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Tata Chemicals: Buyback programme

Aug 14, 2001

Tata Chemicals has announced a share buyback programme upto 15% of its paid up share capital at a maximum price of Rs 60 through open market purchases. Considering the maximum buyback price, the net cash outgo could be in the range of Rs 1.6 bn. The company has liquid assets to the tune of Rs 4.5 bn, against the current market capitalisation of Rs 7.5 bn. Further, the company is expected to generate additional cash from sale of its non-core businesses of detergents and cement. The company has already entered into a MoU with Jyothi Labs for sale of its detergents business, though the amount is not yet decided. The company is actively eyeing inorganic growth opportunities.

The stock price of the company has been moving up after the company announced that it was evaluating options for buyback at its AGM on 26th July’01. At the current market price of Rs 41, the stock is trading at a P/e of 5.6x our expected earnings for FY02 and a market cap to sales ratio of 0.5x.

The current year would be marked with a considerable change in capital structure of the company. We are expecting considerable savings in interest cost in the current year, as the company retires its high cost debt (incl. 17% debentures). Tata Chemicals has paid an average dividend of Rs 5.5 in last ten years, with a dividend yield in the range of 11-15%. Though the fact remains that the soda ash business remains prone to commodity cycles, the valuations of the company might look up considering the buyback offer contemplated by the management.

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