Neural Tata Chemicals Ltd For Target Rs.1,210- Motilal Oswal
Robust Soda ash demand drives healthy performance
Operating performance above our expectation across geographies
* Tata Chemicals (TTCH)’s 1QFY23 consolidated EBITDA beat our estimate, with a strong operating performance across geographies backed by robust growth in Soda Ash realization.
* Globally, demand for Soda Ash has been buoyant, with a favorable demand-supply scenario. All plants across the geographies have been running at optimum utilization levels.
* Factoring in the strong operating performance in 1QFY23, we raise our FY23/FY24 EBITDA estimates by 23%/11%, respectively. We maintain our Neutral rating with an SoTP-based TP of INR1,210.
Higher realization aids margin expansion across all geographies???????
* TTCH reported revenue of INR40b (est. INR40.9b) in 1QFY23, up 34% YoY. EBITDA margin expanded 520bp YoY to 25.4% (est. 18.7%). EBITDA stood at INR10.2b (est. INR7.6b). Adjusted PAT jumped 2.1x YoY to INR5.9b (est. INR3.7b) due to better material margin and lower other and employee expenses as a percentage of sales.
* Basic Chemistry/Specialty Products grew 41%/17% YoY to INR30.6b/ INR9.3b; their EBIT margins expanded/contracted by 910bp/330bp YoY to 25.0%/8.4%, respectively, in 1QFY23.
* India standalone/TCNA/TCEHL/TCAHL revenue rose 48%/34%/30%/84% YoY to INR12.3b/INR11.2b/INR5.3b/INR2.5b, respectively, in 1QFY23. Their EBITDA margins expanded 360/400/1,130/2,970bp to 32.5%/24.7%/ 18.5%/48.4%, respectively, led by improvement in realizations that offset surge in raw material prices and energy costs.
* In North America, Soda Ash realization was higher by 30% to USD255/MT in 1QFY23. EBITDA/MT jumped 55% to USD63/MT led by favorable operating leverage during the quarter.
Highlights from the management commentary
* Capex: TTCH has incurred a capex of INR18b until Jun’22 and the balance INR11b would be spent by Mar’24.
* Market Outlook: Soda Ash price environment is likely to stay robust over the next 18-24 months and the demand-supply dynamics are forecasted to remain favorable until FY25-FY26.
* Net debt rose to INR49.8b in Jun’22 v/s INR42.3b as of Mar’22 and INR41.2b in Dec’21. TTCH would continue to pay down debt on books with an aim of achieving debt-free status in TCAHL over the next 12 to 15 months; it will also continue to pay down debt at USD100m per annum in TCNA.
Valuation and view
* We expect the favorable soda ash demand-supply dynamics to sustain in the medium term aided by emergence of newer applications such as solar glass and lithium Ion batteries. However, on a one-year forward basis, TTCH is trading at an average EV/EBITDA of 8.8x, which is at par with its last 10-year average.
* We expect a revenue/EBITDA/PAT CAGR of 16%/21%/15% over FY22-24, respectively.
* Factoring in the strong operating performance in 1QFY23, we raise our FY23/ FY24 EBITDA estimates by 23%/11%, respectively. We maintain our Neutral rating with an SoTP-based TP of INR1,210
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