Tcl Report

Tata Chemicals Limited Sector: Fertilizers, Chemicals BSE Code: 500770 NSE Code: TATACHEM

CMP: Rs. 228 Trailing EPS: Rs. 18.5 Trailing P/E: 12.4x

Face Value: Rs. 10 M Cap: Rs. 5048 mn Free Float: 28.62%

Conference Call Note Avg. Daily Vol. (6m): 184979 % Price Perf. (1m/3m/6m): - (5.2)/11.2 /(17.5) 52 week High/Low: Rs. 279.0 /Rs. 183.0

Background Tata Chemicals Limited (TCL) is a leading manufacturer of chemicals, fertilisers and food additives. TCL is the third largest manufacturer of soda ash and sodium bicarbonate in the world. TCL also enjoys leadership in the Indian edible salt market and is the most efficient manufacturer of urea in India. The company owns & operates the largest & most integrated inorganic chemical complex at Mithapur, Gujarat having a capacity of 875000 tonnes of soda ash per annum & fertilizer complex at Babrala, Uttar Pradesh having a capacity of 742500 tonnes of urea per annum. Highlights Tata Chemicals Limited has reported a 13% rise in revenue from operations from Rs. 9965 mn in Q2FY06 to Rs. 11259 mn in Q2FY07. The operating profits have grown marginally (1.2%) from Rs. 1949 mn to Rs. 1971 mn for the reporting period under consideration. The net profit after tax for Q2FY07 has increased by 25% from Rs. 1258 mn to Rs. 1576 mn. Notably the other income component includes a special dividend from Tata Industries Limited amounting to Rs. 320 mn. For H1FY07, the revenue from operations reported an increase of 24% from Rs. 15065 mn in HIFY06 to Rs. 18806 mn. Profit from operations (EBIDTA) grew by 15% from Rs. 3097 mn to Rs. 3557 mn for the reporting period. Overall the profits after tax increased by 22% from Rs. 1908 mn to Rs. 2330 mn. The operating margins for H1FY07 declined from 20.6% to 18.9%. The reasons sited for the same are changes in the sales mix with higher concentration of phosphatic fertilisers, higher feedstock charges (naphtha), increase in the per unit power costs. The component of traded goods (fertilisers – DAP, MOP) has also increased by 35% from Rs. 1210.8 mn in Q2FY06 to Rs. 1634.7 mn in Q2FY07. In the soda ash segment, TCL maintained its dominance in the domestic market with a market share of 32.6%. In the domestic edible salt market TCL continued its leadership with 47% share in the national branded segment and 18.2% in the overall iodized segment. The contribution from the recently acquired Brunner Mond and IMACID, Morocco to the quarterly revenues have been Rs. 2300 mn and Rs. 1200 mn respectively. However the margins in the international operations have been lower at 14-15%, but are expected to improve going forward. Also certain pension payment adjustments and implementation of the cost reduction measures at Brunner Mond are expected to yield in cost savings to the tune of 2.1 mn pounds in future. The natural soda ash capacity expansion at Magadi Kenya has lagged behind the planned schedule and is expected to come on stream from December 2006. For domestic operations TCL has lined up modernisation and expansion plan at its Mithapur and Babrala facility. The capital outlay to be expended over the next 2-3 years on the project is pegged at Rs. 4500 mn. The production volumes of the Fertilisers division (urea and phosphatics) have been stable lower on account of unavailability of natural gas and flood situation in Gujarat. The sales volumes however have been healthy in urea as well as phosphatics on the back of strong though delayed monsoon. The new areas of growth that TCL has identified are foray into biotech and nanotech sector. However the same are at a conceptualising stage. For the soda ash division the realisations have been firm at $190 per tonne. The same are expected to remain firm in future on account of the demand scenario and supply slippages in China due to shifting of the production facilities. The acquisition of Brunner Mond enables TCL to tap the international markets more effectively where the demand is expected to grow at 3-4%. The domestic demand is growing at 5-6% predominantly from the detergents and glass segments. As far as fertilisers division is concerned the same appears stable and depends upon the awaited Fertiliser pricing policy. At CMP of Rs. 228, the stock trades at 12.4x its trailing earnings of Rs. 18.3. Tata Chemicals Limited – Conference Call Note

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November 3, 2006

Performance for quarter ended September 2006 Particulars Net Sales from operations Total Expenditure

Q2FY07

Q2FY06

(Rs. mn)

% Change

H1FY07

HIFY06

% Change

11259.7

9965.3

13.0

18806.5

15065.1

24.8

9287.9

8016.1

16.0

15248.8

11968.0

27.4

Decrease/(Increase) in stock Consumption of raw materials

702.4

479.9

(1013.1)

(1487.4)

3774.3

3531.0

7943.5

6441.3

Cost of traded goods

1634.7

1210.8

2108.6

1688.5

Personnel costs

348.6

281.8

690.4

564.4

Consumables and spares

409.6

414.9

838.6

815.5

1040.3

829.1

1936.8

1481.2

Freight and forwarding

664.1

590.4

1323.1

1078.2

Other expenses Earnings before Depn, Interest and tax (EBIDTA)

713.9

678.2

1420.9

1386.3

1971.8

1949.2

3557.7

3097.1

364.5

344.1

729.6

686.5

1607.3

1605.1

2828.1

2410.6

77.5

134.7

247.4

91.6

682.3

356.9

736.1

463.3

2212.1

1827.3

3316.8

2782.3

620.6 15.0

557.7 11.0

961.8 25.0

850.3 24.0

1576.5

1258.6

25.3

2330.0

1908.0

22.1

7.33

5.85

25.3

10.83

8.87

22.1

6.58

5.23

25.8

10.26

7.94

29.2

Operating profit margin (%)

17.5

19.6

18.9

20.6

PAT margin (%)

14.0

12.6

12.4

12.7

Power and fuel

Depreciation Earnings before interest and tax (EBIT) Financial charges Other Income Earnings before tax (EBT) Taxes a) Current b) Fringe benefit tax Profit after taxation Earnings per share (in Rs./share) (basic) Earnings per share (in Rs./share) (diluted)

Tata Chemicals Limited – Conference Call Note

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1.2

0.14

21.1

14.9

17.3

19.2

November 3, 2006

Notes

HNI Sales

Institutional Sales

Bharat Patel Tel.: 91-22-28577303/28577309

Sharmila Joshi Tel.: 91-22-22695078 / 22700119121

Disclaimer: This document has been prepared by the Research Desk of Asit C Mehta Investment Interrmediates Ltd. and is meant for use of the recipient only and is not for circulation. This document is not to be reported or copied or made available to others. It should not be considered to be taken as an offer to sell or a solicitation to buy any security. The information contained herein is from sources believed reliable. We do not represent that it is accurate or complete and it should not be relied upon as such. We may from time to time have positions in and buy and sell securities referred to herein.

Tata Chemicals Limited – Conference Call Note

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November 3, 2006