ICICI Direct's research report on Tata Chemicals
There has been an increase in construction activity across different parts of the globe due to improvement in the demand outlook on the back of lower interest rate and changes in tendency of people post lockdown. We believe this should aid soda ash consumption given that flat glass constitutes ~20% of the latter demand. In turn, this would narrow the demand/supply mismatch and support realisation, to an extent, in the medium term. Apart from this, we also expect better demand for container glass to aid soda ash consumptions further apart from base segment like detergent to maintain the overall demand scenario in the medium term. Since Tata Chemical holds sizable market share in the global soda ash market, we expect the core business to grow at a decent rate on the back of aforementioned factors along with low base effect in the coming year. Apart from this, better growth from soda bicarb from sub segments like Medikarb should likely support growth, going ahead. Since plans are already under way to increase the specialty business share like crop protection, HDS and nutraceutical in the overall business portfolio, we expect the company’s’ revenue contribution to be equally tilted towards specialty and commodity in the medium to long term. In turn, this should command better valuations.
Outlook
We value the company on SOTP basis. Earlier, we assumed Tata Son’s investment portfolio at book value. However, the same has been revised to fair value at the lower end now, which was disclosed by Tata Sons in Supreme Court recently. We raise our target price to Rs 490 from Rs 305. We maintain HOLD rating on the stock.
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