Expect export market to bounce back in Q4 -Tata Chemicals

Update on the Indian Equity Market:

On Tuesday, NIFTY closed at 14,648 (+2.5%). Top gainers in NIFTY50 were Tata Motors (+16.9%), Shree Cement (+7.2%) and UltraTech Cement (+6.9%). The top losers were HDFC Life (-2.5%), Bajaj Finserv (-2.2%), and Hero Motocorp (-1.5%). The top sectoral gainers were AUTO (+4.1%), REALTY (+3.8%), and BANK (+3.5%) and there were no sectoral losers.

Excerpts of an interview with Mr. R Mukundan, MD & CEO – Tata Chemicals with CNBC -TV18 dated 29^th January 2021:

• Tata Chemicals is expecting the export market to bounce back in the 4QFY21 quarter.
• They are expecting exports from the US to be better than last year’s levels in Q4. Demand in South-East Asia should also normalise by H1-H2 FY22.
• The market in which the Magadi division faced a bit of pressure is South-East Asia. There the tourism industry is hit very hard. The demand for container glass which goes into beverages and drinks had been impacted severely.
• They believe by H1-H2 of FY22 that demand would come back. But what Magadi has done is to get a lot of cost orders in the system. So they have posted a solid margin this quarter and will continue to maintain a good set of numbers.
• He thinks that revenues of Rs 170 bn in the next 4-5 years are doable. Rs 170 bn is board-approved plan and that guidance still remains. They are not way off from that.
• By the end of FY21, some of the projects will come on-stream, and by 2022-23 almost 50 percent of the capital would be deployed, and it will be on-stream.
• They anticipate an incremental revenue of about Rs 14 bn and an incremental contribution or EBIT margin of close to about Rs 6 bn as a result of investments of Rs 2,600 crore.

Consensus Estimate: (Source: market screener and investing.com websites)

• The closing price of TATACHEM was ₹ 521/- as of 2-February-2021.  It traded at 32x/ 15x/ 13x the consensus earnings estimate of ₹ 16.5/ 34.5/ 39.7 for FY21E/22E/23E respectively.
• The consensus price target is ₹ 448/- which trades at 11x the earnings estimate for FY23E of ₹ 39.7/-

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