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Tata Chemicals: Hurt by one time expense - Views on News from Equitymaster
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Tata Chemicals: Hurt by one time expense
Jun 10, 2015

Tata Chemicals has announced its March quarter results. The company has reported consolidated topline growth of 11% YoY while a loss has been reported at the net profit level

Performance summary
  • Consolidated topline for the quarter grows 1.3% YoY, standalone topline grows 5.5% YoY
  • Operating margins on a consolidated basis expand by 2.3%, leading to a 28% drop in operating profits
  • Bottomline remains in the red albeit a much lower loss as compared to same quarter last year
  • Net profits on a standalone basis slump 33% YoY on the back of poor operating performance and lower other income
  • Consolidated profits for the full year in the positive as compared to a huge loss previous fiscal. Topline for the full year comes in higher by 8.3% YoY
  • Announces a dividend of Rs 12.5 per share subject to approval. This translates into an yield of around 3% at current prices

  Consolidated Standalone Consolidated
(Rs m) 4QFY14 4QFY15 Change 4QFY14 4QFY15 Change FY14 FY15 Change
Net sales 36,928 37,425 1.3% 20,033 21,130 5.5% 158,854 172,029 8.3%
Expenditure 33,713 33,314 -1.2% 18,360 19,497 6.2% 140,758 150,455 6.9%
Operating profit (EBDITA) 3,216 4,111 27.9% 1,673 1,633 -2.4% 18,096 21,574 19.2%
EBDITA margin (%) 8.7% 11.0%   8.4% 7.7%   11.4% 12.5%  
Other income 595 229 -61.6% 801 258 -67.8% 1,424 1,180 -17.2%
Interest (net) 1,215 1,056 -13.1% 536 476 -11.2% 5,795 4,540 -21.6%
Depreciation 1,141 1,130 -0.9% 385 492 27.8% 4,712 4,631 -1.7%
Profit before tax 1,455 2,154 48.0% 1,553 923 -40.6% 9,013 13,582 50.7%
Extraordinary items (13,035) (1,979) -84.8% (593) -   (14,202) (1,997)  
Tax 249 652 162.0% 148 376   2,888 3,511 21.6%
Profit after tax/(loss)  (11,829) (476) -96.0% 811 547 -32.6% (8,077) 8,074 -200.0%
Share of loss of associate 8 7 -3.9% - -   33 54  
Minority Interest 421 258 -38.7% - -   2,210 2,055  
Net profit after minority interest (12,257) (742)   811 547 -32.6% (10,320) 5,965 -157.8%
Net profit margin (%) -33.2% -2.0%   4.1% 2.6%   -6.5% 3.5%  
No. of shares (m) 254.8 254.8   254.8 254.8   254.8 254.8  
Diluted earnings per share (Rs)*               23.4  
Price to earnings ratio (x)*               18  
(* on trailing twelve months earnings)

What has driven performance in 4QFY15?
  • The 1.3% growth in consolidated topline was because of the poor performance of the inorganic chemicals segment of the company which witnessed a 2.5% decline. However, the fertiliser business that grew by 7.2% ensured that the growth at least came in the positive. The other agri inputs segment also recorded 9% lower topline YoY basis.

  • As per the company, soda ash demand both globally and domestically is stable and prices are firming up. The Magadi soda ash operations showing good performance after restructuring and the outlook from US also looking good.

  • As far as the fertilisers business is concerned, the urea production was on target and the gas-pooling policy has been deemed as a positive by the company.

  • On the other agri inputs front, while the revenues were down 9% YoY for the quarter, it did reasonably well for the full year with the consumer products division in particular logging in growth rate of 15% YoY.

    Consolidated segmental break up...
    Segment 4QFY14 4QFY15 Change FY14 FY15 Change
    Inorganic Chemicals
    Revenues 21,194 20,660 -2.5% 81,676 81,430 -0.3%
    PBIT (8,007) 2,386 -129.8% (199) 12,673 -6471.4%
    PBIT margin -37.8% 11.5%   -0.2% 15.6%  
    Fertilisers
    Revenues 11,537 12,362 7.2% 54,978 65,373 18.9%
    PBIT (873) (313) -64.1% 2,303 3,066 33.1%
    PBIT margin -7.6% -2.5%   4.2% 4.7%  
    Other agri inputs
    Revenues 3,604 3,292 -8.6% 20,235 21,139 4.5%
    PBIT 284 343 20.6% 2,496 2,696 8.0%
    PBIT margin 7.9% 10.4%   12.3% 12.8%  
    Others
    Revenues 499 751 50.5% 1,745 2,855 63.7%
    PBIT (364) (907) 149.4% (780) (1,442) 84.8%
    PBIT margin -72.9% -120.8%   -44.7% -50.5%  

  • Consolidated operating profits grew by 28% YoY during the quarter as two of the major cost heads viz. cost of materials and purchase of stock in trade witnessed a significant drop on a percentage of sales basis and more than compensated for the jump in staff costs as well

  • PBT of the company came in higher by 48% YoY as besides higher operating profits, what also helped boost profits were lower interest costs as well as depreciation charges.

  • At the bottomline level though, the company was still mired in losses what with extraordinary expenses taking toll. While these expenses were much lower as compared to last year, they still pushed the company into the red. The extraordinary expense this year pertained to a write down of impaired assets to the tune of Rs 1.9 bn primarily relating to the chemical and biofuel business.
What to expect?
At the current price of Rs 418, the stock trades at a small discount to our sum of the parts valuation of Rs 480 per share. The expected stability of the inorganic chemicals business augurs well for the medium term outlook of the company. Thus, the robustness of the agri business and the continued stability of the fertilisers business enables us to maintain our HOLD 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 stock comprises more than 4-5% of your portfolio.

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