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Tata Chem: Other income to the rescue - Views on News from Equitymaster
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  • Jun 1, 2001

    Tata Chem: Other income to the rescue

    Tata Chemicals has posted a net profit of Rs 1.7 bn for FY01 as compared to Rs 1.2 bn for FY00. Net Sales for FY01 is at Rs 15 bn as compared to Rs 15.2 bn in FY00. The stagnation in sales was on account of a sharp drop in realisations of soda ash (facing brunt of cheap Chinese imports) inspite of a rise in overall volumes. The gloomy fertiliser scenario further added to the company's woes. Excluding all the extraordinary and one time charges and incomes, the profit before tax works out to Rs 561 m as against Rs 2,761 m.

    (Rs m) FY00 FY01 % change
    Sales 15,210 15,021 -1.2%
    Other Income 1,393 2,320 66.5%
    Expenditure 10,845 11,630 7.2%
    Operating Profit (EBDIT) 4,365 3,391 -22.3%
    Operating Profit Margin (%) 28.7% 22.6%
    Interest 1,856 1,622 -12.6%
    Depreciation 1,235 1,328 7.5%
    Profit before Tax 2,667 2,761 3.5%
    Provision and Contigencies 1,235 770  
    Extraordinary Income   (130)
    Tax 262 211 -19.5%
    Profit after Tax/(Loss) 1,170 1,650 41.0%
    Net profit margin (%) 7.7% 11.0%
    No. of Shares (eoy) (m) 180.7 180.7  
    Diluted Earnings per share* 6.5 9.1  
    P/E (at current price) 7.0 4.9  

    Fertiliser companies, including Tata Chemicals record fertiliser sales at retention prices. However, the actual selling price (which is decided by the government) is much lower than the retention price. The difference between the retention price and the selling price is shown as dues receivables from the government. Pending fixation of retention price by the Government in 1994-95 and 1995-96, Tata Chemicals based its revenues from urea on the actual cost data. Subsequently, notified provisional price was lower than what was estimated by the company. This resulted in higher revenue (or overstated revenue) of Rs 1,970 m, which was already accounted in the books. Against this contigent liability, the company had made a provision for contingencies of Rs 1,200 m in FY00 and the balance provision of Rs 770 m has been considered in the current year.

    Other income for FY01 includes a staggering Rs 2.2 bn income from erstwhile subsidiary, Sabras Investment & Trading Co. Limited (Sabras), which mergered with the company in April 2000. This one time income was on account of the sale of the subsidiary's holding in ACC.

    In a bid to exit unrelated business, Tata Chemicals has recently decided to sell its detergents business to Jyoti Laboratories. The company is also considering to hive its cement business. The cash flow from its subsidiary (Sabras) coupled with the expected hive off's of unrelated businesses would garner substantial one time cash flows for Tata Chemicals.

    At the current market price of Rs 45, the stock is trading at 5 times its FY01 earnings. The company has declared a dividend of Rs 5 per share. The dividend yield at the current market price thus works out to be 11%.



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