Morgan Stanley 'Underweight' on Tata Chemicals stock after Q2 profit plunges 55%

In the past 12 months, Tata Chemicals stock has risen 3 percent. In comparison, Nifty rose 25 percent during this period.

Shares of Tata Chemicals fell over a percent on October 18 after Morgan Stanley maintained an 'Underweight' rating on the stock with a target price of Rs 880 per share following the company's disappointing earnings report for the quarter ended September 2024.

Tata Chemicals reported a near 55 percent on-year fall in its second-quarter profit, hurt by lower soda ash prices and higher freight costs. The chemical maker's consolidated net profit fell to Rs 194 crore, down from Rs 428 crore a year ago.

Its revenue from operations rose 0.03 percent YoY to Rs 3,999 crore while total expenses rose nearly 7 percent YoY to Rs 3,803 crore, with freight and forwarding charges rising nearly 32 percent.

Tata Chemicals' earnings were broadly in line with estimates, although its India margins were impacted by adverse weather conditions. In contrast, performance in the US segment met expectations, while Kenya delivered a positive surprise.

Despite this, Basic Chemistry EBITDA per tonne declined by 10 percent quarter-on-quarter (QoQ). Morgan Stanley highlighted that the ramp-up of Chinese capacity and the limited evidence of supply rationalization pose challenges for a near-term margin recovery.

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An economic downturn in China and sluggish demand in the EU have significantly impacted soda ash prices, Tata Chemicals' primary business segment. According to analysts at Nirmal Bang, global soda ash prices dropped by nearly 23 percent during the July-September quarter. Tata Chemicals had already reduced soda ash prices last November.

Analysts have also warned that chemical companies may face rising costs due to increased container and freight charges amid the Middle East crisis.

Tata Chemicals shares ended 2.3 percent lower at Rs 1,074.90 on National Stock Exchange (NSE) in the previous session. The stock has fallen around 4 percent so far this year, underperforming Nifty's returns of 14 percent.

In the past 12 months, the counter has risen 3 percent. In comparison, Nifty rose 25 percent during this period.

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