Accumulate Tata Chemicals; target of Rs 400: Emkay

“TCL’s Q2FY12 results were above estimates on back of all the divisions reporting strong performance. Consolidated revenues of Rs 35.7 bn, +19% yoy, were marginally below our estimates but EBITDA margins at 18.9% were above our estimates of 16%. With higher margins, EBITDA increased by 33% to Rs 6.7 bn and APAT after minority increased by 25% yoy to Rs 2.9 bn resulting in an AEPS of Rs 11.5. Results are adjusted for Rs 305 mn on sale on long term investments and Rs 473 mn M-T-M forex loss on its forex liabilities. However the actual forex loss would have been Rs 1.4 bn but company has spread it over the year and balance Rs 946 mn is likely to be booked over next two quarters.”

“Company’s US subsidiary - TCNA (earlier GCIP) reported revenues of Rs 5.6 bn, +24% yoy, and PBT of Rs 1.4 bn, +54% yoy with PAT contribution of Rs 770 mn (+43% yoy) European subsidiary - TCE (earlier BMGL) reported revenues of Rs 5.5 bn, +29% yoy, driven by contribution form British Salt (Rs 273 mn) resulting into EBITDA of Rs 1.3 bn, +81% yoy, and PAT contribution of Rs 190 mn. IMACID reported revenues of Rs 1.7 bn, +28% yoy, EBITDA of Rs 300 mn with PAT of Rs 240 mn.”

“With encouraging H2FY12 results we are upgrading our FY12 estimates by 11% to Rs 35.7. However our outlook on global soda ash demand remains cautious and upcoming maintenance shutdown at US subsidiary to have some pressure on margins in Q3FY12. M-T-M forex loss of ~ Rs 1.4 bn to also dent company’s reported profit in FY12. However revision in soda ash contract prices in US is likely to be finalised by the end of Dec’11 and we expect upward revision in the same. With current valuations at 9x FY12 earnings, against its historical average of 11x, we maintain our Accumulate rating on the stock,” says Emkay Global Financial Services research report.

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