TATA Chemicals... On Its way to Glory....

Dear Friends,

TATA Chemical is my Old favourite.. I have mentioned it a couple of times on my blog though I haven’t written to much about this company in my previous articles….. The business model of TATA Chemicals looks very attractive and promising to me … I have mentioned in my post in June2010 about this scrip…. From that time it has rose from 300 levels to 422 levels already…. What I believe is it is just beginning. … a huge market in water and agri chemicals has to tapped still……

There are some recent articles in Economic times about developments in TATA Chemicals… I have consolidated all articles in my one post…. This is for my readers who didn’t noticed few interesting facts about this company…..

ET has come with a detailed report on TATA Chemical Prospective... According to them this company is a buy and hold....



Tata Chemicals: New gas pricing augurs well

A good monsoon has led to a spurt in fertiliser stocks. Given the anticipated increase in the allocation of natural gas from the government, they are expected to perform well in the coming quarters.

BUSINESS: Tata group firm, Tata Chemicals (TCL) was incorporated in 1939. It is ranked as one of the leading players in the agribusiness sector with a strong presence in crop nutrients and crop protection products. The company operates in industrial chemicals, crop nutrition and consumer products and serves a wide customer base spread across five continents. TCL has manufacturing facilities across four continents including North America, Europe, Africa and Asia.

TCL is the world’s second-largest producer of soda ash with a total capacity of 5 million metric tonne per annum of which more than 60% is attributed to natural soda ash. It is a market leader in the Indian branded iodised salt segment under the brand Tata Salt. In the private sector, TCL is one of the country’s leading producers of nitrogeneous and phosphatic fertilisers and offers a wide range of crop nutrition products under Tata Paras brand.

Under the Tata Swach brand, TCL offers the world’s lowest cost house-hold water purifier. Tata Chemicals has adopted a strategy of global acquisitions to expand its product and customer base. In 2008, it bought US-based General Chemical Industries Products (GCIP) which increased the company’s global soda ash capacity to 5.5 mt per annum.

This was followed by the buyout of UK-based Brunner Mond Group in early 2006. Recently, TCL increased its stake in another group firm Rallis India by nearly four percentage points to 50.6% by buying shares of worth Rs 89.03 crore on preferential basis. The deal is expected to benefit TCL in future.

GROWTH DRIVERS: Going ahead, the company is expected to benefit from the improving soda ash demand across the globe. The pricing mechanism looks to be stable in most of the markets but Europe which continues to put pressure on the company’s performance.

The company’s water purifier business under the name ‘Tata Swach’ recorded strong sales during the quarter. The company aims to sell a million units in the current financial year. Further, the company plans to roll out the business nationwide and eventually enter into the next line of product offerings through various technology enhancements. The company has lined up a capex of around Rs 500 crore for the next 2-3 years.

It intends to commission a customised fertiliser plant at Babrala, at a capacity of 1.32 lakh tonne per annum, by this month end. It plans to further increase the number of such units to 10 in the next three years. Given the new pricing and gas utilisation policy, the company is expected to increase the urea capacity of the Babrala plant two-fold at a capex of Rs 4,000 crore. This would depend on the allocation of natural gas from the government.

FINANCIALS: The company posted strong results for the quarter ended June 2010. This was mainly on account of one-time changes. During the quarter, the company’s topline grew 5.6% to Rs 2,477 crore against the corresponding period last year. This was on the back of a demand improvement witnessed in the domestic as well as the inter-national soda ash market.

The inorganic chemicals segment which attributes to 51% of the company’s net sales posted a nearly 6% fall in its revenue to Rs 1,299 crore for the same period due to the pricing pressure in some of the markets. While the revenue from the fertilisers segment remained more or less stagnant during the quarter, the agriinput segment registered a huge increase in its revenue to Rs 238 crore from Rs 27 crore in the June 2009 quarter. This was mainly due to Rallis India becoming a part of the company.

The company’s bottomline rose more than five-fold to Rs 216 crore against the year-ago period(This is by any mean a big big spurt) This can be attributed to two reasons. In November 2009, Tata Chemicals increased its stake in Rallis India to over 50%, the numbers of which were included in the June 2009 quarter.

