Tata Chemicals Limited Stock Analysis

Tata Chemicals Limited (“Tata Chemicals” or the “Company”) is a part of the US$ 110 billion Tata Group. The Company serve customers across 40+ countries in five continents.

The Company operates in three business verticals – Basic Chemistry, Consumer Products and Specialty Products.

  • 3rd largest soda ash manufacturer and the 6th largest sodium bicarbonate manufacturer in the world.
  • Market leader in table salt with Tata Salt, ~65% market share in branded Salt market in India.

Food brand Tata Sampann is India’s 1st national pulses brand, along with a portfolio of spices, and nutria-mixes.

The Company’s Basic Chemistry product range provides key ingredients to some of the world’s largest manufacturers of glass, detergents and other industrial products. Tata Chemicals currently is the world’s third largest producer of soda ash with manufacturing facilities in Asia, Europe, Africa and North America. With its Farming Essentials portfolio the Company through its subsidiary Rallis, has a strong position in the crop protection business.

DE-MERGER OF CONSUMER BUSINESS OF TATA CHEMICALS INTO TATA GLOBAL BEVERAGES LIMITED

In May 2019, the Boards of Directors of Tata Global Beverages Limited and Tata Chemicals Limited, approved the de-merger of the Consumer Products Business of Tata Chemicals into Tata Global through a National Company Law Tribunal (“NCLT”) approved scheme of arrangement.

Pursuant to the Scheme, each shareholder of Tata Chemicals will get 1.14 new equity shares of Tata Global for every 1 equity share held in Tata Chemicals i.e. a shareholder holding 100 shares in Tata Chemicals will receive 114 shares in Tata Global.

  • Tata Global Beverages Limited to be renamed Tata Consumer Products Limited to reflect the new strategic direction of the Company
  • Combines key brands such as “Tata Salt”, “Tata Tea”, “Tata Sampann” and “Tetley” under a single umbrella
  • Tata Chemicals to focus on innovative science-based chemistry solutions and products

Financial Performance

Particulars

FY15

FY16

FY17

FY18

FY19

Revenue (In Rs. Cr.)

17,202.94

14,872.91

10,346.07

10,269.69

11,296.33

Growth

-13.54%

-30.44%

-0.74%

10.00%

EBITDA (In Rs. Cr.)

2,157.42

2,091.73

2,094.29

2,190.69

2,095.06

EBITDA Margin

12.54%

14.06%

20.24%

21.33%

18.55%

EBIT (In Rs. Cr.)

1,694.28

1,565.65

1,582.13

1,672.68

1,523.67

EBIT Margin

9.85%

10.53%

15.29%

16.29%

13.49%

PBT (In Rs. Cr.)

1,158.51

1,165.44

1,450.96

1,570.90

1,642.54

PAT (In Rs. Cr.)

596.46

770.58

993.11

2,433.08

1,155.91

PAT Margin

3.47%

5.18%

9.60%

23.69%

10.23%

EPS (In Rs.)

23.41

30.25

38.98

95.51

45.37

EPS Growth Rate

29%

29%

145%

-52.5%

Historic P/E (Closing Price of 31st March)

18.94

12.35

15.36

7.09

12.94

CURRENT P/E (based on price of 9th December  – Rs. 668.35 )

13.92

D/E

1.26

1.25

0.64

0.50

0.42

Interest Coverage

4.75

3.98

7.04

6.73

5.77

ROCE

12.81%

8.69%

10.13%

8.64%

7.47%

ROE

20.87%

17.00%

18.35%

14.15%

13.31%

* In FY 2018, the Company reported a net exceptional gain of Rs.1,266.72 Cr. on account of sale of its urea business to Yara Fertilisers India.

Quarterly Performance

Quarterly Results

Q2 FY 2019

Q3 FY 2019

Q4 FY 2019

Q1 FY 2020

Q2 FY 2020

TTM

Q-o-Q %

Y-o-Y %

Revenue (In Rs. Cr.)

2,960.66

2,831.87

2,759.39

2,896.94

3,083.50

11,571.70

6.44%

4.15%

EBITDA (In Rs. Cr.)

602.03

471.23

530.85

592.45

634.88

2,229.41

7.16%

5.46%

EBITDA Margin

20.33%

16.64%

19.24%

20.45%

20.59%

 

 

 

PAT (In Rs. Cr.)

321.74

219.48

408.71

239.71

355.00

1,222.90

48.10%

10.34%

PAT Margin

10.87%

7.75%

14.81%

8.27%

11.51%

 

 

 

EPS (Rs.)

