Q3FY24 Review: Tata Chemicals: Export realizations under pressure

6 Feb 2024 , 02:21 PM

Tata Chemicals (TCL) reported weaker than expected results as weak demand in most geographies resulted into excess soda ash supply which took a toll on export realizations. Management guides for erosion in contribution mar gin of ~US$100/t for US volumes and Pound100/t for UK/Kenya volumes. The supply demand balance is now expected to normalise over the next 12- 18 months. Analysts of IIFL Capital Services lower their realisations assumption for FY24-26 — resulting in 24-9% cut in EPS. Their SOTP-based TP rolled over to Mar’25 reduces from Rs930 to Rs795. Maintain REDUCE. 

Lower volume across geographies: 

Tata Chemicals (TCL) reported weaker-than-expected results, mainly due to slowdown in demand for flat and container glass across geographies which led to pressure on volumes and margins. In India, margins are stable despite dumping from Turkey as the company benefited from lower power and fuel costs. Standalone witnessed a beat of 7% (vs IIFLe). TCL subsidiaries’ Ebitda missed IIFLe by ~42%, due to lower-than-expected profitability in overseas operations. 

Export realisation comes under pressure: 

Western Europe remains a challenges as it witnesses drop in demand by almost 1.0mn MT. As per the management, the supply is finding other destinations and significantly impacting realisations. While Latam is experiencing slowdown, particularly in the lithium industry, China’s demand is facing issues with slowdown in construction real estate sector. Turkish exports are thus being redirected from Western Europe to Asian markets, particularly in India, China, and Southeast Asia, which has created pricing pressure. Management guides for erosion in contribution margin of ~US$100/t for US volumes and Pound100/t for UK/Kenya volumes. 

Earnings remain vulnerable: 

Q3 earnings reiterate analysts of IIFL Capital Services cautious stand as their concerns around sustainability of soda ash pricing amid demand slowdown and excess supply has started to unfold. With soda ash dynamics expected to normalise over the next 12-18 months, Tata Chemicals will enter into a phase of lacklustre earnings. Analysts of IIFL Capital Services cut FY24-26 earnings by 24- 9% as they factor lower realisations. Reiterate REDUCE