Also, in the June 2009 quarter, company had incurred one-time expense of Rs 87 crore against the restructuring costs of its Netherlands unit of Brunner Mond. Despite higher traded good costs, lower input prices led to a spurt of 610 bps in its operating profit to 20.2%. Also, a proportionate decrease in the other expenses as a percentage of the net sales contributed to the same.

VALUATION: At the current market price of Rs 418.7, the scrip is trading at 22.1 times its earnings for the yearended June 2010. Given the encouraging demand environment in the domestic and international soda ash market and newer capacities coming in place, the stock looks attractive in the coming quarters.

CONCERN: The slowdown in the demand and weak pricing mechanism witnessed in the geographies of Europe continue to be a concern for the company stressing the performance of the Brunner Mond plant

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Tata Chemicals sees growth spurts

Tata Chemical’s stock crashed 6.5% after posting disappointing results for the quarter and year ended March 2010 on Monday. The scrip has marginally outperformed the market, gaining around 31% in the past one year as against a 15% growth in benchmark Sensex.

Tata Chemicals profit for the fourth quarter fell by more than a quarter to Rs 128 crore on a consolidated basis, despite a 24% improvement in net sales. Although net sales also fell against last year, the main positive was the 360-basis point improvement in its operating margins to 19.3%.

TCL’s inorganic chemical segment saw a fall of 8% and 4% in its revenue and PBIT, respectively. This was mainly due to the demand and pricing decline during the initial quarters of FY09-10. Similarly, the fertiliser segment also saw a huge fall of 36% and 25% in its revenue and PBIT, respectively, as the prices came down.

During FY10, the company saw better local and overseas demand for soda ash against previous year. Also, the debottlencking of its plant helped increase urea production by 20% y-o-y basis. Its new water purifier ‘Tata Swach’ launched in October 2009 sold nearly 50,000 units in Maharashtra and Karnataka, even as the company aims to sell a million units in FY11 as it pans out nationwide.

It paid off Rs 440 crore of debt during the June ’09 quarter followed by selling part of its stake in Titan to raise Rs 88 crore during the September ’09 quarter. It has reduced its debt-equity ratio to 0.81 for FY10 as against 0.95 for FY09. The company is still spending nearly Rs 400 crore on interest costs annually

The company has lined up a capex of around Rs 300 crore for FY11, when it will be completing its first customised fertiliser facility and embark upon doubling its urea capacity at Babrala. To shore up its capital base before going for this next round of capex the company is planning to raise over Rs 400 crore through a preferential allotment to its promoters.

Doubling of urea capacity to 2.4 million tonne per annum will take up three years with an estimated capex of Rs 3,500 crore. It has already carried out pre-feasibility and basic engineering studies and is awaiting clarity on gas supply to move ahead.

During the year, the company acquired shares in Rallis India — another Tata Group company focusing on agrochemicals — to take its shareholding beyond 50%.

Thanks to higher margins and better volumes, Tata Chemicals’s performance during FY10 was much better than in FY09. There is still some more restructuring lying ahead for this soda ash major.

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Tata Chemicals mulls second plant for water purifier

Tata Chemicals Limited is mulling to set up a second plant for manufacturing nano water purifiers, which were being churned out from its Haldia plant at present.

"We are planning to set up a new plant. The location is yet to be finalised," Managing Director of Tata Chemicals R Mukundan said.

Launching the Tata Swach water purifier in the city today, Mukundan told reporters that the new plant would come up near a rice-growing belt since it used rice husk ash as an ingredient.(Raw material will be available at cheap cost)

"Ideally, we require one plant in each zone to meet the demand," he said.

At present, the Haldia plant has a capacity of one million units per annum.

The new plant would be of two modules, each with 50 lakh capacity. The total investment would be Rs 50 crore, he said.

Mukundan said that the company was also looking at the developing nations for exports of the product.

He said that the target market for the product is semi-urban and rural markets of the country.

The product was first launched in the north and west. "National roll out is taking place now."

According to me… Still this company is buy and hold ….. for long term…. We can see a good appreciation in years to come…. Who knows about Stock split, bonuses and hefty dividend….... I strongly believe that any target can come in this scrip..... One has to have the patience to churn out good profits....