12.63

8.61

16.05

9.41

13.93

48.00

48.03%

10.29%

Q2 FY20 Highlights:

  • Basic Chemistry Products stood at Rs. 2052 Cr, up by 1%; Specialty Products Rs. 760 Cr, up by 14% and Consumer Products segment at Rs. 513 Cr, up by 12%
  • Consolidated Net Debt is at Rs. 2256 Cr as on 30 September 2019
  • In the Specialty products segment, the Company’s state of the art manufacturing facility in Nellore for Nutritional Solutions is undergoing trial productions for production of FOS, a Prebiotic dietary fibre
  • Secured land in Gujarat (Dholera) to set up manufacturing facility for Energy Sciences Business
    • The Company signed an MOU with ISRO for Lithium-Ion Cell Technology
    • Launched Li-Ion battery recycling operations
    • Goal is to scale up operations to recycle 500 tons of spent Li-ion batteries

Peer Comparison

WHAT’S DRIVING THE STOCK?

Diversified Revenue Streams

The Company holds a leading position in different businesses, primarily soda ash production wherein, it is the third largest producer of soda ash in the world and also the sixth largest manufacturer of sodium bicarbonate in the world. Besides, it is a pioneer and India’s market leader in the Indian branded iodized salt segment with an overall market share of 25%.

Additionally, the Company is increasing its footprint in the consumer product business primarily through brands like Tata Salt, Tata Sampann and Tata I-Shakti. Also, Tata Chemicals has an established market presence in agri services and crop protection business through its subsidiary Rallis India Ltd in which the Company owns 50.06%.

Focus on Chemical Business | Demerger of Consumer Product Business

The Company is focusing to be a leading science-based solutions company, Tata Chemicals will aggressively grow its Specialty Chemistry business in the areas of Agro-Science, Nutrition Science, Material Science, and Energy Storage Science.

Tata ChemicalsEmerging Speciality Chemical Business

The Company has forayed into nutraceuticals, High dispersible silica (HDS) segments recently. Further, the management also announced its entry into recovery of cathode active materials from spent lithium-ion cells/batteries.

  • Under Nutraceuticals, the Company offers an innovative range of nutritional solutions, prebiotics and healthier alternatives to regular sugar for consumers. Tata Nx Zero Sugar is a one-of-its-kind offering made from non-artificial sugar substitute – lactose (natural milk sugar), steviol glycosides (extracted from stevia herb) and a fruit extract. Tata Chemicals is among the few manufacturers of prebiotic dietary fibres using a nature inspired fermentation route. The customer base spans across North America, Australia, Europe, Middle East and Asia. The company has installed capacity of 5,000 MTPA (expandable up to 20,000 MTPA) for FructoOligosaccharide (FOS). The manufacturing plant is near Nellore, Andhra Pradesh.
  • Under the Silica business, Tata Chemicals is targeting the high-growth market of tyres, especially the green tyre made of High dispersible silica (HDS) whose demand is being propelled by stringent emission norms and tyre labelling. TREADSIL™ is the Company’s HDS brand, targeting energy efficient tyres for vehicles. To strengthen its foothold in the segment, the Company had acquired 900 TPM precipitated silica plant at Cuddalore in Tamil Nadu.
  • In August 2019, the Company successfully commenced the commercial recovery of cathode active materials from spent lithium-ion cells/batteries on a pilot basis. The Company continued its efforts to scale it up to recycle 500 tonnes of lithium ion batteries.
  • Tie up with ISRO to develop lithium ion batteries.

Strong Financial Risk Profile

Tata Chemicals enjoys high financial flexibility, being part of the Tata group, and healthy capital structure. The Company’s D/E ratio stood at 0.42 time as on March 31, 2019. The liquidity position is also robust with cash and cash equivalent of Rs. 4,184 Cr. as on March 31, 2019.

Exit From Low Margin And Highly Regulated Urea And Fertilizer Businesses

Tata Chemicals has exited the fertilizer business, with the sale of its urea business (Babrala plant, U.P.) to Yara Fertilizers for a consideration of Rs.2,670 Cr. (subject to final working capital adjustments) in FY18 (December 7, 2017) and by sale of its phosphatic fertilizer business (Haldia Plant, W.B.) to Indorama B.V. for a consideration of Rs.375 Cr. (subject to final working capital adjustments) in Q1FY19 (June 1, 2018).