Buy Tata Chemicals; target Rs 421: GEPL Capital
GEPL Capital is bullish on Tata Chemicals (TTCH) and has recommended buy rating on the stock with a target price of Rs 421 in its February 21, 2013 research report.
March 04, 2013 / 13:32 IST
GEPL Capital is bullish on Tata Chemicals (TTCH) and has recommended buy rating on the stock with a target price of Rs 421 in its February 21, 2013 research report.
"TTCH enjoys optimum capacity utilization in its Urea and domestic Soda Ash business and has seen increase in capacity utilization in its North American and Kenyan (Magadi) operations. Also, Rallis India Limited (Rallis) which is a subsidiary of TTCH has seen consistent cash generation over the past few years. Based on these factors, we expect TTCH to generate Free Cash Flow of more than Rs 17 bn between FY13E-FY15E.TTCH derives more than 60% of its revenues (61% in FY12) from businesses which can be designated as “relatively safe”. These include businesses of Tata Chemicals North America (TCNA), Soda Ash business in India, Fertilizers, Salt, Cement and Rallis. These businesses either have low cost of production or are immune to cyclicality or have stable demand or strong pricing or a combination of these factors. We expect contribution from “safe” businesses to go up to 65% in FY15E against 61% currently.During FY12, TTCH commissioned India’s 1st customized fertilizer plant at Babrala, U.P. Customised fertilizers are crop- and region-specific. After its success in U.P., company is planning to make a foray into West Bengal, Punjab and Haryana in the near future. We expect customized fertilizers to log revenue growth of 93% CAGR over FY12-FY15E. Tata Salt, owned by TTCH is the market leader in packaged salts in India with market share of more than 66% and is a household name in India. On the back of its increasing market share, constant market growth (expected to be 1.3%) and higher realization for customized salt offerings, we expect Revenues from Salt business to grow at 6% CAGR over FY12 - FY15E.TTCH has two plants dedicated to manufacturing of fertilizers; Babrala, U.P. which manufactures Urea and Haldia (West Bengal) which manufactures DAP, NPK and SSP. TTCH has urea capacity of more than 1 mn MT at its plant in Babrala, U.P. with production of 1.16MT in FY12. We expect sales from urea to grow at 3% CAGR over FY12-FY15E. The Government hiked selling price of urea by Rs 50 in October, 2012 to make it Rs 5,390 per MT. As per the New Urea Investment Policy, Government will cover cost of natural gas and assure 12-20 % post-tax return on fresh capital infused by the manufacturers for setting up of new plants as well as for expansion and revamp of the existing ones. This would improve profitability of urea manufacturers going ahead. Rallis, which is 50.06% subsidiary of TTCH has an installed capacity of 15,225 MT for solid pesticides and 13,500 KL for liquid pesticides. Rallis holds 75.64% in Metahelix which is an agricultural biotechnology company focusing on developing traits and technologies for crop protection & improved productivity. We expect Rallis to log revenue growth of 15% CAGR and EBITDA growth of 17% CAGR over FY12-FY15E. It is Free Cash Flow Positive with Debt-Equity Ratio of 0.3.Valuation: A well diversified portfolio with respect to products as well as geographies makes us like TTCH as a stable business with robust growth prospects. Besides, the company also has considerable pricing power in salt and faces an improving outlook for soda ash. Commencement of operations at Magadi would boost revenues further. We initiate coverage on TTCH with a BUY rating and target price of Rs 421, implying an upside potential of 27%. We value TTCH using a Sum of the Parts (SOTP) approach since its businesses are varied in nature and geographies. At the CMP of Rs 332, TTCH is trading at an EV/EBITDA multiple of 4.79x its FY14E EBITDA and 4.49x its FY15E EBITDA respectively. At the CMP of Rs 332, PE works out to be 6.70x TTCH’s FY14E EPS of Rs 49.53 and 5.87x its FY15E EPS of Rs 56.58," says GEPL Capital research report.Non-Institutions holding more than 90% in Indian cos Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.To read the full report click on the attachment 
Read More
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
