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Tata Chemicals: A strong show
Aug 8, 2014

Tata Chemicals has announced its June quarter results. The company has reported consolidated topline growth of 17% YoY while the bottomline has more than doubled. Here is our analysis of the results

Performance summary
  • Consolidated topline for the quarter grows 17% YoY, standalone topline grows 28% YoY
  • Operating margins on a consolidated basis expand by 0.5%, leading to a 22% growth in operating profits
  • Bottomline grows by 133% YoY on the back of good topline and operating performance
  • Standalone bottomline grows 69% YoY. PBT which excludes the impact of extraordinary losses, grows 33% YoY.

  Consolidated Standalone
(Rs m) 1QFY14 1QFY15 Change 1QFY14 1QFY15 Change
Net sales 32,760 38,466 17.4% 16,569 21,162 27.7%
Expenditure 28,645 33,430 16.7% 14,439 18,369 27.2%
Operating profit (EBDITA) 4,115 5,036 22.4% 2,130 2,792 31.1%
EBDITA margin (%) 12.6% 13.1%   12.9% 13.2%  
Other income 201 271 35.3% 462 430 -6.8%
Interest (net) 1,130 1,034 -8.5% 442 448 1.4%
Depreciation 1,145 1,123 -1.9% 410 461 12.3%
Profit before tax 2,041 3,150 54.3% 1,740 2,314 33.0%
Extraordinary items  (434) - -100.0% (434) -  
Tax 363 823 126.5% 301 619 105.5%
Profit after tax/(loss)  1,244 2,328 87.2% 1,004 1,695 68.8%
Share of loss of associate 11 11 1.8% - -  
Minority Interest 480 561 16.8% - -  
Net profit after minority interest 752 1,755 133.3% 1,004 1,695 68.8%
Net profit margin (%) 2.3% 4.6%   6.1% 8.0%  
No. of shares (m) 254.8 254.8    254.8  254.8  
Diluted earnings per share (Rs)*         19.8  
Price to earnings ratio (x)*         19.2  
(* on trailing twelve months earnings)

What has driven performance in 1QFY15?
  • The 17% growth in topline was led by the 28% growth in standalone operations which accounted for nearly 80% of the consolidated growth of the company. In other words, the international business grew at a slow pace.

  • The company opined that the Indian business did well on account of better realizations and better volumes across all the businesses.

  • While the international business didn't do all that well, the company is starting to see positive impact of the painful yet inevitable restructuring exercise being carried out in order to ensure viability and sustainability of the company's operations at UK and Magadi.

  • Consumer products businesses with brands like 'Tata Salt', 'I-Shakti' pulses and 'Tata Swach' continued to do well as evident in the growth in the 'others' business segment which grew by an impressive 54% YoY

    Consolidated segmental break up...
    Segment 1QFY14 1QFY15 Change
    Inorganic Chemicals
    Revenues 18,559 19,930 7.4%
    PBIT 2,430 2,886 18.8%
    PBIT margin 13.1% 14.5%  
    Fertilisers
    Revenues 8,326 11,880 42.7%
    PBIT 438 1,014 131.6%
    PBIT margin 5.3% 8.5%  
    Other agri inputs
    Revenues 5,432 5,954 9.6%
    PBIT 541 671 24.0%
    PBIT margin 10.0% 11.3%  
    Others
    Revenues 399 616 54.3%
    PBIT (90) (130) 45.2%
    PBIT margin -22.5% -21.1%  

  • Operating profits grew 22% YoY during the quarter on a consolidated basis as all the cost heads barring purchase of stock in trade came in lower on a percentage of sales basis. Standalone margins also improved albeit marginally by 0.3%.

  • PBT of the company came in lower by 54% YoY as besides strong operating performance, lower interest and depreciation expenses also gave a boost to the performance.

  • At the bottomline level, profitability improved further with net profits witnessing a 133% jump. This was partly driven by an extraordinary loss during same quarter last year. Nonetheless, it was still a strong quarterly performance by the company
What to expect?
At the current price of Rs 380, the stock trades at around 15% discount to the FY17 intrinsic value of the company which we estimate to be around Rs 440 per share. While the restructuring exercise of the company's overseas business is indeed heartening, we don't think it is going to make a significant impact to the company's value over the medium term. Therefore, we would like to maintain our HOLD view on the company.

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 large cap stock comprises more than 4-5% of your portfolio.

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