Tata Chemicals has registered a 29% growth in net profit for 1HFY02 on the back of 400 basis points rise in operating margins. Sales however, dropped around 17% mainly on account of fire at its Mithapur due to which the factory remained closed for a couple of weeks. The company has merged its investment subsidiary Sabras Investment and Trading co. in the current year and hence the results are not strictly comparable.The company also recorded a considerable reduction in interest cost as it repaid part of its high cost debt funds.
Operating Profit (EBDIT)
Operating Profit Margin (%)
Profit before Tax
Provision and Contigencies
Profit after Tax/(Loss)
Net profit margin (%)
No. of Shares (eoy) (m)
Diluted Earnings per share*
P/E (at current price)
The spurt in operating margins was mainly due to recovery in soda ash prices from September last year. Chinese dumping resulted in soda ash prices touching rock bottom levels before the government levied an anti-dumping duty. Soda ash prices have firmed up since then. Besides, the company is undertaking a massive cost reduction excerise. Soda ash contributes around one third of the company's revenues.
While the urea business of the company remained sluggish, the company maintained its leadership position in the branded salt business with a market share of 37% inspite of stiff competition from HLL. Tata Chemicals is considering entering the lucrative export market for branded salt, particularly in the Middle East. The company is exiting from both its non core business viz, detergents and cement. The company has already signed an understanding with Jyothi Labs for sale of its detergents business. The company is also aggresively eyeing opportunities for inorganic growth.
Though, the company is attempting to become one of the lowest cost producers of soda ash globally, the fact remains the company's financials remain prone to commodity cycles. At the current market price of Rs 39, the stock trades at 5.5x our expected earnings for FY02 and a market capital to sales ratio of 0.4x. We expect considerable interest cost savings in the current year, as the company is expected to retire its high cost debt (incl.17% debentures). Tata chemicals has paid an average of dividend of Rs 5.5 in last ten years with an average dividend yield in the range of 11-15%. The company has recently announced its intention to buyback 15% of its equity through open market purchases.
LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.
SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.
Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India. Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: email@example.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407