Recommendation From Commodity Chemicals Sectors
This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year
Tata Chemicals
THE RIGHT CHEMISTRY OF GROWTH
HERE IS WHY Ongoing business expansion Reduction in debt Strong operating performance
Tata Chemicals Limited manufactures and sells consumer, industry, and farm essential products in Asia, Europe, Africa, United States and other countries. The company operates through four segmentsinorganic chemicals, fertilisers, other agri-inputs and others. The company’s Tata Salt brand is a highly reputed salt brand in India with a market share of close to 29 per cent. The company plans to grow and acquire about 40-45 per cent market share in this segment.
Its specialty business is expected to be driven by growth in Rallis; upcoming silica business and expansion in nutraceuticals business. The nutraceuticals project is expected to be commissioned by Q1 FY20.
The company is divesting its fertiliser business, which is generally a low margin segment, to focus towards specialty chemical business and farm business.The company is focusing on expanding its consumer business and hopes to double the reach of its pulses to around 80,000 retail outlets in FY19. The company added nutrimixes like khichdi and chila mix to its portfolio and looks to launch more such products as it believes the market is still under-penetrated.
The contribution from North America grew 4.33 per cent YoY in Q4FY18 and is expected to deliver strong growth going forward. The company currently has become cash positive on a standalone basis and plans to become debt-free even on consolidated basis. However, this will not happen in the current financial year. On the financial front, the net sales of the company decreased 32.02 per cent to Rs 918.25 crore in the fourth quarter of FY18, as against Rs 1350.71 crore in the same quarter of the previous year. The company’s PBDT went up by 64.94 per cent to Rs 303.35 crore in the fourth quarter of FY18 on a yearly basis. The company’s net profit also increased tremendously by 539.59 per cent to Rs 1,029.49 crore in the fourth quarter of FY18, as against Rs 160.96 crore in the same quarter of the previous year.
On an annual basis, the net sales of the company decreased by 45.54 per cent to Rs 3,524.17 crore in FY18, as against Rs 6,470.92 crore in the FY17 on a year-on-year basis. The company’s PBDT surged by 8.84 per cent to Rs 1,030.14 crore in FY18 as against Rs 946.44 crore in FY17. The net profit also went up by 155.08 per cent to Rs 1,799.96 crore in the FY18 as against Rs 692.71 crore in FY17.
On the valuation front, Tata Chemicals has a PE ratio of 6.98x as against its peer GHCL (7.80x). The company’s return-onequity (RoE) and return-on-capitalemployed (RoCE) stood at 12.07 per cent and 11.25 per cent, respectively. The company has a debt-to-equity ratio of 0.89x and price-to-book value of 1.76x. The company has been maintaining a healthy dividend payout of 36.17 per cent.
The soda ash and sodium bicarbonate segment, which is considered as the company’s cash-cow business, has been performing well across geographies. Also, the company has started focusing on growing other segments. Considering a confluence of the above factors, we recommend our reader-investors to BUY the stock.
