Tata Chemicals - Myiris.com

May 28, 2013
Balwindar Singh
balwindarsingh@plindia.com
+91-22-66322239
Rating Accumulate
Price Rs307
Target Price Rs330
Implied Upside 7.5%
Sensex 20,031
Nifty 6,083
(Prices as on May 27, 2013)
Trading data
Market Cap. (Rs bn) 78.2
Shares o/s (m) 254.8
3M Avg. Daily value (Rs m) 130.1
Major shareholders
Promoters 31.06%
Foreign 18.04%
Domestic Inst. 26.88%
Public & Other 24.02%
Stock Performance
(%) 1M 6M 12M
Absolute (4.3) (1.1) (1.4)
Relative (8.1) (7.5) (24.9)
How we differ from Consensus
EPS (Rs) PL Cons. % Diff.
2014 33.0 37.7 ‐12.4
2015 37.1 40.6 ‐8.7
Price Performance (RIC: TTCH.BO, BB: TTCH IN)
(Rs)
400
350
300
250
200
150
100
50
0
May-12
Jul-12
Sep-12
Source: Bloomberg
Nov-12
Jan-13
Mar-13
May-13
Tata Chemicals
Business environment remains challenging in the near term
Tata Chemicals’ (TCL’s) Q4FY13 results turned out to be operationally lower than
our estimates. However, adjusted PAT at Rs2.2bn, 12% YoY, were ahead of
estimates driven by higher other income, lower tax rate and depreciation. The
company undertook a write‐down of Rs4.8bn in its European operations due to the
prevailing weak economic scenario. We have downgraded earnings by 7%/6% for
FY14E/15E to Rs33.0/37.1, respectively, due to lower fertiliser volumes (Haldia
plant remains shut due to disruption in phosphoric acid), reduction in complex
fertiliser prices, soda ash demand issues in the European business and slower
ramp‐up in volumes in North America. We maintain ‘Accumulate’ with a revised
target price of Rs330 (previous Rs354).
Operationally a weak quarter: TCL reported consolidated revenues of Rs33.9bn,
-2% YoY, lower than our estimate of Rs37.3bn due to lower fertiliser sales in
standalone operations and lower soda ash volumes in North America.
Consolidated EBITDA for the quarter stood at Rs4.7bn, -13% YoY (lower than
estimates of Rs5.3bn), with EBITDA margins of 13.9% (est. of 14.3%). However,
consolidated adjusted PAT of Rs2.2bn, 12% YoY was ahead of estimates of
Rs1.9bn. Exceptional items of Rs5bn include Rs310m of FX loss on foreign
currency long-term borrowings. Other exceptional items of Rs4.8bn (goodwill of
Rs971m and other asset of Rs3.9bn) relate to a write-down in European
operations.
TCNA performance impacted due to lower volumes: Tata Chemicals North
America (TCNA) performance was impacted due to lower sales volumes. TCNA
reported revenues of Rs6bn, -6% YoY lower than our estimate of Rs7.3bn.
Though EBITDA margins at 22.0% were in line, EBITDA at Rs1.3bn was lower
than our estimate due to lower sales.
Contd…2
Key financials (Y/e March) 2012 2013 2014E 2015E
Revenues (Rs m) 137,998 148,061 153,446 163,305
Growth (%) 24.8 7.3 3.6 6.4
EBITDA (Rs m) 22,974 21,180 23,124 24,993
PAT (Rs m) 9,144 7,735 8,421 9,461
EPS (Rs) 35.9 30.4 33.0 37.1
Growth (%) 30.1 (15.4) 8.9 12.3
Net DPS (Rs) 10.0 10.0 10.0 10.0
Profitability & Valuation 2012 2013 2014E 2015E
EBITDA margin (%) 16.6 14.3 15.1 15.3
RoE (%) 15.4 12.1 12.6 13.0
RoCE (%) 10.6 8.7 8.6 9.2
EV / sales (x) 0.9 0.9 0.8 0.7
EV / EBITDA (x) 5.3 6.1 5.3 4.8
PE (x) 8.5 10.1 9.3 8.3
P / BV (x) 1.2 1.2 1.1 1.0
Net dividend yield (%) 3.3 3.3 3.3 3.3
Source: Company Data; PL Research
Prabhudas Lilladher Pvt. Ltd. and/or its associates (the 'Firm') does and/or seeks to do business with companies covered in its research reports. As a result investors should be aware that
the Firm may have a conflict of interest that could affect the objectivity of the report. Investors should consider this report as only a single factor in making their investment decision.
