Tata Chemicals' Surprise Loss Sees Analysts Flag Weak Outlook
The chemical producer reported a loss of Rs 841 crore in the January-March period.
Tata Chemicals Ltd.'s fourth-quarter loss was caused by price pressure on soda ash across geographies, according to brokerages. Kotak Institutional Equities and Nirmal Bang Securities Pvt. have a 'sell' rating on the stock as they expect a growth recovery to falter in the near term due to weak demand and oversupply of soda ash.
The chemical producer reported a loss of Rs 841 crore in the January-March period.
In Asia, the persistent slowdown in China and its property sector is resulting in an excess supply of soda ash. In Europe, falling demand across all glass segments led to an oversupply, hurting soda ash prices, Nirmal Bang said.
In addition to the company's woes, the latest reports indicate weak fundamentals for soda ash pricing, the brokerage said in a report on Tuesday. It expects demand and margin levels to take 12–18 months to recover. However, Tata Chemicals can find solace in India's growth volume.
Soda ash is an odourless, water-soluble salt that yields alkaline solutions in water and is used in the extraction and smelting of various metal products.
Tata Chemicals Q4 Results (Consolidated, YoY)
Revenue down 21.15% at Rs 3,475 crore. (Bloomberg estimate: Rs 3,873 crore).
Ebitda down 54.09% at Rs 443 crore. (Bloomberg estimate: Rs 519 crore).
Margin contracts 914 bps to 12.74%. (Bloomberg estimate: 13.4%).
Net loss at Rs 841 crore vs profit of Rs 692 crore (Bloomberg estimate: Rs 182 crore).
Here is what brokerages have to say
Kotak Institutional Equities
Kotak Institutional Equities maintained a 'sell' rating, with a target price of Rs 770 apiece, implying a 30% downside.
Weak earnings was led by pricing pressure on soda ash across geographies, according to the brokerage.
Earnings to stay near current run-rates in FY25 led by continued oversupply.
Management suggested bottoming out of prices but no signs of recovery.
Remains concerned about capacity expansion in China and U.S.
Cut EPS estimate for FY25-26 further by 12-20%.
Hopes around large expansion into battery chemicals seen misplaced.
Nirmal Bang
Kept a 'sell' rating on Tata Chemicals and set the target price at Rs 908 apiece, implying a downside of 17.4% from Monday's closing price.
Tata Chemicals' revenue missed Nirmal Bang's estimates by 5%.
Its adjusted consolidated net profit also missed estimates by 31.5%.
The company recorded a loss in the fourth quarter due to a cut in the price and weak demand for soda ash in Europe and the UK.
Nirmal Bang has raised net profit estimates of FY25 and FY26 by 10.5% and 25.3% respectively, based on a marginal increase in Ebitda in the US and UK.
Shares of Tata Chemicals declined 4.50%, the lowest level since March 26, before paring loss to trade 3.05% lower at 10:47 a.m. This compares to a 0.46% advance in the NSE Nifty 50.
The stock has risen 11.21% in the last 12 months and fallen 2.21% year-to-date. Total traded volume so far in the day stood at 3.4 times its 30-day average. The relative strength index was at 44.88.
Of the nine analysts tracking the company, one maintains a 'buy' rating, two recommend a 'hold,' and six suggest 'sell', according to Bloomberg data. The average 12-month analysts' price target implies a downside of 18.1%.
