Hold Tata Chemicals; target of Rs 305: ICICI Direct

ICICI Direct's research report on Tata Chemicals

Tata Chemicals reported a fall in revenue of 5.7% YoY to Rs 2609 crore, largely dragged by poor soda ash sales volumes from Magadi (down 31% YoY) along with North America (down 19.8% YoY). Revenue from basic chemical fell 10% YoY to Rs 1839 crore. In terms of geographies, India business basic chemical revenue remained at Rs 699.7 crore (up 1% YoY), while the same from North America, UK and Magadi was at Rs 711 crore (down 20% YoY), Rs 337 crore (flat growth) & Rs 91 crore (down 35% YoY). Lower gross margins (down 443 bps YoY) owing to higher input cost along with higher opex dragged OPM, which contracted 546 bps YoY to 14.8% resulting in EBITDA de growth of 31% YoY to Rs 386 crore. OPM from basic chemical segment contracted 719 bps YoY to 15.2% while the same from speciality chemical was down 29 bps YoY to 14%. PAT was down 80% YoY to Rs 70.5 crore, impacted by subdued operational performance along with higher tax rate (30% vs. 6%) and lower other income (down 26% YoY).

Outlook

We value the company on an SOTP basis and arrive at a target price of Rs 305 including the investment portfolio value. We have a HOLD recommendation on the stock.

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