Shares of Tata Chemicals surged almost 10 percent to ₹1,033.75 on BSE on May 2 buoyed by better than expected March quarter results.
Aftermarket hours on April 29, the company reported a multi-fold jump in consolidated profit after tax at ₹470.24 crore for Q4FY22 against ₹29.26 crore in the corresponding quarter a year ago.
Consolidated revenue from operations grew 32 percent year-on-year (YoY) to ₹3,480.67 crore against ₹2,636.21 crore in the same quarter last year.
“While the global demand environment continues to be positive across our products and their applications, the supply side environment especially energy and input costs remain at elevated levels along with logistic challenges that continue to be seen in the market," said R. Mukundan, Managing Director & CEO, Tata Chemicals.
"We continue our long-term focus on excellence by leveraging digitalization and sustainability. In addition to operational excellence, we continue to focus on executing the Phase I growth capex in India. The company has further planned for Phase II capacity expansion of soda ash (nearly 300 kt) and bicarb (70 kt) and specialty silica capacity by 50kt for a capex outlay of nearly ₹2,000 crore in India,” said Mukundan.
Tata Chem's Q4 results seem to have boosted brokerage firms' confidence in the stock as most of them have maintained their views on the stock, expecting a healthy double-digit upside.
Brokerage firm Nirmal Bang has a 'buy' call on the stock with a target price of ₹1,146 and said that its bullish view is based on the management’s guidance about sustained pricing/margin expansion potential after the latest hikes in US/UK soda ash contract prices and Indian list price.
The brokerage firm pointed out that Tata Chem said that the Soda Ash industry is likely to see a sustained upswing in the coming months, with strong demand at 61mn tpa, and available capacity capped at 58mn tpa and an absence of capacity addition for two years.
"The US and UK Soda Ash annual contract price revisions have passed on key input and energy costs. Further, US export orders are being reworked under short-term contracts. This, along with the April’22 increase of ₹2,000/te in
India's list price could improve the Chemical segment’s margins, assuming energy costs and freight rates stabilize. We see FY22-24E CAGR in volume and EPS at 7.9 percent and 26.4 percent, respectively, and the post-tax RoCE improving to 10.5 percent by FY24E as the added catalysts, which will offset the cyclical risk of a reversal in Soda Ash margins," said Nirmal Bang.
Motilal Oswal Financial Services expects Tata Chemicals' revenue, EBITDA and PAT CAGR of 14 percent, 13 percent and 6 percent, respectively, over FY22-24.
"Factoring the strong operating performance in Q4FY22, we have raised our FY23/FY24 EBITDA estimate by 5 percent each. We maintain our 'neutral' rating with a SoTP-based target price of ₹1,045," said Motilal Oswal.
The brokerage firm highlighted that Tata Chemicals traded at an average EV/EBITDA of 8.8 times over the last 10 years on a one-year forward basis. It is now trading at 10.6 times FY23E EV/EBITDA, implying a premium of 20 percent.
"Its past multiples factor in earnings from the branded consumer business (salt and other consumer sales), which commands a higher multiple as compared to its existing Chemicals business. Thus, the implied premium would widen further," said Motilal Oswal.
Market sentiment on the stock is ‘moderately positive’, according to a MintGenie poll and an average of 6 analysts has a ‘buy’ call on the stock.
Disclaimer: The views and recommendations made above are those of broking companies and not of Mint Genie.