Hold Tata Chemicals; target of Rs 300: ICICI Direct

ICICI Direct's research report on Tata Chemicals

Tata Chemicals reported a fall in revenue of 7% YoY to Rs 2378 crore, largely dragged by around Rs 100 crore sales postponement along with a fall in realisations at Magadi, Africa. Revenues from India in the basic chemical segment were down 12.6% YoY to Rs 718 crore while the same for North America, Europe and Magadi remained at Rs 800 crore (-8% YoY), Rs 365 crore (-4.2% YoY) & Rs 115 crore (-18.4% YoY), respectively. Unabsorbed fixed overheads such as employee along with partly fixed other cost dragged OPM, which contracted 60 bps YoY to 16.8% resulting in EBITDA de-growth of 10% YoY to Rs 400 crore. In terms of geography wise OPM break-up in basic chemical segment, OPM for India contracted 1170 bps YoY to 22.5% while Magadi remained at 9.6% against 22% in Q4FY19. On the other hand, NA (25.5% vs. 23.6%) and Europe (14% vs. 11.2%) registered expansion in OPM on a yearly basis. Adjusting exceptional gain to the tune of Rs 98 crore in Q4FY19, the bottomline declined 31% YoY to Rs 198 crore.

Outlook

We lower our volume and realisation assumption for the current fiscal and roll over our valuations to FY22E. We value the company on an SOTP basis and arrive at a target price of Rs 300 including investment portfolio value. We have a HOLD recommendation on the stock.