Fundamental Analysis of Tata Chemicals: Did you know Tata Chemicals owned the renowned Tata Salt for a long time until it recently sold it to Tata Consumer Products? With 200% returns in the last three years, does it make sense for investors to enter the stock now? Or all the growth is done?

Further, how well is this Tata stock positioned among the other chemical companies of India? We’ll attempt to answer these and similar questions by performing a fundamental analysis of Tata Chemicals in this article.

Fundamental Analysis of Tata Chemicals

We’ll begin our analysis by getting ourselves acquainted with the business and products of Tata Chemicals. Next, we’ll look at the industry landscape. After this, we’ll quickly move through the financials of the stock. A highlight of the future plans of the company and a summary conclude the article at the end.

Company Overview

Established in 1939, Tata Chemicals Ltd. (TCL) is the chemicals arm of the salt-to-software conglomerate the Tata Group. The group holds a 38% stake in the company. It is involved in the production of chemicals and specialty chemicals.

Note: If you want to learn Candlesticks and Chart Trading from Scratch, here’s the best book available on Amazon! Get the book now!

telegram channel

TCL has an international presence with 13 manufacturing facilities and 3 R&D centres across the US, United Kingdom, Kenya and India. It has a strong marketing network in 30 countries.

The chemicals giant employs around 5,00 people (including 200+ scientists) worldwide. It has a leading market position in soda ash and sodium bicarbonate globally ranking at 3rd and 6th place respectively.

Tata Chemicals also has a listed subsidiary: Rallis India. It is primarily engaged in the production of agricultural and farm specialty products including seeds and for crop care.

What’s more, TCL still manufactures table salt for Tata Consumer Products which the latter sells under the Tata Salt brand.

Business Segments of Tata Chemicals

Talking about the product segments, the company has two business segments:

  1. Basic Chemistry segment produces soda ash, value-added sodium bicarbonate, salt, and other halogen chemicals. Excluding table salt, other chemicals find their end applications in the manufacturing of glass, paper products, medicines & drugs, and more. The division also houses the cement business.
  2. Specialty Products vertical is engaged in the production of silica which is used in the production of tyres and batteries. Additionally, it also develops prebiotics and formulations among other products for the pharmaceutical industry.

Basic chemistry products and specialty products contributed to 81% and 19% of the total revenue of TCL during the financial year 2022-23 respectively.

We got a good understanding of the business and the scale of its operations. Let us learn about the chemical industry landscape in the next section of our fundamental analysis of Tata Chemicals.

Industry Overview

The global chemicals market is worth over $ 5,027 billion in value. China is the largest player controlling 39% of the market share. Next in line are the European Union and the US which hold a 15% and 13% share respectively. India’s share in the worldwide chemicals sector stands at approximately 4% with a $ 186 billion output.

Tata Chemicals Industry Overview
Source: Indian Chemicals and Specialty Chemicals Market Report, Frost & Sullivan

Talking about the composition of the market, commodity chemicals make up 80% of the international market with the balance 20% being specialty grade. Basic chemistry products (25%), specialty chemicals (21%), petrochemicals (19%), agrochemicals (15%), and biotech & pharmaceuticals (20%) constitute India’s chemical sector.

Fundamental Analysis Of Tata Chemicals - Chemical Financials
Source: Indian Chemicals and Specialty Chemicals Market Report, Frost & Sullivan

As for the growth opportunities, international demand is projected to expand at a CAGR of 6.2% to reach $ 6,780 by 2025. During the same period, the domestic industry is expected to increase in value at a much sharper annualised pace of 12.2% to become a $ 330 billion industry by 2025.

It is believed that the majority of the growth will be brought by the specialty segment because of growing demand from personal care, home care and food processing industries.

Going forward, a variety of factors such as rising disposable income, higher healthcare spending, increase discretionary spending and urbanization, will drive the growth of the chemical sector in India and across the world.

Fundamental Analysis Of Tata Chemicals – Financials

Revenue & Net Profit Growth

The revenues of Tata Chemicals grew at a CAGR of 10.19% from Rs 10,337 crore in FY19 to Rs 16,789 crore in FY2. During the same period, the net profit expanded at a much sharper rate of 16.09%.

The table below presents the operating revenue and net profit of Tata Chemicals for the last five financial years.

Financial YearOperating RevenueNet Profit
202316,7892,452
202212,6221,400
202110,200436
202010,3571,028
201910,3371,163
5-Yr CAGR10.19%16.09%
(figures in Rs Cr except for CAGR)

Note: The figures for FY19 have been reinstated throughout the article because of the sale of the consumer business of Tata Chemicals to Tata Consumer Products. 

