For Emergency BLOOD requirement in any city in India, SMS to 5676775
"Blood <
s p a c e > PIN code of your city < s p a c e > required blood group < s p a c e > your name"

Sunday 25 November 2007

Tata Chemicals

Aspiring to touch New Horizons

Tata Chemicals (TCL) is a leading player in inorganic chemicals and the largest player in soda ash in India. With the Brunner Mond acquisition, TCL has now become the third largest soda ash player in the world with over 3.0mt capacity. Rising demand and strong soda ash prices thereof coupled with backward integration into phosphoric acid (through 33% stake in IMACID) augurs well for TCL. We believe, going ahead, a favourable business environment and capacity additions will sustain the company’s Earnings momentum.


Company Background

TCL is a leading player in the inorganic chemicals segment in India. TCL’s business is classified into two segments viz., inorganic chemicals (including food additives) and fertilisers, which contributed 54% and 46% to FY2007 consolidated Top-line, respectively. On a standalone basis, the segments contributed 37% and 63% to Top-line respectively, in FY2007. Inorganic chemicals comprise soda ash, salt, cement, etc., while fertilisers comprise phosphatic fertilisers like di-ammonium phosphate (DAP), mono-ammonium phosphate (MOP), NPK, etc. TCL’s products find application in various industries ranging from agriculture to pharmaceutical.

Investment Arguments

  • Strong Soda Ash demand to keep prices firm: Global soda ash demand has been growing 3-4% pa, in the last few years and is expected to continue to grow at same levels over the next 3-4 years as well. Domestic demand for soda ash is expected to grow at 4.5-5% pa following demand from detergents (3-3.5%) and rising construction activity fueling glass demand. We believe that strong demand, high utilisation rates and slower pace in capacity additions would keep the soda ash prices firm over the next 2-3 years.
  • Capacity expansions to meet rising demand for Soda Ash: TCL currently has over 3.0mt of consolidated soda ash capacity. To meet the rising demand for soda ash TCL has planned capex Rs300-350cr to augment its domestic and international soda ash capacity by over 6,00,000 tonnes over the next couple of years. TCL's new soda ash capacities are expected to come on stream when there would be a capacity crunch globally and soda ash prices are ruling strong.
  • Branded Salt and Cement to be Earnings' accretive: We expect TCL's Salt sales to grow at a CAGR of 9-10% over the next couple of years. On the back of strong cement demand, TCL is expanding capacity of its Mithapur plant by over 20% from 0.5mt to 0.6mt, which will add to Earnings.

Outlook and Valuation

TCL has earmarked over Rs500cr for various expansions, which is expected to drive volumes going ahead. Ongoing expansions will be completed over the next couple of years in a phased manner and effects of the same will be fully reflected in the company’s FY2010E performance. We believe that the global prices of chemicals will remain strong and hence are positive for the company’s future growth prospects. The company has investments of over Rs36/ share (value as on March 2007 and inclusive of both quoted and unquoted investments). At Rs303, the stock is available at 10.9x consolidated FY2008E EPS of Rs27.8 and 9.0x consolidated FY2009E EPS of Rs33.6. We Initiate Coverage on the stock, with a Buy recommendation and Target Price of Rs387.

----- With due apologies and full credits to Angel Broking Limited

No comments:

Disclaimer : Recommendations or suggestions given here are totally free. Care has been taken to give correct advice / information / recommendations / suggestions /tips. We take no guarantee that the mentioned analysis will work to your benefit. Since we are involved in the market, we take pleasure in giving the best for the benifit of all. We have interest in the market and may or may not have positions in some or all of the stocks that are mentioned. We do not have any clients as such. These views are purely personal. We do not take any responsibility in any profits or losses that any one incurs as a result of these views / suggestions / recommendations / advice / tip /etc. Please do your own due diligence before initiating any trades as a result of this information.

Followers