31 October 2020
2QFY21 Results Update | Sector: Chemicals
Tata Chemicals
Buy
Estimate change
TP change
Rating change
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Financials & Valuations (INR b)
Y/E Mar
2020 2021E
Sales
103.6
99.5
EBITDA
19.5
15.8
PAT
8.1
3.6
EBITDA (%)
18.8
15.8
EPS (INR)
31.7
14.2
EPS Gr. (%)
(6.4)
(55.2)
BV/Sh. (INR)
506
507
Ratios
Net D/E
0.3
0.3
RoE (%)
6.4
2.8
RoCE (%)
6.7
3.8
Payout (%)
42.7
95.5
Valuations
P/E (x)
10.2
22.7
EV/EBITDA (x)
6.7
8.3
Div Yield (%)
3.4
3.4
FCF Yield (%)
(5.1)
6.0
TTCH IN
255
CMP: INR322
TP: INR381 (+18%)
North America/India drag overall performance
Tata Chemicals’ (TTCH) operating performance was muted across
geographies (barring Europe). This was primarily led by North America and
India, where EBITDA declined 48% and 40% respectively.
The Soda Ash segment’s performance was impacted by reduction in demand
from the end user industry (largely for flat and container glass). Factoring in
the miss to our estimates (due to one-time cost) and weak end-user industry
demand scenario, we cut our EBITDA estimates by 6% for FY21 while
maintaining it for FY22E. We arrive at an SOTP-based TP of INR381. Maintain
Buy.
82.1 / 1.1
346 / 197
3/-4/20
731
2022E
111.5
Broadly in line operating performance; Adj. for one-time cost
20.8
TTCH reported overall revenue decline of 6% YoY to INR26.1b (v/s est.
8.2
INR26.5b) in 2QFY21. EBITDA margin contracted 540bp YoY to 14.8% (v/s
18.7
est. 16.5%) while EBITDA declined 31% YoY to INR3.9b (v/s est. INR4.4b).
32.0
126.0
Reported EBITDA includes one-time INR250m pertaining to (i) flooding,
523
which caused damage to inventory and other assets worth INR110m
0.3
6.2
5.9
48.0
10.1
6.1
3.9
10.9
Shareholding pattern (%)
As On
Promoter
DII
FII
Others
Sep-20 Jun-20 Sep-19
35.5
34.6
30.6
29.2
32.0
38.9
9.1
11.2
9.4
26.3
22.2
21.1
(damages
have also been claimed from insurance company, which will be
recorded in subsequent quarters),
and (ii) an annual wage settlement
concerning workmen, which led to an increase in the gratuity benefit
provision by INR140m. Adjusting EBITDA for the same, EBITDA declined 27%
YoY to INR4.1b (6% below our est.); EBITDA margins contracted 450bp YoY
to 15.8%. PAT declined 75% YoY to INR705m.
In 1HFY21, revenue/EBITDA/PAT declined 7%/31%/81% YoY. In 1HFY21, CFO
increased 20% YoY to INR13.8b due to lower receivables and inventory.
India’s
standalone revenue edged up 1% YoY to INR7.2b. EBITDA margin
contracted 11.2pp YoY to 16.2% and EBITDA declined 40% YoY to INR1.2b.
Adj. EBITDA for the above-mentioned one-time cost of INR250m, EBITDA
was down 27% YoY to INR1.4b. Soda ash/bicarb volumes declined 2%/7%
YoY, which was offset by 14% volume growth in salt.
In
North America,
revenue declined 20% YoY due to 17% YoY drop in
volumes as exports declined 33% YoY while domestic volumes grew 1% YoY.
Additionally, realization also fell ~10% YoY (to USD199/mt), whereas
currency benefit of 7% led to an overall realization decrease of 4% YoY (to
INR14,968/mt). EBITDA/mt plunged by 42% YoY (to USD27) with EBITDA
contracting 48% YoY (to INR960m) due to negative operating leverage.
In
Europe,
revenue remained flat YoY due to currency benefit (+8% YoY) and
improvement in blended realization in GBP (+2% YoY), which was offset by
10% volume decline.
Africa’s
soda ash volumes/realizations (in USD) declined 31%/12%, leading
to revenue/EBITDA decrease of 35%/78%.
Rallis’
revenue declined 3% YoY due to lower business from Crop care’s
international business and contract manufacturing segment, which was
partly offset by the domestic/seeds business; EBITDA declined 1% YoY.
Sumant Kumar
(Sumant.Kumar@motilaloswal.com)
Darshit Shah
(Darshit.Shah@MotilalOswal.com) /
Yusuf Inamdar
(Yusuf.Inamdar@motilaloswal.com)
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
Investors are advised to refer through important disclosures made at the last page of the Research Report.