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Tata Chemicals: A lackluster quarter - Views on News from Equitymaster
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Tata Chemicals: A lackluster quarter
Aug 8, 2015

Tata Chemicals has announced its June quarter results. The company has reported consolidated topline growth of 6% YoY while the bottomline has fallen 13% YoY.

Performance summary
  • Consolidated topline for the quarter grows 6% YoY, standalone topline grows 10% YoY
  • Operating margins on a consolidated basis contract by 1.1%, leading to a 4% drop in operating profits
  • Bottomline falls 13% YoY on the back of poor operating performance and higher interest outgo
  • Standalone bottomline falls 14% YoY.
Standalone Financial Performance Snapshot
  Consolidated Standalone
(Rs m) 1QFY15 1QFY16 Change 1QFY15 1QFY16 Change
Net sales 38,503 40,669 5.6% 21,137 23,277 10.1%
Expenditure 33,406 35,758 7.0% 18,345 20,809 13.4%
Operating profit (EBDITA) 5,096 4,911 -3.6% 2,792 2,468 -11.6%
EBDITA margin (%) 13.2% 12.1%   13.2% 10.6%  
Other income 211 125 -40.9% 430 482 12.0%
Interest (net) 1,034 1,136 9.8% 448 464 3.5%
Depreciation 1,123 1,143 1.8% 461 479 3.9%
Profit before tax 3,150 2,757 -12.5% 2,314 2,008 -13.2%
Extraordinary items - -   - -  
Tax 823 685 -16.8% 619 548 -11.5%
Profit after tax/(loss)  2,328 2,072 -11.0% 1,695 1,460 -13.9%
Share of loss of associate 11 7 -35.1% - -  
Minority Interest 561 535 -4.7% - -  
Net profit after minority interest 1,755 1,530 -12.8% 1,695 1,460 -13.9%
Net profit margin (%) 4.6% 3.8%   8.0% 6.3%  
No. of shares (m) 254.8 254.8   254.8 254.8  
Diluted earnings per share (Rs)*   22.5        
Price to earnings ratio (x)*   21.0        
(* on trailing twelve months earnings)

What has driven performance in 1QFY16?
  • The 6% growth in topline was led by the 10% growth in standalone operations which accounted for nearly all of the consolidated growth of the company. In other words, the international business remained flat.

  • The company opined that the Indian business did well on account of better performance in the consumer and chemicals business in India.

  • The international business on the other hand seemed to have been impacted a bit due to production outages in the US. Besides weaker demand impacted Rallis India's performance which in turn impacted consolidated operations a bit.

  • Consumer products business continues to grow consistently at the market place and maintained its leadership position with a market share of 67.7 percent in the national branded edible salt market. Pulses revenues grew by 96 percent over the same quarter last year and by 44 percent over the trailing quarter.

    Consolidated segmental break up...
    Segment 1QFY15 1QFY16 Change
    Inorganic Chemicals
    Revenues 19,930 20,773 4.2%
    PBIT 2,826 3,321 17.5%
    PBIT margin 14.2% 16.0%  
    Fertilisers
    Revenues 11,856 12,866 8.5%
    PBIT 1,014 524 -48.3%
    PBIT margin 8.5% 4.1%  
    Other agri inputs
    Revenues 5,954 6,164 3.5%
    PBIT 663 560 -15.5%
    PBIT margin 11.1% 9.1%  
    Others
    Revenues 616 1,038 68.5%
    PBIT (130) (105) -19.6%
    PBIT margin -21.1% -10.1%  

  • As far as the segmental margins are concerned, they fell sharply for the fertilisers business while came in higher for inorganic chemicals as well as other agri inputs.

  • PBT of the company came in lower by 12% YoY as besides weak operating performance, higher interest charges also negatively impacted performance.

  • At the bottomline level, net profits fell in line with the fall in PBT, down nearly 13% YoY.

  • At the standalone level, the fall was similar at 14% despite 10% growth in topline.
What to expect?
At the current price of Rs 473, the stock trades at around 10% discount to the FY18 intrinsic value of the company which we estimate to be around Rs 525 per share. The stock has had a good run recently as it came few rupees short of our eventual target price for FY18. However, with the news doing the rounds that the company is looking to exit its fertiliser business and which has the potential to sort of re-rate the stock and also warrant a change in our target price, we are awaiting clarity on the same. Consequently, we would ask our subscribers to hold on to their positions.

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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