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Motilal Oswal
Tata Chemicals (Buy)
CMP: ₹610.6
Target: ₹709
Key points: a) Among the various geographies where Tata Chemicals operates its soda ash business, only India delivered revenue growth (+16 per cent) in FY19, driven by a realisation improvement.
b) Tata Chemicals North America (TCNA) revenue declined 4 per cent to $476 million in FY19 owing to a 5 per cent drop in volumes due to production breakdown, partly offset by a 1 per cent improvement in realisation.
c) UK operations turnover was down 6 per cent to GBP158 million in the year due to a decline in soda ash and sodium bicarbonate volumes by 18 per cent and 5 per cent, respectively, partly offset by a 11 per cent improvement in blended realisation. Lower volumes can be attributed to the planned reduction in sales of low-margin imported soda ash.
d) Tata Chemicals Magadi (TCML) revenue was down 4 per cent to $73.8 million on account of a 15 per cent decline in volume, partly offset by a 13 per cent improvement in realisation. However, in INR terms, the company exhibited revenue growth across these regions due to appreciation in the USD and the GBP by 9 per cent and 7 per cent, respectively.
Valuation: We maintain our estimate of a CAGR of 11 per cent in revenue and 13 per cent in PAT over FY19-21. The company’s cash-cow businesses (soda ash and sodium bicarbonate) are expected to remain steady on the back of a favourable demand-supply scenario.
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