Shares of Tata Chemicals Ltd jumped more than 10 per cent in Monday morning trade on the National Stock Exchange. It was on the day when the benchmark Nifty 50 index was down 0.7%.
What did you give?
The reason is simple. The company announced its FY22 fourth quarter (Q4FY22) results on Friday after market hours and the performance exceeded Street expectations. Plus, the management commentary is upbeat.
Tata Chemicals’ portfolio includes basic chemicals and specialty products. The company’s consolidated EBITDA margin stood at 18.9% in Q4, which is an expansion of 816 basis points (bps) on a year-on-year (YoY) basis. Ebitda is earnings before interest, taxes, depreciation and amortization. One basis point is 0.01%. Sequentially, the Ebitda margin expanded by 153bps.
Analysts had expected lower Ebitda margins. For perspective: Analysts at Motilal Oswal Financial Services and Kotak Institutional Equities were expecting the company’s Ebitda margins at 16.4% and 17.1, respectively.
“Earnings broke previous estimates despite cost pressures, setting a new benchmark for the coming quarters. Q4FY22 was the first quarter after a price reset in annual contracts in the US, and also reflects the full benefits of price increases in other market prevailing quarterly/semi-annual price contracts,” Kotak analysts said in a report on May 1.
Overall, Tata Chemicals’ EBITDA grew 133% year-on-year 657 crores. This comes at a time when revenue has grown by 32 per cent year-on-year 3481 crores. In its investor presentation, the company said, the input cost has gone up across all the units. Gas prices rose in the fourth quarter and remained elevated. In addition, coal and freight costs are higher than historical trends. Hence, from a near-term perspective, cost pressures are likely to persist.
Meanwhile, as noted earlier, management’s comments have been positive. In a call, management told analysts that demand for soda ash is expected to remain strong over the next 18 months. He said that no additional capacity is coming from China and recently one million tonnes of soda ash capacity in the country has been closed.
Buoyed by financials and commentary, analysts have upgraded their earnings estimates. “Keeping in mind the strong operating performance in Q4FY22, we have increased our FY23/FY24 Ebitda estimates by 5% each,” analysts at Motilal Oswal said in a report on May 1.
Kotak has increased its FY1223/24E earnings per share by 53%/65% to Rs66.7/Rs 74.0, reflecting a rebasing of the quarterly earnings trajectory as seen in Q4FY22. “We also revise our sum-of-parts valuation and arrive at a fair value of Rs 1,090 in March 2023,” the Kotak report said. Motilal Oswal’s sum-based target price for the Tata Chemicals stock is Rs 1045 per share.
At present, the shares of Tata Chemicals are around . doing business at the level of 1030 each, suggesting that investors are capturing a fair bit of optimism.