MOSL: TATA CHEMICALS (Buy)-One-offs impact operating performance-US, India businesses to lead recovery

Tata Chemicals: One-offs impact operating performance; US, India businesses to lead recovery

(TTCH IN, Mkt Cap USD2.4b, CMP INR680, TP INR933, 37% Upside, Buy)

• In-line revenue and PAT; EBITDA below estimate: TTCH’s revenue grew 10% YoY to INR29,607m (our estimate: INR30,037m) in 2QFY19. EBITDA declined 5.6% YoY to INR6,020m (our estimate: INR7,116m), with the margin contracting 340bp YoY to 20.3% (our estimate: 23.7%). Adj. PAT grew 25% YoY to INR3,217m (our estimate: INR3,201m), primarily led by higher other income of INR1,233m (our estimate: INR750m).
• 1HFY19 performance: Revenue grew 11% YoY to INR57,298m. EBITDA remained flat YoY at INR11,177m, with the margin shrinking 220bp YoY. Adj. PAT grew 24% YoY to INR5,357m. In 2HFY19, we expect revenue growth of 13% YoY, with margin expansion of 20bp YoY.
• One-offs constrain 2Q; 2HFY19 to be better: Margins shrank significantly by 640bp YoY to 13.7% in Basic Chemistry business due to (1) installation of environmental equipment at the US plant, which led to a volumes loss of 50,000MT, (2) lower trading of soda ash in Europe and cost pressure and (3) higher plant spending in Magadi due to repair of machineries, which were damaged during floods. However, the volumes loss in the US is likely to recover to some extent in the coming quarters and the global soda ash market is likely to remain tight, with Turkish capacity being nearly completely absorbed.