Hold Tata Chemicals; target of Rs 285: ICICI Direct

ICICI Direct's research report on Tata Chemicals

Tata Chemicals (TCL) reported a fall in revenue of 9% YoY to Rs 2348 crore, largely dragged by poor soda ash sales volumes from US & Magadi regions. Basic chemical revenue from the US fell 26.7% YoY to Rs 619 crore while the same from Magadi remained at Rs 100 crore (-20.6% YoY). Revenue from India fell 5.1% YoY to Rs 637.3 crore, largely assisted by a change in the product mix towards high value products. The realisation growth from India business was at 29.8% YoY to Rs 45,850/tonne. The basic chemical revenue from the Europe region was up 2.9% YoY to Rs 316 crore. Lower gross margins (-771 bps YoY) dragged OPM, which contracted 461 bps YoY to 15.3% leading to EBITDA de growth of 30% YoY to Rs 360 crore. In terms of geography wise OPM break up in the basic chemical segment, OPM for India fell 184 bps YoY to 27.7% while North America & Magadi fell 1671 bps YoY & 587 bps YoY to 5.7% & 10%, respectively. On the other hand, Europe margins rose 300 bps YoY to 8.9%. PAT was down 91% YoY to Rs 13.3 crore, impacted by subdued operational performance and lower other income (-32% YoY), higher finance cost (+25% YoY) & depreciation (+17% YoY).

Outlook

We value the company on an SOTP basis and arrive at a target price of Rs 285 including the investment portfolio value. We have a HOLD recommendation on the stock.

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