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Tata Chemicals: Restructuring charges hurt

May 29, 2013 | Updated on Oct 30, 2019

Tata Chemicals has announced its March quarter results. The company has reported consolidated topline fall of 2% YoY while the bottomline has registered losses.

Performance Summary
  • Consolidated topline for the quarter falls 2% YoY, standalone topline falls by 4% YoY
  • Operating margins on a consolidated basis shrink by 0.9%, leading to a 8% drop in operating profits
  • Bottomline suffers a loss to the tune of Rs 1.9 bn on account of a Rs 4.8 bn impairment charge, mostly at its European operations
  • Net profits on a standalone basis fall 14% YoY on the back of poor operating performance
  • Consolidated profits for the full year fall 52% YoY on the back of an 8% growth in topline

Segment wise performance
  Consolidated Standalone Consolidated
(Rs m) 4QFY12 4QFY13 Change 4QFY12 4QFY13 Change FY12 FY13 Change
Net sales 34,670 33,915 -2.2% 20,833 19,979 -4.1% 138,150 148,588 7.6%
Expenditure 29,544 29,209 -1.1% 18,436 18,159 -1.5% 115,396 126,959 10.0%
Operating profit (EBDITA) 5,126 4,706 -8.2% 2,398 1,821 -24.1% 22,754 21,629 -4.9%
EBDITA margin (%) 14.8% 13.9%   11.5% 9.1%   16.5% 14.6%  
Other income 573 1,879 228.0% 1,450 1,456 0.4% 1,961 4,178 113.1%
Interest (net) 1,208 1,067 -11.7% 553 455 -17.6% 4,270 4,639 8.6%
Depreciation 1,360 1,191 -12.4% 575 429 -25.3% 5,087 5,339 5.0%
Profit before tax 3,132 4,326 38.2% 2,720 2,392 -12.1% 15,358 15,829 3.1%
Extraordinary items (506) (5,146)   (437) (310)   (1,524) (6,699)  
Tax 803 684 -14.8% 432 484   3,439 3,025 -12.0%
Profit after tax/(loss) 1,823 (1,504)   1,851 1,598 -13.7% 10,395 6,105 -41.3%
Share of loss of associate 3 11   - -   25 31  
Minority Interest 435 366   - -   1,995 2,070  
Net profit after minority interest 1,385 (1,880)   1,851 1,598 -13.7% 8,376 4,004 -52.2%
Net profit margin (%) 4.0% -5.5%   8.9% 8.0%   6.1% 2.7%  
No. of shares (m) 254.8 254.8   254.8 254.8   254.8 254.8  
Diluted earnings per share (Rs)*               15.7  
Price to earnings ratio (x)*               19.4  
(* on trailing twelve months earnings)

What has driven performance in 4QFY13?
  • The fall in topline was a result of 10% decline in revenues from the fertiliser segment during the quarter. The segment of inorganic chemicals, which accounts for nearly half of all the business the company does, grew 4% YoY and saved the company from letting its topline fall further. The lackluster performance of the fertiliser segment was attributed to the continued softness in the sector.

  • While the domestic inorganic business grew to the tune of 18% YoY, it was the 4% fall in overseas business that led to tepid growth of 4% at the consolidated level. This was attributed to a fall in volumes at the company's US soda ash operations where production issues cropped up and hence, the production was affected. For the full year though, the segment grew 14% YoY

    Segmental break up...
      Consolidated Standalone Consolidated
    Segment 4QFY12 4QFY13 Change 4QFY12 4QFY13 Change FY12 FY13 Change
    Inorganic Chemicals
    Revenues 17,768 18,483 4.0% 6,554 7,743 18.1% 66,217 75,488 14.0%
    PBIT 3,199 (1,593) -149.8% 1,298 1,781 37.3% 12,428 7,903 -36.4%
    PBIT margin 18.0% -8.6%   19.8% 23.0%   18.8% 10.5%  
    Fertilisers
    Revenues 13,771 12,339 -10.4% 13,471 12,081 -10.3% 55,476 54,977 -0.9%
    PBIT 1,004 522 -48.0% 1,031 351 -65.9% 5,114 3,618 -29.2%
    PBIT margin 7.3% 4.2%   7.7% 2.9%   9.2% 6.6%  
    Other agri inputs
    Revenues 2,377 3,073 29.3% 316 272 -13.8% 15,173 17,160 13.1%
    PBIT 104 170 64.4% (85) 21 -124.7% 1,733 2,002 15.5%
    PBIT margin 4.4% 5.5%   -27.0% 7.8%   11.4% 11.7%  
    Others
    Revenues 232 195 -16.0% 225 190 -15.4% 759 901 18.7%
    PBIT (473) (139) -70.6% (313) (103) -67.2% (1,034) (479) -53.7%
    PBIT margin -203.5% -71.2%   -139.4% -54.1%   -136.3% -53.2%  
    *Excludes inter-segment and unallocated expenditure

  • Operating profits fell by 8% 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 2.4%.

  • Despite 8% fall in operating profits, PBT of the company came in higher by 38% YoY. This was mainly on account of a threefold jump in the other income of the company as the same benefited from currency gains consequent to redemption of investments in wholly owned subsidiaries.

  • At the bottomline level however, there was a significant loss to the tune of nearly Rs 1.9 bn. Extraordinary loss of close to Rs 5 bn was majorly responsible to this. Almost all of the extraordinary loss was on account of non-cash write down of goodwill and other assets, related primarily to the European operations of the company

  • The same loss was responsible for the company's consolidated net profits going down by 50% for the year ended March 2013.

What to expect?

At the current price of Rs 304, 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.

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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