Q4FY23 Review Tata Chemicals: Base turns difficult for FY24

Tata Chemicals (TCL) reported a stellar Q4, with better-than-expected earnings from the international subsidiaries. Augmentation of new capacities in 2023 will turn Soda Ash into a balanced market. New soda ash capacities derived from natural source will enhance competitiveness against synthetic manufacturers, which augurs well for TCL. 

With augmentation of several new capacities during 2023, Soda Ash will gradually become a balanced market. New capacity of 1.5 million tons in Inner Mongolia is likely to come in tranches. Fresh capacities will be absorbed by China’s domestic demand (including upcoming solar glass lines) and will also increase competition against Chinese synthetic soda ash manufacturers. Moreover, high logistic costs will restrict availability of Inner Mongolia capacities for export markets.

Analysts at IIFL Capital Services have raised their FY24 EBITDA estimates by 7%, to factor higher margins for TCNA in FY24. With a very high FY23 base, earnings growth would be curtailed. In the scenario of reversal of soda ash cycle, the company may enter into a phase of lackluster earnings. Their SOTP-based target price, rolled forward to June 2024, has been reduced from Rs. 1,015 to Rs. 995.