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Tata Chemicals: A robust performance - Views on News from Equitymaster

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Tata Chemicals: A robust performance

Nov 16, 2012

Tata Chemicals has announced its September quarter results. The company has reported 23% growth in topline and 26% YoY growth in net profits for the quarter ended September 2012. Here is our analysis of the results.

Performance summary
  • Topline grows by 23% YoY during the quarter
  • Operating margins expand by 0.2% on account of fall in raw material costs
  • Bottomline grows by 26% YoY on the back of strong topline and operating level performance
  • Profits for the first half fall 3% YoY on the back of 12% growth in topline
  • Consolidate topline grows by 17% YoY during the quarter whereas PAT suffers a fall of 7% YoY

Standalone performance summary
(Rs m) 2QFY12 2QFY13 Change 1HFY12 1HFY13 Change
Net sales 19,784 24,410 23.4% 35,653 39,786 11.6%
Expenditure 17,135 21,087 23.1% 30,764 34,228 11.3%
Operating profit (EBDITA) 2,649 3,323 25.4% 4,890 5,558 13.7%
EBDITA margin (%) 13.4% 13.6%   13.7% 14.0%  
Other income 751 433 -42.3% 1,106  843 -23.8%
Interest (net) 507 493 -2.8%  979 1,062  
Depreciation 558 598 7.1% 1,111 1,164 4.7%
Profit before tax 2,336 2,666 14.1% 3,905 4,176 6.9%
Extraordinary items (483) (264)   (549) (880)  
Tax 477 670 40.5%  872  882 1.2%
Profit after tax/(loss) 1,376 1,732 25.9% 2,485 2,414 -2.9%
Net profit margin (%) 7.0% 7.1%   7.0% 6.1%  
No. of shares (m) 254.8 254.8   254.8 254.8  
Diluted earnings per share (Rs)*         22.7  
Price to earnings ratio (x)*         13.9  
*On a trailing 12 month basis

What has driven performance in 2QFY13?
    Segmental break up...
    Segment 2QFY12 QFY13 % change 1HFY12 1HFY13 % change
    Inorganic chemicals
    Revenues 5,682 7,215 27.0% 11,411 14,083 23.4%
    PBIT 1,123 1,643 46.3% 2,395 3,323 38.7%
    PBIT margin 19.8% 22.8%   21.0% 23.6%  
    Fertilisers
    Revenues 13,317 16,445 23.5% 22,580 23,192 2.7%
    PBIT 1,315 1,667 26.8% 2,040 2,103 3.0%
    PBIT margin 9.9% 10.1%   9.0% 9.1%  
    Other agri inputs
    Revenues 724 612 -15.4% 1,559 1,924 23.5%
    PBIT 43 79   125 122  
    PBIT margin 5.9% 12.9%   8.0% 6.3%  
    Others
    Revenues 201 254 26.6% 348 485 39.3%
    PBIT (99) (100) 0.8% (212) (179) -15.5%
    PBIT margin n.a. n.a.   n.a. n.a.  

  • Standalone revenues grew by 23% YoY during the quarter. This was mainly on account of the fertilisers division of the company where revenues were up by a similar 23% YoY. With the company's two units at Haldia fully functional now, it has led to the robust performance of the division. The other major division of inorganic chemicals also performed well, recording a growth of 27% YoY in topline. Other agri inputs division however witnessed a fall of 15% YoY during the quarter.

    Cost break-up...
    (Rs m) 2QFY12 2QFY13 Change 1HFY12 1HFY13 Change
    Raw materials 4,995 5,790 15.9% 8,884 10,207 14.9%
    % sales 25.2% 23.7%   24.9% 25.7%  
    Cost of traded goods 6,792 8,174 20.3% 11,237 10,526 -6.3%
    % sales 34.3% 33.5%   31.5% 26.5%  
    Staff cost 542 706 30.2% 1,131 1,378 21.9%
    % sales 2.7% 2.9%   3.2% 3.5%  
    Power and fuel 1,663 1,874 12.7% 3,320 3,514 5.9%
    % sales 8.4% 7.7%   9.3% 8.8%  
    Freight and forwarding charges 1,042 1,634 56.9% 2,074 2,930 41.3%
    % sales 5.3% 6.7%   5.8% 7.4%  
    Other expenses 2,102 2,909 38.4% 4,118 5,671 37.7%
    % sales 10.6% 11.9%   11.6% 14.3%  

  • Owing to a small 0.2% expansion in operating margins, the growth in operating profits of the company came in marginally higher than topline growth and stood at 25% YoY. This expansion was aided by a lower than proportional growth in raw material expense as also cost of traded good and power and fuel expenses. As far as segmental PBIT margins are concerned, they were up for all the three major segments.

  • PBT growth came in at 14% YoY; lower than the growth in operating profits mainly due to a steep 42% fall in other income. However, lower forex losses came to the rescue and led to 26% growth in bottomline during the quarter.

  • The fact that consolidated topline grew by 17% YoY during the quarter despite a challenging global environment also augurs well for the company.

What to expect?
At the current price of Rs 317, the stock trades at an EV/EBIT multiple of around 7.6 times its standalone FY15 expected EBIT. The long term fundamentals of the company remain intact as per us. We thus maintain our BUY view on the stock.

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