X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Tata Chemicals: prepared for urea deregulation - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • May 25, 2000

    Tata Chemicals: prepared for urea deregulation

    Tata Chemicals is one of the premier producers of urea and soda ash in the country with both the commodities accounting for roughly 50% of the company’s turnover.

    The past year has been tough for the fertiliser industry in general. With crude prices on the rise the feedstock prices for the industry viz. naphtha, fuel oil and gas have increased substantially over the last year. Of these the variable cost for the urea based on gas is the lowest (see table).

    Variable Cost per tonne of urea
    Year Gas Naphtha Fuel Oil Coal
    FY92 1,797 2,724 2,252 3,461
    FY96 2,242 4,308 3,672 5,421
    FY99 2,806 6,160 5,045 7,904
    Source: FAI, New Delhi

    The backbone for the industry so far has been the retention pricing scheme which works as follows: the selling prices of the fertiliser are fixed by the government and so are the retention prices for the producers. The difference between the higher retention price for the producer and the lower selling prices are paid to the producers by the government. These are based on covering the variable cost and fixed costs and giving a return of 12% on the networth.

    The government however is thinking of implementing the Hanumantha Rao Committee recommendations, which imply that the fertiliser companies would now only be reimbursed only their variable costs and that too at a uniform rate for the industry (unlike a different price for each company as prevalent currently). This would imply tough times for both the units using the more expensive feedstocks and the newer units such as Oswal Chemicals and Nagarjuna Fertlisers.

    Tata Chemicals’ gas based plant is situated at Babrala along the Hazira–Bijapur–Jagdishpur pipeline. The company’s main markets are situated in Punjab, Haryana and Uttar Pradesh, which have been witnessing an excess stock situation. However, the main downside for the company is that its cash flows are dependent on when the government releases the subsidy amount.

    This is because the company books its sales at retention prices and the difference between the retention prices and the selling prices (Rs 4,600 per tonne for urea after the latest budget) are shown as dues receivables from the government. Therefore the actual cash flows are much less than what appears from examining the profit and loss account. In its annual accounts ended March 1999 had mentioned an outstanding balance of Rs 3129 m from the government (the net cash before operating activities for the company for the year was Rs 2734 m).

    The positives for the company are the fact it seems to be one of the few companies in the fertiliser industry, which seems to be prepared for deregulation. Its feedstock prices are among the lowest in the industry, it supplies to the lucrative northern markets which account for 40% of the urea consumption in India and its cash and bank balances account for almost Rs 10 per share (CMP: Rs 40). This does not take into account the book value of investments (Rs 1109 m) of its 100% subsidiary viz Sabras Investments which is practically a holding company for the Tata group (we take the book value of investments since these investments are not expected to be sold).

    Investments
    Equity Shares Number CMP Value (Rs m)
    ACC 225,703 370* 84
    Rallis India 560,000 86 48
    Tata Finance 2,382,500 52 124
    Tata Investment Corporation 693,246 86 60
    Tata Steel 1,445,000 118 171
    Tata Tea 2,352,179 353 830
    Timex Watches 500,000 9 5
    Titan Industries 1,430,580 63 90
    Book Value of the Unquoted Investments     1,345
    US–64 2,363,892 14 33
    Cash and Bank balances     103
    Total market value     2,892
    Less: Other Income reported in first nine months **     929
    Net Investments plus cash & bank balances (Rs m)     1,962
    Cash and Investments per share of Tata Chem     10.9
    * ACC shares are assumed to be sold to Gujarat Ambuja
    ** assumed to be sale of investment

    At a market capitalisation of 0.5 times its expected turnover for FY 2000 and an expected dividend yield of 12.5% the blue chip of the Indian chemical industry seems to be going dirt cheap even by old economy standards.

     

     

    Equitymaster requests your view! Post a comment on "Tata Chemicals: prepared for urea deregulation". Click here!

      
     

    More Views on News

    Tata Chem: Suspension of Haldia Operations Drag Bottomline Lower (Quarterly Results Update - Detailed)

    Aug 17, 2017

    Interruption at Haldia plant and fire at Lostock facility hits operations during the quarter.

    Tata Chemicals: Lower Finance Costs Boost Profits (Quarterly Results Update - Detailed)

    Jun 2, 2017

    Tata Chemicals registers 54.2% YoY rise in net profits during fourth quarter of FY17 on the back of lower finance costs and rise in other income.

    Tata Chemicals: Urea division dampens performance (Quarterly Results Update - Detailed)

    Nov 18, 2016

    Tata Chemicals has reported consolidated topline fall of 17% YoY while the bottomline has fallen 5% YoY

    Tata Chemicals: Operating margins catalyze strong profit growth (Quarterly Results Update - Detailed)

    Aug 18, 2016

    Tata Chemicals has reported consolidated topline fall of 9% YoY while the bottomline has grown 40% YoY.

    Tata Chemicals: Ends the year on a good note (Quarterly Results Update - Detailed)

    Jun 8, 2016

    Tata Chemicals reported consolidated topline growth of 7% YoY while the bottom line stood at Rs 2.4 bn as opposed to a loss during same quarter last year.

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    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: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    TATA CHEMICALS SHARE PRICE


    Aug 18, 2017 03:37 PM

    TRACK TATA CHEMICALS

    • Track your investment in TATA CHEMICALS with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
    • Add To MyStocks

    MORE ON TATA CHEMICALS

    TATA CHEMICALS - CHAMBAL FERTILISERS COMPARISON

    Compare Company With Charts

    COMPARE TATA CHEMICALS WITH

    MARKET STATS