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Tata Chemicals: Bottomline down by half
Nov 26, 2013

Tata Chemicals has announced its June quarter results. The company has reported consolidated topline growth of 4% YoY while the bottomline has registered a decline of 48% YoY

Performance summary
  • Consolidated topline for the quarter grows 4% YoY, standalone topline declines 3% YoY
  • Operating margins on a consolidated basis shrink by 2.6%, leading to a 13% drop in operating profits
  • Bottomline suffers a 48% fall on the back of poor operating performance and higher interest and tax outgo
  • Net profits on a standalone basis slump 38% YoY on the back of poor operating performance and higher extraordinary losses
  • Consolidated profits for the half year slide 43% YoY on the back of a 6% growth in topline

  Consolidated Standalone Consolidated
(Rs m) 2QFY13 2QFY14 Change 2QFY13 2QFY14 Change 1HFY13 1HFY14 Change
Net sales 41,738 43,440 4.1% 24,193 23,550 -2.7% 72,181 76,199 5.6%
Expenditure 35,124 37,696 7.3% 20,870 20,809 -0.3% 60,619 66,341 9.4%
Operating profit (EBDITA) 6,614 5,743 -13.2% 3,323 2,741 -17.5% 11,562 9,858 -14.7%
EBDITA margin (%) 15.8% 13.2%   13.7% 11.6%   16.0% 12.9%  
Other income 449 432 -3.8% 433 503 16.2% 832 632 -24.0%
Interest (net) 1,144 1,794 56.7% 493 412 -16.4% 2,388 2,924 22.4%
Depreciation 1,402 1,201 -14.3% 598 398 -33.4% 2,770 2,346 -15.3%
Profit before tax 4,517 3,180 -29.6% 2,666 2,435 -8.6% 7,236 5,222 -27.8%
Extraordinary items (124) 284   (264) (912)   (740) (150)  
Tax 1,158 1,350 16.5% 670 455   1,609 1,713 6.5%
Profit after tax/(loss) 3,235 2,114 -34.6% 1,732 1,068 -38.3% 4,888 3,358 -31.3%
Share of loss of associate 1 8 1460.0% - -   12 19  
Minority Interest 667 762 14.4% - -   1,232 1,243  
Net profit after minority interest 2,568 1,344 -47.6% 1,732 1,068 -38.3% 3,644 2,097 -42.5%
Net profit margin (%) 6.2% 3.1%   7.2% 4.5%   5.0% 2.8%  
No. of shares (m) 254.8 254.8   254.8 254.8   254.8 254.8  
Diluted earnings per share (Rs)*               9.6  
Price to earnings ratio (x)*               29.1  
(* on trailing twelve months earnings)

What has driven performance in 2QFY14?
  • The 4% growth in consolidated topline was a combination of moderate growth of the inorganic chemicals segment and good results posted by the agri segment of the company. The fertilisers segment on the other hand, witnessed a decline in sales of 4%.

  • As per the company, there has been a turnaround of sorts in sentiments pertaining to the inorganic chemicals segment. Markets both here and internationally are looking good and the firm expects the buoyancy to continue in the coming quarters as well.

  • As far as other segments are concerned, fertilisers witnessed a fall of 6% on standalone and 4% on consolidated basis. This was mainly on account of continued sluggishness with respect to phosphatic as well as complex fertilisers.

  • Agri inputs segment put up a good show, growing by nearly 9% during the quarter on a standalone basis and 22% on consolidated basis.

      Consolidated Standalone Consolidated
    Segment 2QFY13 2QFY14 Change 2QFY13 2QFY14 Change 1HFY13 1HFY14 Change
    Inorganic Chemicals
    Revenues 19,000 20,156 6.1% 7,112 7,296 2.6% 37,533 38,714 3.1%
    PBIT 3,278 4,075 24.3% 1,643 1,731 5.3% 6,790 6,505 -4.2%
    PBIT margin 17.3% 20.2%   23.1% 23.7%   18.1% 16.8%  
    Fertilisers
    Revenues 17,183 16,437 -4.3% 16,398 15,387 -6.2% 24,114 24,763 2.7%
    PBIT 1,663 1,126 -32.3% 1,667 1,025 -38.5% 1,943 1,563 -19.5%
    PBIT margin 9.7% 6.8%   10.2% 6.7%   8.1% 6.3%  
    Other agri inputs
    Revenues 5,287 6,432 21.6% 549 598 9.0% 9,633 11,864 23.2%
    PBIT 998 1,033 3.5% 79 35 -55.4% 1,410 1,574 11.7%
    PBIT margin 18.9% 16.1%   14.4% 5.9%   14.6% 13.3%  
    Others
    Revenues 253 322 27.6% 250 317 27.0% 482 721 49.5%
    PBIT (41) (148) 260.6% (103) (88) -15.3% 178 (238) -233.8%
    PBIT margin -16.3% -46.0%   -41.4% -27.6%   36.9% -33.0%  
    *Excludes inter-segment and unallocated expenditure

  • Consolidated operating profits fell by 13% YoY during the quarter as raw material costs and power and fuel expenses went up significantly as a percentage of sales. The damaged would have been even greater if not for the drop in cost of traded goods.

  • PBT of the company came in lower by 30% YoY as besides lower operating profits, interest costs and lower other income also impacted profits negatively.

  • At the bottomline level, profitability fell further with net profits witnessing a 48% decline. A 14% jump in minority interest contributed mainly to this decline.
What to expect?
At the current price of Rs 278, the stock trades at an EV/EBIT multiple of around 7.4 times its standalone FY15 expected EBIT. The turnaround in the sentiments of the inorganic chemicals business augurs well for the medium term outlook of the company. This, combined with the robustness of the agri business and the continued stability of the fertilisers business enables us to maintain our BUY on the stock.

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 mid cap stock comprises more than 3-4% of your portfolio.'

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