But how is it that the bottom line was able to grow faster than the top line? Let us look at this in the next section of our fundamental analysis of Tata Chemicals.

Profit Margins

The bottom line growing at a faster rate than the top line hits at the inherent operating leverage in the manufacturing business model. Furthermore, during the study period, the global chemical industry underwent a structural change when the supply of chemicals from China decreased.

The Chinese government came hard on its chemical producers in order to control pollution. This impacted the global supply increasing the prices. At the same time, the Covid-19 pandemic played its due role in disrupting the global supply chains.

As a result, corporations adopted the China+1 strategy and started sourcing natural products from other countries.

Thus, these two factors aided the company to post higher margins. The table below showcases the improvement in EBITDA margin and profit after tax (PAT) margin for the past few years.

Financial YearEBITDA MarginPAT Margin
20232315
20221811
2021154
20201910
20191711
(figures in %)

Return Ratios

Higher profitability aided the company in posting better return ratios: return on capital employed (RoCE) and return on equity (RoE). However, despite the improvement in the figures, the figures are still low with RoCE and RoE at 10.4% and 11.7% in FY23.

But the picture is not as grim as it looks. Commissioning of the under-development CAPEX projects and higher capacity utilisations shall aid the stock to deliver better return ratios in the period ahead.

The table below presents the RoCE and RoE of TCL over the last few fiscal years.

Financial YearRoCERoE
202310.411.7
20226.66.9
20214.11.8
20207.77.5
20197.19.4
(figures in %)

Debt Analysis

Moving on to the debt analysis, overall the chemicals stock is fundamentally strong with an adequate debt-to-equity ratio of 0.32 and a high-interest coverage ratio of 9.95. Furthermore, it comes with the strong backing of the century-old Tata Group which is worth billions of rupees.

The debt-to-equity ratio and interest coverage ratio figures in the table below highlight the financially strong capital structure of Tata Chemicals.

Financial YearDebt / EquityInterest Coverage
20230.329.95
20220.378.46
20210.384.72
20200.424.66
20190.424.58

Future Plans of Tata Chemicals

So far we looked at the previous fiscals’ data for our fundamental analysis of Tata Chemicals. Let us try to understand what lies ahead for the company and its investors.

  1. The chemicals giant had spent Rs 2,100 crore by March 2023 towards capacity expansion and is eying an additional investment of Rs 800 in the present fiscal. 
  2. In addition to this, the management has earmarked capital expenditure of Rs 2,000 crore in the long term during the FY24 – FY27 period towards capacity building.
  3. Overall, as per the planned expansion, the volumes of soda ash, bicarbonate, and silica are estimated to rise by 30%, 40% and 400% respectively over and above the present CAPEX plans.
  4. Along with all this, TCL’s listed subsidiary Rallis India is focusing on manufacturing and growing its product portfolio to fill gaps to drive higher sales in the future.

Fundamental Analysis Of Tata Chemicals – Key Metrics

We are almost at the end of our fundamental analysis of Tata Chemicals. Let us take a quick look at the key metrics of the stock.

CMP₹995Market Cap (Cr.)₹25,395
EPS₹90.90Stock P/E11
RoCE10.4%RoE11.7%
Promoter Holding38%Book Value₹774
Debt to Equity0.32Price to Book Value1.3
PAT Margin15%EBITDA Margin23%

Conclusion

Tata Chemicals Ltd. is a fundamentally strong stock in a growing industry with due CAPEX plans in place to take advantage of future growth opportunities. Furthermore, its dominance in the basic chemistry products and the salt segment gives it a strong earnings base serving as the cash cow. 

Are the future plans already discounted in the present price and past 200% growth? Or is it an undervalued stock trading at a P/E of 11? What are your opinions on this Tata stock? Have we missed out on anything? How about we continue this conversation in the comments below?

Written By – Vikalp Mishra

By utilizing the stock screener, stock heatmap, portfolio backtesting, and stock compare tool on the Trade Brains portal, investors gain access to comprehensive tools that enable them to identify the best stocks also get updated with stock market news, and make well-informed investment decisions.


Start Your Stock Market Journey Today!

Want to learn Stock Market trading and Investing? Make sure to check out exclusive Stock Market courses by FinGrad, the learning initiative by Trade Brains. You can enroll in FREE courses and webinars available on FinGrad today and get ahead in your trading career. Join now!!