Stock Review: TATA CHEMICALS

Tata Chemicals, the country's second-largest soda ash producer, reported mixed results for the June 2011 quarter. Rising input prices continues to be a concern for the company. However, factors like strong demand in all verticals across Asia, Latin America and Europe, strong global market presence and government's approval for bringing urea under the nutrient-based subsidy scheme are likely to ring positive for the company.

During the June 2011 quarter, the company reported an 18% jump in its topline to . 2,924 crore against the year-ago pe0riod due to healthy demand across major products. The chemicals segment, which contributes over half of its overall business, grew nearly 17%.

Its operating profit margin dropped by 280 basis points to 13.7% during the quarter. Its bottomline fell 7.5% to . 200 crore. Nearly, . 31 crore of subsidy income was unrealised on the opening stock of raw materials for phosphatic and potassic fertilisers due to changes in subsidy norms. Also, Tata Chemicals' profits in the June '10 quarter included . 18.2 crore of insurance claims, which were absent during the current quarter.

The company expects to post better results in the coming quarters and has taken several measures to tackle rising prices of raw materials. It signed a contract with Canada-based Canpotex to import potash at a fixed price of $470 per tonne. It also acquired a majority stake in US-based potash explorer — EPM Mining Ventures — recently to access low-cost sulphate of potash.

Due to increasing prices and global economic concerns, the company has put on hold its plan to raise $375 million which it planned to utilise for its various expansion projects in Gabon, Canada and India.

However, the government's recent decision to move ahead with urea decontrol is a positive development for Tata Chemicals. The company has also lined up various capacity expansion plans, including SSP debottlenecking at Haldia by 50,000 TPA at a cost of . 11 crore and 200,000-TPA increase in the domestic salt capacity at . 180-crore. Both projects are expected to commence by the end of this fiscal.

At the current market price of . 351, the stock trades at 11.8 times its earnings for the trailing twelve months.