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Tata Chemicals: Profit nearly doubles - Views on News from Equitymaster
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Tata Chemicals: Profit nearly doubles
Dec 1, 2014

Tata Chemicals has announced its September quarter results. The company has reported consolidated topline growth of 11% YoY while the bottomline has grown by 91% YoY.

Performance summary
  • Consolidated topline for the quarter grows 11% YoY, standalone topline grows 21% YoY
  • Operating margins on a consolidated basis goes up marginally, leading to a 14% growth in operating profits
  • Bottomline records a strong 91% YoY growth on a consolidated basis as depreciation and interest costs remain benign
  • Net profits on a standalone basis jumps 96% YoY on the back of 17% YoY growth
  • Consolidated profits for the half year grows 106% YoY while the topline comes in higher by 14% YoY

(Rs m) 2QFY14 2QFY15 Change 2QFY14 2QFY15 Change 1HFY14 1HFY15 Change
Net sales 43,440 48,032 10.6% 23,550 28,434 20.7% 76,199 86,498 13.5%
Expenditure 37,693 41,501 10.1% 20,809 25,219 21.2% 66,349 74,931 12.9%
Operating profit (EBDITA) 5,747 6,531 13.6% 2,741 3,216 17.3% 9,850 11,567 17.4%
EBDITA margin (%) 13.2% 13.6%   11.6% 11.3%   12.9% 13.4%  
Other income 428 437 2.1% 503 497 -1.3% 641 709 10.6%
Interest (net) 1,794 1,256 -30.0% 412 476 15.7% 2,924 2,290 -21.7%
Depreciation 1,201 1,201 0.0% 398 503 26.5% 2,346 2,324 -0.9%
Profit before tax 3,180 4,511 41.8% 2,435 2,733 12.2% 5,222 7,661 46.7%
Extraordinary items 284 9   (912) -   (150) 9  
Tax 1,350 1,181 -12.5% 455 641   1,713 2,004 17.0%
Profit after tax/(loss) 2,114 3,339 57.9% 1,068 2,092 95.8% 3,358 5,666 68.7%
Share of loss of associate 8 23 192.3% - -   19 34  
Minority Interest 762 746 -2.2% - -   1,243 1,307  
Net profit after minority interest 1,344 2,570 91.2% 1,068 2,092 95.8% 2,097 4,325 106.3%
Net profit margin (%) 3.1% 5.4%   4.5% 7.4%   2.8% 5.0%  
No. of shares (m) 254.8 254.8   254.8 254.8   254.8 254.8  
Diluted earnings per share (Rs)*               (31.8)  
Price to earnings ratio (x)*               NA  
(* on trailing twelve months earnings)

What has driven performance in 2QFY15?
  • The 11% growth in consolidated topline was a combination of 11% growth of the other agri inputs segment and 20% growth posted by the fertilisers segment of the company. The inorganic chemicals segment on the other hand, witnessed a flat topline growth.

  • As per the company, soda ash demand continues to be robust. Markets both here and internationally are looking stable and the firm remains positive on the demand scenario going forward domestically as well as internationally.

  • As far as other segments are concerned, fertilisers witnessed a strong growth of 20% on a YoY basis. The strong growth could be attributed to robustness seen in the non-bulk segment of fertilisers. The DAP and NPK fertilisers in particular registered high demand.

  • Agri inputs segment put up a good show, growing by nearly 11% during the quarter on a consolidated basis. The company has made non-subsidy farm business and the consumer business as its growth platforms and this thrust will continue in the future as well

    Segmental break up...
      Consolidated Standalone Consolidated
    Segment 2QFY14 2QFY15 Change 2QFY14 2QFY15 Change 1HFY14 1HFY15 Change
    Inorganic Chemicals
    Revenues 20,156 20,231 0.4% 7,112 7,296 2.6%  38,714  40,161 3.7%
    PBIT 4,073 3,477 -14.6% 1,643 1,731 5.3% 6,502 6,302 -3.1%
    PBIT margin 20.2% 17.2%   23.1% 23.7%   16.8% 15.7%  
    Fertilisers
    Revenues 16,437 19,760 20.2% 16,398 15,387 -6.2%  24,763  31,639 27.8%
    PBIT 1,126 1,480 31.5% 1,667 1,025 -38.5% 1,563 2,494 59.5%
    PBIT margin 6.8% 7.5%   10.2% 6.7%   6.3% 7.9%  
    Other agri inputs
    Revenues 6,432 7,125 10.8% 549 598 9.0%  11,864  13,079 10.2%
    PBIT 1,028 1,166 13.4% 79 35 -55.4% 1,570 1,829 16.5%
    PBIT margin 16.0% 16.4%   14.4% 5.9%   13.2% 14.0%  
    Others
    Revenues 322 723 124.2% 250 317 27.0%  721 1,338 85.6%
    PBIT  (148)  (156) 5.3% (103)  (88) -15.3% (238) (286) 20.4%
    PBIT margin -46.0% -21.6%   -41.4% -27.6%   -33.0% -21.4%  
    *Excludes inter-segment and unallocated expenditure

  • Consolidated operating profits grew by 14% YoY during the quarter as all the cost heads came in lower on a percentage of sales basis.

  • PBT of the company grew nearly 42% YoY during the quarter as sharp fall in interest expenses and flat depreciation charges helped boost profitability even further.

  • At the bottomline level, profitability improved further with the company’s net profits coming in higher by 91% YoY. This was brought about by lower tax rates and a marginal fall in minority interest.
What to expect?

At the current price of Rs 437, the stock trades pretty close to our expected FY17 sum of the parts value of Rs 440 per share or thereabouts. The expected stability 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 remain positive on the long term prospects of the business. However, with valuations having run up, we would advise investors to keep holding on to the stock until we come up with a different view.

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 stock comprises more than 4-5% of your portfolio.

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