Please refer to important disclosures and disclaimers at the end of the report
Q4FY13 Result Update

Exhibit 1: Q4FY13 Result Overview (Rs m) – Consolidated
Tata Chemicals
Tata Chemicals Europe/Africa reported revenues of Rs5.1bn, -5% YoY lower than
our estimate of Rs5.7bn due to lower volumes. However, EBITDA stood at
Rs880m, -21% YoY above estimates. IMACID reported revenues of Rs740m, 40%
YoY in line with our estimates. EBITDA for the quarter stood at Rs80m, with
margins of 10.8%. However, IMACID’s performance is likely to be impacted in
Q1FY14E due to non-agreement over phosphoric acid rates.
Downgrade earnings; maintain ‘Accumulate’ with a revised target price of
Rs330: We have downgraded earnings to reflect near-term challenges. Though
management indicated that soda ash prices in the South-East Asian market have
bottomed out, TCL’s re-negotiation of pricing contracts are still sometime away.
We maintain ‘Accumulate’ with a revised target price of Rs330. At CMP of
Rs307, stock trades at 9.3x FY14E earnings of Rs33.0.
Y/e March Q4FY13 Q4FY12 YoY gr (%) Q3FY13 FY13 FY12 YoY gr (%)
Net Sales 33,915 34,650 (2.1) 41,968 148,061 137,998 7.3
Expenditure
Raw Materials 11,741 13,488 (13.0) 19,217 57,743 56,533 2.1
% of Net sales 34.6 38.9 45.8 39.0 41.0
Personnel 2,841 2,625 8.2 2,796 11,255 9,710 15.9
% of Net sales 8.4 7.6 6.7 7.6 7.0
Other Expenditure 14,627 13,129 11.4 14,593 57,883 48,781 18.7
% of Net sales 43.1 37.9 34.8 39.1 35.3
Total Expenditure 29,209 29,242 (0.1) 36,606 126,881 115,024 10.3
EBITDA 4,706 5,408 (13.0) 5,362 21,180 22,974 (7.8)
Margin (%) 13.9 15.6 12.8 14.3 16.6
Depreciation 1,191 1,360 (12.4) 1,378 5,339 5,087 5.0
EBIT 3,514 4,049 (13.2) 3,984 15,841 17,887 (11.4)
Interest 1,067 1,208 (11.7) 1,184 4,639 4,270 8.6
Other Income 732 291 152.0 163 1,726 1,228 40.6
PBT 3,179 3,131 1.5 2,963 12,929 14,845 (12.9)
Tax 684 803 (14.8) 733 3,154 3,661 (13.8)
Tax Rate (%) 21.5 25.6 24.7 24.4 24.7
Adjusted PAT before minority 2,495 2,329 7.1 2,230 9,774 11,185 (12.6)
Minority/associate 376 437 481 2,101 2,019
Adjusted PAT 2,119 1,891 12.0 1749 7758 9,144 (15.2)
EO items 3,999 506 690.0 (491) 3,754 768 388.7
Reported PAT (1,880) 1,385 NA 2,241 4,004 8,375 (52.2)
Adjusted EPS 8.3 7.4 12.0 6.9 30.4 35.9 (15.2)
Source: Company Data, PL Research
May 28, 2013 2

Exhibit 3: Consolidated Volumes ('000mt)
Soda ash ‐ Sales
Revision in estimates
Tata Chemicals
We have revised our estimates to reflect lower fertiliser volumes, prices and
pressure on margins. Revised earnings stand at Rs 33.0/37.1 for FY14E/15E,
respectively.
