Tata Chemicals

 

 

Higher Margins & Better Volumes Help Co Improve Show, But Challenges Remain

 

TATA Chemical's stock crashed 6.5% after posting disappointing results for the quarter and year ended March 2010 on Monday. The scrip has marginally outperformed the market, gaining around 31% in the past one year as against a 15% growth in benchmark Sensex.

   Tata Chemicals profit for the fourth quarter fell by more than a quarter to Rs 128 crore on a consolidated basis, despite a 24% improvement in net sales. Although net sales also fell against last year, the main positive was the 360-basis point improvement in its operating margins to 19.3%.

   TCL's inorganic chemical segment saw a fall of 8% and 4% in its revenue and PBIT, respectively. This was mainly due to the demand and pricing decline during the initial quarters of FY09-10. Similarly, the fertiliser segment also saw a huge fall of 36% and 25% in its revenue and PBIT, respectively, as the prices came down.

   During FY10, the company saw better local and overseas demand for soda ash against previous year. Also, the debottlencking of its plant helped increase urea production by 20% y-o-y basis. Its new water purifier 'Tata Swach' launched in October 2009 sold nearly 50,000 units in Maharashtra and Karnataka, even as the company aims to sell a million units in FY11 as it pans out nationwide.
   It paid off Rs 440 crore of debt during the June '09 quarter followed by selling part of its stake in Titan to raise Rs 88 crore during the September '09 quarter. It has reduced its debt-equity ratio to 0.81 for FY10 as against 0.95 for FY09. The company is still spending nearly Rs 400 crore on interest costs annually.

   The company has lined up a capex of around Rs 300 crore for FY11, when it will be completing its first customised fertiliser facility and embark upon doubling its urea capacity at Babrala. To shore up its capital base before going for this next round of capex the company is planning to raise over Rs 400 crore through a preferential allotment to its promoters.

   Doubling of urea capacity to 2.4 million tonne per annum will take up three years with an estimated capex of Rs 3,500 crore. It has already carried out pre-feasibility and basic engineering studies and is awaiting clarity on gas supply to move ahead.

   During the year, the company acquired shares in Rallis India — another Tata Group company focusing on agrochemicals — to take its shareholding beyond 50%.

   Thanks to higher margins and better volumes, Tata Chemicals's performance during FY10 was much better than in FY09. There is still some more restructuring lying ahead for this soda ash major.