Neutral Tata Chemicals Ltd for the Target Rs.700 by Motilal Oswal Financial Services Ltd
Indian business supports overall performance Operating performance above our estimates
* Tata Chemicals (TTCH) posted a muted performance in 1QFY27, with consol. EBITDA declining 15% YoY to INR5.6b (est. INR4.5b). The muted performance was primarily driven by TCNA/TCAHL witnessing sharp EBITDA declines of 98%/94% and TCEHL reporting an EBITDA loss of INR50m. However, standalone India/Rallis reported EBITDA growth of 35%/23%.
* Indian standalone business outperformed, driven by higher volumes in salt and better realizations in soda ash, bicarbonate, and salt. The business is expected to continue delivering healthy performance on the back of resilient domestic demand, stable pricing, and growth-focused capital allocation toward the non-cyclical business.
* International operations remained weak due to lower soda ash realizations and Chinese pricing pressure. The international business is expected to remain under pressure in the near term due to global soda ash oversupply and higher input and logistics costs.
* We largely maintain our consolidated FY27/FY28 EBITDA estimates; however, we increase our standalone estimates while cutting our international estimates. We reiterate our Neutral rating with an SoTP-based TP of INR700.
Earnings dip due to weaker international performance
* TTCH reported overall revenue of INR42.6b (est. INR39.6) in 1QFY27 (up 14% YoY). EBITDA margin contracted by 450bp YoY to 13% (est. ~11.4%); EBITDA stood at INR5.6b (est. INR4.5b), down 15% YoY.
* It posted an adj. net loss of INR170m vs. adj. net profit of ~INR2.5b in 1QFY27 (est. adj net profit of ~INR351m).
* The Living Essentials business grew 25% YoY to INR29.3b. EBIT was INR1.9b (vs. EBIT of INR2b YoY). EBIT margin stood at 18%.
* The Industry Essentials business grew 13% YoY to INR22.4b. Loss before interest and taxes was INR700m (EBIT of INR1.3b in 1QFY26). EBIT margin stood at -3.1%.
* The Farm Essentials business grew 7% YoY to INR10.2b. EBIT was INR1.6b (up 28% YoY). EBIT margin stood at 15%.
* The Indian standalone/TCNA/TCEHL/TCAHL/Rallis revenue grew ~10%/16%/6%/7%/7% YoY to INR12.8b/INR13.9b/INR4b/INR1.4b/INR10.2b.
* EBITDA for Indian standalone/Rallis grew 35%/23%, while EBITDA for TCNA/TCAHL declined 98%/94%. EBITDA loss for TCEHL stood at INR50m (vs. EBITDA of INR320m).
* EBITDA/MT of TCNA stood at USD0.5 (vs. USD41 YoY). EBITDA/MT of TCAHL declined 96% YoY to USD1. EBITDA margin for Indian standalone expanded 530bp YoY to 28.4%.
Valuation and view
* The near-term environment remains challenging, with the soda ash demandsupply balance yet to meaningfully improve despite expectations of future demand from solar glass and electric vehicles. Benefits from these end-use industries are likely to play out gradually, while the current oversupply persists.
* Further, diversification from the commodity business (primarily soda ash) to the specialty segment/batteries is also expected to pay off for TTCH in the mediumto-long run.
* Although the company has expansion plans in India, the payoff remains contingent on a broader cyclical recovery, limiting near-term upside.
* We expect TTCH to record a revenue/EBITDA CAGR of 10%/27% over FY26-28. Reiterate Neutral with an SoTP-based TP of INR700.
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