Buy Tata Chemicals Ltd For Target Rs.. 1,197 - Geojit Financial Services
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Soda ash drives growth; outlook positive
Tata Chemicals Ltd (TCL) is the world’s third largest producer of soda ash with manufacturing facilities in Asia, Europe, Africa and North America. It also has a strong focus on consumer, agri and specialty businesses.
• In Q3FY23, its consolidated revenue was up 32.0% YoY to Rs. 4,148cr (down 2.1% QoQ) led by better soda ash realisations across all geographies and stable demand. • EBITDA was up 69.1% YoY to Rs. 922cr and EBITDA margin 480bps YoY to 22.2% aided by better cost management. PAT increased 25.7% YoY to Rs. 391cr. • The company posted decent earnings on account of stable demand, better realisations and cost management. The management expects soda ash demand to rise, with supply tightening in the upcoming quarters leading to better realisations. Hence, we reiterate our BUY rating on the stock with a revised target price of Rs. 1,197 based on 14x FY25E adjusted EPS
Better realisations boost top line
TCL’s consolidated revenue increased 32.0% YoY (down 2.1% QoQ) to Rs. 4,148cr in Q3FY23 on account of higher realisations and stable demand across segments and geographies. Revenue from basic chemistry products grew a solid 41.9% YoY to Rs. 3,473cr. Revenue from specialty products fell 0.4% YoY to Rs. 676cr. Geographically, India revenue grew 31% YoY to Rs. 1,218cr backed by higher realisations; US revenue 48% YoY to Rs. 1,323cr led by 4% volume growth; UK revenue 34% YoY to Rs. 738cr; and Kenya 83% YoY to Rs. 241cr.
Margin improves due to better realisations
EBITDA increased 69.1% YoY to Rs. 922cr, owing to better realization and cost management, which nullified input cost inflation. EBITDA margin grew 480bps YoY to 22.2%. Subsequently, PAT increased to 25.7% YoY to Rs. 391cr. However, PAT fell 37.7% QoQ due to lack of dividends and tax refunds in Q3FY23 unlike Q2FY23 and loss from Morocco joint venture.
Valuation
TCL is focused on capacity expansions, maximum plant utilisation and improving cost efficiency. The company expects demand for soda ash to rise, aided by reopening of China and emergence of newer glass applications. Favourable demand-supply dynamics in soda ash is expected to drive performance in the near term. We remain optimistic on the stock and reiterate our BUY rating with a revised target price of Rs. 1,197 based on 14x FY25E adjusted EPS.
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