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MOSL: TATA CHEMICALS (Buy)-Largely in line driven by US/Africa-Europe remains weak

TATA CHEMICALS: Largely in line driven by US/Africa; Europe remains weak

(TTCH IN, Mkt Cap USD2b, CMP INR565, TP INR703, 24% Upside, Buy)

 

• Largely in-line revenue/EBITDA: Revenue grew 6% YoY to INR29b (our estimate: INR31b) in 1QFY20. EBITDA rose 21% YoY to INR5.9b (our estimate: INR5.6b), with the margin expanding 260bp YoY to 20.4% (our estimate: 18.1%). On a like-to-like basis, EBITDA was up 17% YoY to INR5.7b (adj. for Ind-AS 116). Adj. PAT grew 1% YoY to INR2,166m (our estimate: INR2,345m).
• Improvement across geographies barring Europe: US and Africa contributed 90% of incremental EBITDA of INR1,014m in 1QFY20. In the US, EBITDA/mt was up 37% YoY to USD50 (realizations improved 6% YoY to USD225/mt) and sales volume increased 1% YoY. In Africa, EBITDA/mt stood at USD36 versus a loss of USD33 in the year-ago period, despite realizations declining 13% YoY to USD224/mt. The improvement was driven by 44% volume growth, lower input cost and a favorable base (1QFY19 had higher cost related to shut down and siltation due to heavy rains). Europe was subdued, with EBITDA/mt declining 60% YoY to GBP18 due to higher RM and energy costs. Consumer segment revenue grew 13% YoY (pulses and spices grew 45%) with EBIT margins contracting 420bp to 14.6%. However, adjusting for one time expense of INR100m during the quarter; EBIT margin contracted 210bp to 16.7%.
• Valuation and view: We expect US and Africa soda ash businesses to continue delivering a healthy performance owing to lower input cost. This, along with a likely improvement in European biz, strengthens the company's overall growth prospects. We largely maintain our estimates of revenue/EBITDA/PAT CAGR of 10%/16%/10% over FY19-21. We value the stock on an SOTP basis and arrive at a target price of INR703 (implied EV/EBITDA of 7.9x). Maintain Buy.