Exhibit 2: Revision in estimates
Old
Estimates
FY14E FY15E
New
Estimates
% Change
Old
Estimates
New
Estimates
% Change
Net sales (Rs m) 161,015 153,446 (4.7) 170,735 163,305 (4.4)
EBITDA (Rs m) 24,474 23,124 (5.5) 26,222 24,993 (4.7)
Margin (%) 15.2 15.1 (13) 15.4 15.3 (5)
APAT (Rs m) 9,025 8,421 (6.7) 10,025 9,461 (5.6)
AEPS (Rs) 35.4 33.0 (6.6) 39.3 37.1 (5.5)
Source: Company Data, PL Research
Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 YoY gr. (%) QoQ gr. (%) FY13 FY12 YoY gr. (%)
Domestic 184 154 157 172 177 (3.8) 2.9 660 681 (3.1)
Europe 185 195 186 171 164 (11.4) (4.1) 716 786 (8.9)
Africa 120 104 103 117 103 (14.2) (12.0) 427 484 (11.8)
US 588 575 566 629 573 (2.6) (8.9) 2,343 2,376 (1.4)
Total 1,077 1,028 1,012 1,089 1,017 (5.6) (6.6) 4,146 4,327 (4.2)
Fertilisers
Urea 254 222 322 319 280 10.2 (12.2) 1,143 1,138 0.4
Complex 96 - 112 194 155 61.5 (20.1) 461 589 (21.7)
Others
Salt 219 228 229 223 243 11.0 9.0 923 860 7.3
Soda ash ‐ Production
Domestic 206 179 187 204 202 (1.9) (1.0) 772 760 1.6
Europe 199 196 190 173 176 (11.6) 1.7 735 805 (8.7)
Africa 109 103 128 104 108 (0.9) 3.8 443 482 (8.1)
US 527 566 576 614 575 9.1 (6.4) 2,331 2,299 1.4
Total 1,041 1,044 1,081 1,095 1,061 1.9 (3.1) 4,281 4,346 (1.5)
Source: Company Data, PL Research
May 28, 2013 3

Exhibit 4: Q4FY13 Result Overview (Rs m) – Standalone
Standalone Performance
Tata Chemicals
On a standalone basis, TCL reported sales of Rs19.9bn, -4% YoY lower than our
estimate of Rs21.1bn. Inorganic chemicals reported revenues of Rs7.7bn, 18% YoY in
line with estimates. However, fertilisers reported revenues of Rs12.1bn, -10% YoY
lower than estimates. Standalone EBITDA for the quarter stood at Rs1.8bn, -32% YoY
(estimates of Rs2.9bn) with margins of 9.1% (estimates of 13.9%). Adjusted PAT for
standalone operations stood at Rs761m, -46% YoY. PAT has been adjusted for
Rs310m of exchange loss and Rs1.1bn of profit arising on sale of long-term
investments. Fertiliser EBIT includes Rs 280m of provisioning related to reduction of
prices on inventory.
Y/e March Q4FY13 Q4FY12 YoY gr (%) Q3FY13 FY13 FY12 YoY gr (%)
Net Sales 19,979 20,813 (4.0) 25,455 84,771 79,810 6.2
Expenditure
Raw Materials 10,230 11,554 (11.5) 15,706 46,670 46,232 0.9
% of Net sales 51.2 55.5 61.7 55.1 57.9
Personnel 712 682 4.5 645 2,736 2,398 14.1
% of Net sales 3.6 3.3 2.5 3.2 3.0
Other Expenditure 7,216 5,897 22.4 6,211 25,543 20,723 23.3
% of Net sales 36.1 28.3 24.4 30.1 26.0
Total Expenditure 18,159 18,133 0.1 22,562 74,948 69,353 8.1
EBITDA 1,821 2,680 (32.1) 2,894 9,823 10,457 (6.1)
Margin (%) 9.1 12.9 11.4 11.6 13.1
Depreciation 429 575 (25.3) 550 2,143 2,247 (4.6)
EBIT 1,392 2,106 (33.9) 2,344 7,681 8,211 (6.5)
Interest 455 553 (17.6) 516 2,033 2,102 (3.3)
Other Income 309 277 11.3 244 1,395 1,464 (4.7)
PBT 1,245 1,830 (32.0) 2,072 7,044 7,572 (7.0)
Tax 484 432 12.1 454 1,821 1,778 2.4
Tax Rate (%) 38.9 23.6 21.9 25.8 23.5
Adjusted PAT 761 1,398 (45.6) 1,619 5,127 5,711 (10.2)
EO items (837) (453) NA (803) (1,306) (155) NA
Reported PAT 1,598 1,851 (13.7) 2,422 6,434 5,866 9.7
Adjusted EPS 3.0 5.5 (45.6) 6.4 20.1 22.4 (10.2)
Source: Company Data, PL Research
Exhibit 5: Standalone sales volume analysis ('000 mt)
Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 YoY gr. (%) QoQ gr. (%) FY13 FY12 YoY gr. (%)
Soda Ash - India 184 154 157 172 177 (3.8) 2.9 660 681 (3.1)
Food additives - Salt 219 228 229 223 243 11.0 9.0 923 860 7.3
Fertilisers
Urea 254 222 322 319 280 10.2 ‐12.2 1143 1138 0.4
DAP + NPK 96 0 112 194 155 61.5 ‐20.1 461 589 ‐21.7
Source: Company Data, PL Research
May 28, 2013 4

Exhibit 6: TCNA financial performance (Rs m)
Subsidiaries Results
Tata Chemicals
Tata Chemicals North America (TCNA) ‐ lower sales volumes impact
performance
Tata Chemicals North America reported revenues of Rs 6bn, -6% YoY lower than our
estimate of Rs7.3bn due to lower volumes. Sales volumes for the quarter stood at
573,000mt, -3% YoY lower than estimates of 676,000mt. EBITDA for this business
stood at Rs1.3bn lower than our estimate of Rs1.6bn. However, margins at 22.0%
were in line with estimates. Despite increase in capacity, sales volumes have not
kept pace in this segment due to operational issues. However, management
indicated that operations have now stabilized and improvement is expected.
