Stock in Action - Tata Chemicals 21 October 2024

Highlights

1. Tata Chemicals share price has gained over 6.76% year to date in 2024 including today’s gain.

2. Tata Chemicals financial performance has decreased over the past year with operating profit decreasing from ₹3,820 crores in March 2023 to ₹2,177 crores till TTM 2024.

3. Tata Chemicals quarterly earnings report highlighted a continuous improvement in net profit in the last 2 quarters.

4. Morgan Stanley has given an underweight rating to Tata Chemicals stock following its Q2 profit report.

5. Tata Chemicals share price increased from ₹1000 to ₹1250 between September and October and the technical chart shows the stock consolidating near ₹1200.

6. Tata Chemicals stock has not outperformed the market by delivering just 22.60% returns in the last year.

7. Tata Chemicals is currently trading at ₹1200 showing a 10.25% increase as of 12:19 am on NSE.

8. The stock saw sharp gains after the Reserve Bank of India rejected Tata Sons' request for an exemption from mandatory listing, which is viewed as a positive development for Tata Chemicals.

9. Tata Chemicals announced a nearly 55% drop in its second quarter profit compared to the same period last year. This decline was due to lower soda ash prices and higher shipping costs.

10. As per the September quarter filings the company has a 37.98% promoter holding, 20.34% DII holding and 13.76% foreign institutional investor (FII) holding.

Why is Tata Chemicals Share in News?

Tata Chemicals reported a sharp 55% year on year decline in its second quarter profit primarily due to lower soda ash prices and rising freight costs. The company's consolidated net profit dropped to ₹194 crore ($23.1 million) for the quarter ending September 30 down from ₹428 crore in the same period last year.

Despite a slight increase in revenue from operations which rose by 0.03% to ₹3,999 crore, the company's total expenses grew by nearly 7% to ₹3,803 crore. Notably, freight and forwarding charges surged by almost 32%.

The company's key product soda ash saw a significant price drop with global prices falling by about 23% during the quarter. This decline is attributed to the economic slowdown in China and weak demand in the European Union both of which have negatively impacted the soda ash market—Tata Chemical’s main business segment.

Analyst View on Tata Chemicals

Morgan Stanley has kept an 'Underweight' rating on the stock, setting a target price of ₹880 per share after the company’s disappointing earnings report for the September 2024 quarter.

Analysts have cautioned that chemical companies could see higher costs due to rising container and freight charges as a result of the ongoing crisis in the Middle East.

Earlier the result, Axis Securities recommended buying Tata Chemicals shares within the price range of ₹1,120 to ₹1,098 with a stop loss at ₹1,072. They expect the stock to rise by 7% to 9%, predicting it could reach between ₹1,185 and ₹1,213. They suggest holding the shares for around 3 to 4 weeks.

Another brokerage also issued a buy recommendation for Tata Chemicals with a target price of ₹1,290 indicating a potential upside of 16.71%. They suggest a two month holding period and recommend a stop loss at ₹1,045 to manage risk.

Tata Chemicals Management Commentary

Tata Chemicals Managing Director and CEO, R Mukundan stated that heavy rains in July and August affected the Mithapur plant's operations reducing production and impacting margins compared to the previous quarter.

However, he mentioned that overall performance improved from the last quarter due to higher sales volumes and better prices for soda ash.

He also emphasized that the company's focus remains on customer relationships, stable operations and maintaining strong margins by controlling costs. Additionally, Tata Chemicals continues to work with customers and stakeholders on sustainability and digital transformation efforts.

About Tata Chemicals

Tata Chemicals a global leader in chemicals and agriculture is part of the Tata Group one of India's largest conglomerates. Founded in 1939 the company produces soda ash, sodium bicarbonate and specialty chemicals for industries like glass, textiles and food. It also supports sustainable agriculture through fertilizers and crop protection products. Committed to innovation and reducing environmental impact, Tata Chemicals focuses on green chemistry and circular economy initiatives. With a strong domestic and international presence it continues to grow while upholding the Tata Group's legacy of ethical business practices.

Conclusion

Tata Chemicals has faced challenges in its financial performance with a significant 55% decline in second quarter profit due to lower soda ash prices and rising freight costs. Despite a slight increase in revenue, total expenses grew, impacting margins. Analysts have mixed views, with Morgan Stanley issuing an underweight rating and target price of ₹880, while other brokerages suggest buying shares for potential gains. The company remains focused on improving operations and sustainability. Overall, Tata Chemicals is navigating a complex market landscape, balancing growth with the need to manage costs effectively amid external pressures.