MOSL: TATA CHEMICALS (Buy)-Robust operating performance across geographies

Tata chemicals: Robust operating performance across geographies

(ttch IN, Mkt Cap USD2.8b, CMP INR719, TP INR941, 31% Upside, Buy)

• Profitability driven by India inorganic chemicals business: TTCH’s revenue grew 1.7% YoY to INR25,551m in 4QFY18. EBITDA grew 8% YoY to INR5,124m, with the margin expanding 130bp YoY to 20.1%. Adj. PAT grew 26.2% YoY to INR3,126m, as the tax rate was lower at 9.5% v/s 22.6% in 4QFY17.
• FY18 performance: Revenue remained flat at INR102,697m. EBITDA rose 5% to INR21,907m, with the margin expanding 110bp to 21.3%.. Consequently, adj. PAT grew 40% YoY to INR12,287m.
• Riding on improved operational efficiencies: Profitability improved across geographies in the quarter. TCNA’s revenue grew 4% YoY – its EBITDA/MT increased 16% YoY to USD37.2 (in INR terms, up 11% YoY to INR2,394). Similarly, TCAHL’s revenue increased 28% YoY – its EBITDA/MT increased 40% YoY to USD38.4 (in INR terms, up 16% YoY to INR2,414). However, TCEHL’s revenue declined 10% YoY, but profitability remained intact – EBITDA/MT increased 13% YoY to GBP80.6 (in INR terms, up 22% YoY to INR7,222).
• Valuation view: The company’s cash-cow business – soda ash and sodium bicarbonate – has been performing well across geographies. Apart from that, the company has begun focusing on growing other segments, as evident from the launch of new products under pulses and expected commissioning of the HDS plant in FY19 and of the nutraceuticals plant in 1HFY20. We largely maintain our estimates, and expect TTCH to deliver 10% revenue CAGR and 7% PAT CAGR over FY18-20E. We value TTCH on an SOTP basis to arrive at a TP of INR941. Maintain Buy.