241 (159)   2,422 1,477 -39.0% 5,884 1,937 -67.1%
Net profit margin (%) 5.4% -0.3%   9.6% 5.5%   5.2% 1.6%  
No. of shares (m) 254.8 254.8    254.8  254.8   254.8 254.8  
Diluted earnings per share (Rs)*                0.2  
Price to earnings ratio (x)*               1,151  
(* on trailing twelve months earnings)

What has driven performance in 3QFY14?
  • The 10% growth in consolidated topline was a combination of 14% growth of the inorganic chemicals segment and 15% growth posted by the agri segment of the company. The fertilisers segment on the other hand, witnessed a paltry rise of 2%.

  • As per the company, there has been a turnaround of sorts in sentiments pertaining to the inorganic chemicals segment. Markets both here and internationally are looking stable and the firm remains positive on the demand scenario going forward domestically as well as internationally.

  • As far as other segments are concerned, fertilisers witnessed a tepid growth of 2% on a consolidated basis. However, the company opined that urea production and sales was broadly in line with expectations.

  • Agri inputs segment put up a good show, growing by nearly 15% during the quarter on a consolidated basis. The company has made non-subsidy farm business and the consumer business as its growth platforms with both the businesses growing by 21% and 20% respectively during the quarter.

    Consolidated segmental break up...
    Segment 3QFY13 3QFY14 Change 9mFY13 9mFY14 Change
    Inorganic Chemicals
    Revenues 19,127 21,767 13.8% 56,661 60,482 6.7%
    PBIT 2,706 1,306 -51.7% 9,496 7,810 -17.7%
    PBIT margin 14.1% 6.0%   16.8% 12.9%  
    Fertilisers
    Revenues 18,348 18,758 2.2% 42,462 43,521 2.5%
    PBIT 1,153 1,613 39.9% 3,096 3,176 2.6%
    PBIT margin 6.3% 8.6%   7.3% 7.3%  
    Other agri inputs
    Revenues 4,154 4,768 14.8% 13,788 16,632 20.6%
    PBIT 422 633 50.3% 1,831 2,208 20.6%
    PBIT margin 10.1% 13.3%   13.3% 13.3%  
    Others
    Revenues 215 525 144.5% 697 1,246 78.8%
    PBIT (171) (179) 4.4% (349) (417) 19.4%
    PBIT margin -79.7% -34.0%   -50.0% -33.4%  

  • Consolidated operating profits fell by 6% YoY during the quarter as barring raw material costs and employee expenses all the other cost heads grew at a faster rate than the sales.

  • PBT of the company came in lower by 45% YoY as besides lower operating profits, interest costs and lower other income also impacted profits negatively.

  • At the bottomline level, profitability fell further with the company’s bottomline going into the red. 25% higher extraordinary charges, due mainly to one -time restructuring charge of Rs 820 m at its European operations, and higher tax outgo were mainly responsible for the same.
What to expect?

At the current price of Rs 257, the stock trades at an EV/EBIT multiple of around 6.8 times its standalone FY15 expected EBIT. The expected stability of the inorganic chemicals business augurs well for the medium term outlook of the company. This, combined with the robustness of the agri business and the continued stability of the fertilisers business enables us to maintain our BUY on the stock.

We would like to gently remind you that your allocation to equities should be decided upon after keeping aside some safe cash. Also, within your overall exposure to equities, please ensure that you broadly follow our suggested asset allocation and that no single mid cap stock comprises more than 3-4% of your portfolio.`

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