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Speciality business likely to aid performance ahead…

Tata Chemicals reported flat revenues to the tune of | 2606 crore against our estimate of | 2618 crore. The basic chemical segment revenue was down 1% YoY to | 1987 crore while the same from speciality products was up 2% YoY to | 618 crore. Higher growth from Magadi (up 30.5% YoY) along with India (up 7% YoY) & Europe (up 7% YoY) led growth in the basic chemical segment revenue. However, the same declined 14.9% YoY in the US market. Gross margins witnessed an improvement of 725 bps QoQ to 79.6%, leading EBITDA to beat our estimates. Further, control on other opex also helped a better operational performance. EBITDA remained flat at | 472 crore against our estimate of | 407 crore. PAT was up 10% YoY to | 160.9 crore, assisted by lower tax rate (21% vs. 23% in Q3FY20).

Revival in end user demand seen, likely to aid soda ash consumption ahead

There was a revival in the construction along with auto demand QoQ, which led to an upsurge in demand for soda ash. Further, the inventory situation in China has also been getting normalised, largely on the back of decent growth in the demand for float and solar glass, which should support demand/supply situation of the global soda ash market. The performance from North America unit remained subdued for the quarter. However, we expect the same to revive to pre-Covid level in the next one or two quarters on the back of demand restoration from South Eastern market. Further, we also believe since the focus has shifted towards capex to revive the economy across major geographies, demand for soda ash will witness a revival on the back of it being a key input in the construction activity. We expect since soda ash plant has been operating at around ~80% utilisation currently, such revival can lead many plants to operate at around 85-90%, going ahead, thereby narrowing the demand/supply gap, to a certain extent, and assist realisation growth.

HDS, nutraceutical segments likely to aid performance further

Both HDS, nutraceutical are likely to touch | 100 crore turnover this fiscal. Going ahead, with focus in place to expand capacity of HDS, we expect both these segments to post at least high thirties growth for the foreseeable future. This should expand speciality share in the overall basket given that crop protection has also been progressing well and, thus, provides decent visibility of return ratio improvement and thereby valuations.

Valuation & Outlook

We introduce FY23E estimates and roll over our valuations on FY23E. We value the company on SOTP basis and arrive a target price of | 520 (earlier | 490) including investment portfolio value. We maintain HOLD rating on the stock.

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