Y/e March Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 YoY gr. (%) QoQ gr (%) FY13 FY12 YoY gr. (%)
Sales (000 mt) 588 575 566 629 573 (2.6) (8.9) 2,343 2,376 (1.4)
Realisation / Rs mt 10,867 11,635 11,396 10,970 10,489 (3.5) (4.4) 11,118 9,710 14.5
Net Sales 6,390 6,690 6,450 6,900 6,010 (5.9) (12.9) 26,050 23,070 12.9
EBITDA 1,440 1,780 1,510 1,630 1,320 (8.3) (19.0) 6,240 5,880 6.1
Margin (%) 22.5 26.6 23.4 23.6 22.0 (57) (166) 24.0 25.5 (153)
APAT 500 780 590 680 541 8.2 (20.4) 2,591 2,700 (4.0)
Source: Company Data, PL Research
Exhibit 7: Financial performance (Rs m)
Tata Chemicals Europe/Africa ‐ impairment of Rs4.8bn taken due to
weak macro conditions
This segment reported revenues of Rs5.1bn, -5% YoY lower than our estimate of
Rs5.7bn due to lower volumes. However, EBITDA stood at Rs880m, -21% YoY above
estimates. The company undertook impairment of Rs4.8bn in the European business.
Soda ash demand continues to remain under pressure in the European region due to
a weak macro outlook.
Y/e March Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 YoY gr. (%) QoQ gr. (%) FY13 FY12 YoY gr. (%)
Sales (000 mt) 305 299 289 288 267 (12.5) (7.6) 1,143 1,270 (10.0)
Realisation / Rs mt 17,639 19,431 20,035 19,306 19,213 8.9 (4.1) 19,501 16,433 18.7
Net Sales 5,380 5,810 5,790 5,560 5,130 (4.6) (11.4) 22,290 20,870 6.8
EBITDA 1,120 740 750 370 880 (21.4) 17.3 2,740 3,900 (29.7)
Margin (%) 20.8 12.7 13.0 6.7 17.2 (366) 420 12.3 18.7 (639)
Source: Company Data, PL Research
May 28, 2013 5

Exhibit 8: IMACID's financial performance (Rs m)
Tata Chemicals
IMACID‐ performance in line; Q1FY14E likely to be impacted due to
non‐agreement over phosphoric acid rates
IMACID reported revenues of Rs740m, 40% YoY in line with our estimates. EBITDA
for the quarter stood at Rs80m with margins of 10.8%. However, IMACID’s
performance is likely to be impacted in Q1FY14E due to non-agreement over
phosphoric acid rates.
