CMP: Rs706; Target; Rs826; Upside: 17%
Tata Chemicals Ltd (TCL), the third-largest producer of soda ash globally, stands to benefit from the rising end-user industry demand. This would aid maintain margins under this segment. A greenfield project with an investment of Rs270cr for biotechnology manufacturing unit (~5k MT) of food ingredients and formulations in Nellore, Andhra Pradesh, augurs well for TCL. TCL has planned to foray into highly dispersible silica business with an investment of Rs295cr. This would enhance its margin and diversify its portfolio under the specialty business.
We estimate revenue to grow at 9% CAGR led by higher volumes under soda ash and new product launches under consumer business in FY18-20E. We expect EBITDA CAGR of 11% over FY18-20E with an increase in margin by ~90bps to 22.2% in FY20E. However, we expect moderate rise in PAT on account of higher effective tax rate.
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