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Tata Chemicals: Forex losses spoil the show - Views on News from Equitymaster

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Tata Chemicals: Forex losses spoil the show
Aug 7, 2012

Tata Chemicals has announced its June quarter results. The company has reported 3% fall in topline and 39% YoY fall in net profits for the quarter ended June 2012. Here is our analysis of the results.

Performance summary
  • Topline falls by 3% YoY during the quarter
  • Operating margins expand by 0.4% on account of steep fall in cost of traded goods
  • Bottomline falls by 38.5% YoY on the back of forex losses to the tune of Rs 615 m

Standalone results
(Rs m) 1QFY12 1QFY13 Change
Net sales 15,869 15,376 -3.1%
Expenditure 13,629 13,140 -3.6%
Operating profit (EBDITA) 2,241 2,236 -0.2%
EBDITA margin (%) 14.1% 14.5%  
Other income 354 409 15.5%
Interest (net) 472 569 20.6%
Depreciation 553 566 2.3%
Profit before tax 1,570 1,510 -3.8%
Extraordinary income/(expense) (67) (616) 825.1%
Tax 395 212 -46.2%
Profit after tax/(loss) 1,108 681 -38.5%
Net profit margin (%) 7.0% 4.4%  
No. of shares (m) 254.8 254.8  
Diluted earnings per share (Rs)*   21.3  
Price to earnings ratio (x)*   14.5  
(* on trailing twelve months earnings)

What has driven performance in 1QFY13?

    Segmental break-up...
    (Rs m) 1QFY12 1QFY13 % change
    Inorganic chemicals
    Revenues 5,729 6,868 19.9%
    PBIT 1,272 1,680 32.1%
    PBIT margin (%) 22.2% 24.5%  
    Fertilisers
    Revenues 9,263 6,747 -27.2%
    PBIT 725 435 -40.0%
    PBIT margin (%) 7.8% 6.5%  
    Other agri inputs
    Revenues 835 1,312 57.1%
    PBIT 82 43 -47.5%
    PBIT margin (%) 9.8% 3.3%  
    Others
    Revenues 148 231 56.4%
    PBIT -113 -79.3 -29.8%
    PBIT margin (%) -76.4% -34.3%  

  • Standalone revenues were down 3% YoY. This was mainly on account of the fertilisers division of the company where revenues were down 27% YoY. What led to this huge decline in revenues was the shutdown of the company's fertiliser plant in Barbrala for annual turnaround and replacement of the ammonia convertor. Furthermore, disruption in supplies of Phosphoric acid deprived the company's Haldia plant of some useful revenues. However, there was good news in the form of its inorganic chemicals division recording a growth of 20% YoY in topline and its other agri inputs division which witnessed a growth of 57% YoY.

    Cost break-up...
    (Rs m) 1QFY12 1QFY13 Change
    Raw materials 3,889 4,417 13.6%
    % sales 24.5% 28.7%  
    Traded goods purchased 4,445 2,352 -47.1%
    % sales 28.0% 15.3%  
    Staff cost 589 672 14.2%
    % sales 3.7% 4.4%
    Power and fuel 1,657 1,640 -1.0%
    % sales 10.4% 10.7%  
    Freight and forwarding charges 1,032 1,296 25.5%
    % sales 6.5% 8.4%  
    Other expenditure 2,017 2,762 37.0%
    % sales 12.7% 18.0%  

  • Owing to a small 0.4% expansion in operating margins, the operating profits of the company remained at the same levels as corresponding quarter of last year. This expansion was aided by a steep 47% drop in the cost of traded goods, implying greater proportion of self-manufactured goods that yield higher margins. As far as segmental PBIT margins are concerned, barring inorganic chemicals, they were down for the remaining three segments.

  • Despite flat operating performance, bottomline suffered a fall of 39% YoY, driven predominantly by the huge forex loss of Rs 616 m as opposed to a small Rs 67 m loss during same quarter last year.

What to expect?
At the current price of Rs 300, the stock trades at an EV/EBIT multiple of around 8 times its standalone FY15 expected EBIT. Although the current quarter performance was plagued with some issues, we believe that these concerns are mostly short term in nature with the long term fundamentals of the company remaining intact. We thus maintain our positive view on the stock.

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