Y/e March Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 YoY gr. (%) QoQ gr. (%) FY13 FY12 YoY gr. (%)
Net Sales 530 420 1,740 2,030 740 39.6 (63.5) 4,930 5,760 (14.4)
EBITDA (20) (100) 100 80 80 NA NA 160 700 (77.1)
Margin (%) (3.8) (23.8) 5.7 3.9 10.8 (386) 174 3.2 12.2 (73)
APAT (30) (120) 70 60 48 NA (20) 58 540 (89.3)
Source: Company Data, PL Research
May 28, 2013 6

Income Statement (Rs m)
Y/e March 2012 2013 2014E 2015E
Net Revenue 137,998 148,061 153,446 163,305
Raw Material Expenses 85,559 74,236 75,044 80,269
Gross Profit 52,439 73,826 78,402 83,035
Employee Cost 11,454 11,255 11,818 12,409
Other Expenses 18,012 41,390 43,460 45,633
EBITDA 22,974 21,180 23,124 24,993
Depr. & Amortization 5,087 5,339 5,828 5,828
Net Interest 3,042 2,913 3,216 3,256
Other Income 1,228 1,726 1,444 1,444
Profit before Tax 14,845 12,929 14,080 15,909
Total Tax 3,439 3,025 3,753 4,253
Profit after Tax 11,406 9,903 10,327 11,656
Ex-Od items / Min. Int. 1,727 1,972 1,906 2,196
Adj. PAT 9,144 7,735 8,421 9,461
Avg. Shares O/S (m) 254.8 254.8 254.8 254.8
EPS (Rs.) 35.9 30.4 33.0 37.1
Cash Flow Abstract (Rs m)
Y/e March 2012 2013 2014E 2015E
C/F from Operations 12,439 5,588 21,229 21,450
C/F from Investing (7,947) (5,189) (6,000) (8,000)
C/F from Financing (1,953) 1,255 (11,027) (11,357)
Inc. / Dec. in Cash 2,539 1,654 4,203 2,094
Opening Cash 14,241 16,780 18,434 22,637
Closing Cash 16,780 18,434 22,637 24,731
FCFF (1,331) (272) 9,447 6,554
FCFE 6,982 9,773 7,947 5,054
Key Financial Metrics
Y/e March 2012 2013 2014E 2015E
Growth
Revenue (%) 24.8 7.3 3.6 6.4
EBITDA (%) 23.3 (7.8) 9.2 8.1
PAT (%) 30.1 (15.4) 8.9 12.3
EPS (%) 30.1 (15.4) 8.9 12.3
Profitability
EBITDA Margin (%) 16.6 14.3 15.1 15.3
PAT Margin (%) 6.6 5.2 5.5 5.8
RoCE (%) 10.6 8.7 8.6 9.2
RoE (%) 15.4 12.1 12.6 13.0
Balance Sheet
Net Debt : Equity 0.7 0.8 0.7 0.5
Net Wrkng Cap. (days) 27 61 59 54
Valuation
PER (x) 8.5 10.1 9.3 8.3
P / B (x) 1.2 1.2 1.1 1.0
EV / EBITDA (x) 5.3 6.1 5.3 4.8
EV / Sales (x) 0.9 0.9 0.8 0.7
Earnings Quality
Eff. Tax Rate 23.2 23.4 26.7 26.7
Other Inc / PBT 8.3 13.4 10.3 9.1
Eff. Depr. Rate (%) 5.1 5.2 5.4 5.0
FCFE / PAT 76.4 126.3 94.4 53.4
Source: Company Data, PL Research.
Tata Chemicals
Balance Sheet Abstract (Rs m)
Y/e March 2012 2013 2014E 2015E
Shareholder's Funds 64,180 64,136 69,596 76,095
Total Debt 59,461 69,506 68,006 66,506
Other Liabilities 18,279 21,175 21,175 21,175
Total Liabilities 141,920 154,816 158,776 163,776
Net Fixed Assets 48,990 46,703 46,875 49,047
Goodwill 64,034 66,270 66,270 66,270
Investments 11,787 12,807 13,591 13,591
Net Current Assets 17,109 29,056 32,061 34,889
Cash & Equivalents 16,780 18,434 22,637 24,731
Other Current Assets 48,240 56,572 55,545 57,630
Current Liabilities 47,911 45,950 46,122 47,472
Other Assets — (21) (21) (21)
Total Assets 141,920 154,816 158,776 163,776
Quarterly Financials (Rs m)
Y/e March Q1FY13 Q2FY13 Q3FY13 Q4FY13
Net Revenue 30,661 41,518 41,968 33,915
EBITDA 4,948 6,165 5,362 4,706
% of revenue 16.1 14.8 12.8 13.9
Depr. & Amortization 1,368 1,402 1,378 1,191
Net Interest 861 696 1,021 335
Other Income 383 449 163 732
Profit before Tax 2,719 4,067 2,963 3,179
Total Tax 450 1,158 733 684
Profit after Tax 1,076 2,568 2,241 (1,875)
Adj. PAT 1,563 2,327 1,749 2,123
Source: Company Data, PL Research.
May 28, 2013 7

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Rating Distribution of Research Coverage
% of Total Coverage
60%
50%
40%
30%
20%
10%
0%
24.0%
53.5%
21.7%
0.8%
BUY Accumulate Reduce Sell
PL’s Recommendation Nomenclature
BUY : Over 15% Outperformance to Sensex over 12-months Accumulate : Outperformance to Sensex over 12-months
Tata Chemicals
Reduce : Underperformance to Sensex over 12-months Sell : Over 15% underperformance to Sensex over 12-months
Trading Buy : Over 10% absolute upside in 1-month Trading Sell : Over 10% absolute decline in 1-month
Not Rated (NR) : No specific call on the stock Under Review (UR) : Rating likely to change shortly
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May 28, 2013 8