5 May 2021
4QFY21 Results Update | Sector: Chemicals
Tata Chemicals
Downgrade to
Neutral
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
2021 2022E
Sales
102.0 114.4
EBITDA
15.0
18.9
PAT
2.6
6.7
EBITDA (%)
14.7
16.6
EPS (INR)
10.1
26.1
EPS Gr. (%)
(68.2) 159.7
BV/Sh. (INR)
561
576
Ratios
Net D/E
0.3
0.2
RoE (%)
1.9
4.6
RoCE (%)
3.1
5.0
Valuations
P/E (x)
70.4
27.1
EV/EBITDA (x)
15.2
11.9
Div Yield (%)
1.4
1.6
FCF Yield (%)
(1.7)
4.7
TTCH IN
255
180.4 / 2.4
834 / 272
-6/113/100
2472
CMP: INR708
Too much optimism built in!
Downgrade to Neutral
TP: INR628 (-11%)
2023E
130.7
24.4
10.6
18.7
41.8
59.8
606
0.2
7.1
6.8
17.0
9.1
1.7
4.7
Tata Chemicals (TTCH)’s consolidated EBITDA came in below our estimates –
largely dragged down by North America (NA) and Europe – due to the
absence of operating leverage and one-time costs.
In the last six months, TTCH has rallied ~126%, whereas the Nifty has
appreciated by ~20%. This outperformance is largely attributable to its plans
to enter into the Energy Science biz. (EV cell manufacturing) – GOI has
announced the PLI incentive for the EV Battery business, but plans are yet to
be finalized (highlighted by the mgmt. during the 4QFY21 call).
These future plans have led to higher valuation multiples; TTCH currently
trades at EV/EBITDA of 11.9x/9.1x FY22/FY23E, implying a premium of
22%/27%/41% to its 3-/5-/10-year average one-year forward EV/EBITDA
multiple.
Execution risk persists in the Energy Science biz, coupled with the risk of
margin pressure due to increasing RM prices; particularly, energy costs in
soda ash pose a risk to near-term performance.
Based on these factors, we downgrade TTCH from Buy to
Neutral.
North America, UK drag down overall performance
Shareholding pattern (%)
As On
Promoter
DII
FII
Others
Mar-21 Dec-20 Mar-20
38.0
38.0
34.6
20.8
24.7
34.2
14.0
12.3
9.3
27.2
25.1
21.9
TTCH reported an overall revenue increase of 11% YoY to INR26.4b (v/s est.
INR25.2b) in 4QFY21. The EBITDA margin contracted 610bp YoY to 10.7%
(v/s est. 17%) due to gross margin contraction of 590bp. EBITDA fell 29%
YoY to INR2.8b (v/s est. INR4.3b). Adjusted PAT declined 94% YoY to
INR118m (v/s est. INR1,702m).
Higher gas price (net) of INR450m in 4QFY21, due to the Polar Vortex, was
reported as a one-off item – which impacted EBITDA in its North America
operations. Adjusted for the same, EBITDA was down 18% YoY to INR3.3b.
Revenue / EBITDA / Adjusted PAT declined 2%/23%/68% YoY in FY21.
India’s
standalone revenue grew 15% YoY to INR8.4b. The EBITDA margin
expanded 40bp YoY to 19.5%, and EBITDA grew 17% YoY to INR1.6b. Soda
ash / Salt volumes rose 16%/4% YoY and blended realization 4% YoY.
In
North America (NA),
revenue was largely in-line (+1% YoY) owing to a) 3%
YoY growth in volumes, as exports rose 20% YoY, whereas domestic
volumes declined 12% YoY, and b) currency benefit (+5% YoY). Realization,
on the other hand, fell 6% YoY (to USD192/mt). Reported EBITDA/mt
declined 17% YoY (to USD15), with EBITDA contracting 69% YoY (to
INR630m). This was attributable to (a) higher gas price due to the Polar
Vortex, (b) lower absorption of fixed costs due to lower production, (c)
certain fixed costs from 3QFY21 being carried forward to 4Q, and (d) higher
exports yielding lower margins.
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.