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* Tata Chemicals’ consolidated revenue grew 10% yoy to Rs29.6bn vs. Emkay est. of Rs30.5bn. However, EBITDA fell 5.6% yoy to Rs6.02bn vs. Emkay est of Rs7.08bn. As a result, EBITDA margin contracted 338bps yoy to 20.3% (Emkay est: 23.2%).
* Consolidated soda-ash revenue increased 7% yoy to Rs20.3bn on better India operations, partially offset by weak performance in other geographies. The benefit of discontinuation of the low-margin trading business in Europe should be visible going forward.
* Standalone revenue grew 23% yoy to Rs10.14bn on higher realization in soda-ash and increased volumes in the salt business. However, due to lower operational efficiency in the specialty chemicals, EBITDA margin contracted 244bps yoy to 25.3%.
* The uptrend in soda-ash prices and focus on the consumer business remain the key growth drivers. We maintain our FY19/20 EPS estimates, with a SoTP-based TP of Rs804 (8.5x FY20E EV/EBITDA), with an Accumulate rating.
Consumers segment saw growth; one-offs impact soda-ash volume
* Consolidated revenue grew 10% yoy to Rs29.6bn (Emkay est: Rs30.5bn), on strong performance at the standalone level (revenue up 23% yoy), offset in part by subdued performance in international subsidiaries. A plant shutdown in the US, lower-than-expected recovery in Africa after floods, and the exit from low-margin trading business in Europe led to a 10% yoy fall in soda-ash volumes. However, things are now normal in the US and Africa. The company’s consumer products segment (Salt+Pulses+Spices) delivered strong revenue performance (up 22% yoy), with a 161bps margin improvement at the EBIT level. Management targets Rs50bn revenue from this consumer segment in the next four years.
* Revenue from the specialty chemicals segment (Nutraceuticals+HSD+Rallis) grew 12% yoy to Rs6.68bn, largely driven by strong growth from Rallis (sales up 11% yoy to Rs6.53bn). Standalone specialty chemicals revenues grew 40% yoy to Rs124mn on a lower base. The company reported an EBIT loss of Rs63mn vs. Rs35mn in Q2FY18.
New capex to drive growth; maintain Accumulate
The new project announcement in nutraceuticals, highly dispersible silica (HDS), and brownfield capacity expansion in India salt/soda-ash segments should drive growth. The company is also targeting to launch new products in the consumer and e-battery segments. We maintain our FY19/20 EPS estimates, keeping the previous SoTP based TP of Rs804 (8.5x FY20E EV/EBITDA) unchanged. Maintain Accumulate.
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