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Tata Chemicals: A flat performance - Views on News from Equitymaster
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Tata Chemicals: A flat performance
Feb 18, 2013

Tata Chemicals has announced its December quarter results. The company has reported consolidated topline growth of 10% YoY while the bottomline has come in flat. Here is our analysis of the results.

Performance summary
  • Consolidated topline for the quarter grows by 10% YoY, standalone topline growth comes in at 9% YoY
  • Operating margins on a consolidated basis shrink by 1.8%, leading to a 4% drop in operating profits
  • Bottomline growth comes in flat despite more than 3-fold jump in other income on a consolidated basis during the quarter
  • Net profits on a standalone basis however grow by 58% YoY, aided by a strong growth in other income
  • Consolidated profits for the nine month period falls 16% YoY on the back of an 11% growth in topline

  Consolidated Standalone Consolidated
(Rs m) 3QFY12 3QFY13 Change 3QFY12 3QFY13 Change 9mFY12 9mFY13 Change
Net sales 38,107 41,968 10.1% 23,406 25,456 8.8% 103,410 114,596 10.8%
Expenditure 32,525 36,606 12.5% 20,426 22,562 10.5% 85,752 97,672 13.9%
Operating profit (EBDITA) 5,582 5,362 -4.0% 2,980 2,894 -2.9% 17,659 16,924 -4.2%
EBDITA margin (%) 14.6% 12.8%   12.7% 11.4%   17.1% 14.8%  
Other income 429 1,467 241.9% 501 1,549 209.2% 1,357 2,299 69.4%
Interest (net) 1,111 1,184 6.6% 571 516 -9.6% 3,062 3,572 16.7%
Depreciation 1,228 1,378 12.2% 561 550 -2.0% 3,727 4,147 11.3%
Profit before tax 3,672 4,267 16.2% 2,349 3,377 43.8% 12,226 11,503 -5.9%
Extraordinary items (468) (813)   (345) (501)   (1,017) (1,553)  
Tax 645 733 13.6% 474 454   2,636 2,341 -11.2%
Profit after tax/(loss) 2,559 2,722 6.3% 1,530 2,422 58.3% 8,573 7,609 -11.2%
Share of loss of associate 22 8   - -   22 20  
Minority Interest 300 473   - -   1,560 1,705  
Net profit after minority interest 2,238 2,241 0.1% 1,530 2,422 58.3% 6,991 5,884 -15.8%
Net profit margin (%) 5.9% 5.3%   6.5% 9.5%   6.8% 5.1%  
No. of shares (m) 254.8 254.8   254.8 254.8   254.8 254.8  
Diluted earnings per share (Rs)*               28.5  
Price to earnings ratio (x)*               12.4  
* On a trailing 12-months basis

What has driven the performance in 3QFY13?
  • The 10% growth in consolidated topline during the quarter was driven by the inorganic chemicals segment of the company, which grew by nearly 16% YoY. The fertilisers segment on the other hand grew by a modest 7% YoY.

  • As per the firm, global as well as domestic demand for soda ash, its key product in the inorganic chemicals segment, remained firm. While growth in fertilisers segment came in steady, delay in payment of subsidies is creating working capital problems for the company. Its other businesses like salt and pulses continued to grow at a steady pace.

    Cost break-up...
      Consolidated Standalone Consolidated
    (Rs m) 3QFY12 3QFY13 Change 3QFY12 3QFY13 Change 9mFY12 9mFY13 Change
    Cost of materials consumed 12,143 16,273 34.0% 9,261 13,261 43.2% 25,989 31,893 22.7%
    % sales 31.9% 38.8%   39.6% 52.1%   25.1% 27.8%  
    Purchase of stock in trade 5,243 2,943 -43.9% 5,297 2,445 -53.8% 17,056 14,352 -15.9%
    % sales 13.8% 7.0%   22.6% 9.6%   16.5% 12.5%  
    Employee benefits 2,535 2,796 10.3% 585 645 10.3% 7,085 8,415 18.8%
    % sales 6.7% 6.7%   2.5% 2.5%   6.9% 7.3%  
    Power and fuel 3,793 4,529 19.4% 1,760 1,902 8.1% 10,697 12,208 14.1%
    % sales 10.0% 10.8%   7.5% 7.5%   10.3% 10.7%  
    Freight and forwarding 3,628 4,157 14.6% 1,333 1,653 24.0% 10,200 12,273 20.3%
    % sales 9.5% 9.9%   5.7% 6.5%   9.9% 10.7%  
    Others 5,184 5,908 14.0% 2,191 2,656 21.2% 14,725 18,532 25.9%
    % sales 13.6% 14.1%   9.4% 10.4%   14.2% 16.2%  

  • Operating profits fell by 4% YoY during the quarter as barring purchase of stock in trade, all the other cost heads came in higher on a percentage of sales basis. Standalone business suffered a contraction in margins to the tune of 1.3%.

  • While the other income for the firm came in higher by a whopping 242%, it was still not enough to bring about any growth on the bottomline front as it came in flat during the quarter. Higher exceptional losses apart from the poor operating performance led to this poor showing on the bottomline front. The higher other income was a result of gains on the forex front consequent to redemption of the company's investment in the preference shares of a wholly owned subsidiary.

What to expect?
At the current price of Rs 337, the stock trades at an EV/EBIT multiple of around 8.1 times its standalone FY15 expected EBIT. The long term fundamentals of the company remain intact as per us. We thus maintain our BUY view on the stock.

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