Tata Chemicals has registered a 13% growth in sales for 2QFY03. Operating profits have grown at a faster clip (19%) due to improvement in operating efficiencies. Soda ash prices have remained stable in the last one year and hence most of the operating margin jump seems to have come from cost savings.
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In the salt business, the company also aimed at increasing contribution from exports as rates are lucrative (international salt prices are at US$ 1/kg as compared to US$ 0.2/kg in the domestic market). Besides, Tata Chem is also focusing on boosting revenues from its salt division by branding its products aggressively. This also could have aided topline growth in second quarter and 1HFY03.
Tata Chemicals has consistently improved its operating margins in the last few quarters on the back of restructuring and cost cutting exercise. This is line with its objective of becoming the lowest cost producer of synthetic soda ash globally. The improvement in margins in 2QFY03 and 1HFY03 is due to the same reason. Since the company generates strong cash flow from operations, interest costs have declined significantly thus aiding bottomline growth. Despite a sharp spurt in tax outgo, the company's performance in 1HFY03 is commendable. The stock currently trades at Rs 50 implying a P/E multiple of 2.8x annualised 1HFY03 earnings.
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