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SYNOPSIS

Tata Chemicals Limited’s operation is organized under four segments i.e. Inorganic, Fertilisers, Other Agri-inputs including Rallis operations and others - comprising of Water Purifier, Bio-fuels and Pulses.

During the quarter ended, the Net Profit of the company increased to Rs.2237.80 millions and registering a growth of 35.98%.

Net Sales and PAT of the company are expected to grow at a CAGR of 20% and 24% over 2010 to 2013E respectively.

Tata Chemicals Ltd maintained leadership position with 64% market share in the National Braded segment.

Tata Chemicals had Expanded Soda Ash Capacity by 100000 TPA at TCNA

Years Net sales EBITDA Net Profit EPS P/E

FY 11 110601.50 19597.00 6534.70 33.20 10.75

FY 12E 142970.45 25865.68 9751.29 45.71 7.80

FY 13E 165845.72 29886.01 12012.77 54.74 6.52

Stock Data:

Sector: Chemical

Face Value Rs. 10.00

52 wk. High/Low (Rs.) 392.00/287.80

Volume (2 wk. Avg.) 73000

BSE Code 500770

Market Cap (Rs.In mn) 92792.70

Share Holding Pattern

1 Year Comparative Graph

TATA CHEMICALS BSE SENSEX

C.M.P: Rs. 364.00 Target Price: Rs. 400.00 Date: Feb 27th, 2012 BUY

Tata Chemicals Ltd Result Update: Q3 FY 12

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Peer Group Comparison

Name of the company CMP(Rs.) Market

Cap.(Rs.Mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend (%)

Tata Chemicals Ltd 364.15 92792.70 33.20 10.75 1.67 100.00

Pidilite Industries 144.00 73355.20 5.77 25.04 6.44 175.00

United Phosphorus 151.30 69871.00 5.94 25.47 3.09 100.00 Gujarat

Fluorochemicals 494.90 54364.80 64.22 7.71 3.11 350.00

Investment Highlights

Q3 FY12 Results Update

Tata Chemicals Ltd disclosed a phenomenon rise in consolidated net profit for the

quarter ended Dec 2011. During the quarter, the profit of the company surged

22.63 % to Rs 2559.20 million from Rs 2087.00 million in the same quarter

previous year. Net sales for the quarter for the quarter rose 31.79% to Rs 38098.70

million from Rs 28908.50 million, when compared with the prior year period. It

reported earnings of Rs 10.04 a share during the quarter, registering 22.63%

increase over previous year period.

Quarterly Results - Consolidated (Rs in mn)

As At Dec-11 Dec -10 %change

Net sales 38098.70 28908.50 31.79

PAT 2559.20 2087.00 22.63

Basic EPS 10.04 8.19 22.63

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Break up of Expenditure

Amalgamation of Wyoming

The board approved the Scheme of Amalgamation of Wyoming Pvt ltd of Mauritius.

No fo shares of the company will be issued and alloted in lieu or exchange of the

equity shares of Wymoning 1 under the scheme and filed a petition with Bombay

High court for approval of the scheme.

Equity Stake in EMP Mining Ventures Inc, Canada.

The company Wholly Owend step down overseas subsidiaries, aquired equity

Stake of 25.70% in EPM Mining Ventures Inc, a company listed on the Totonto

Stock Exchange in Canada during the September Quarter 2011.

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Company Profile

TATA Chemicals ltd is the one of the company of Tata Sons is the promoter of all key

Tata companies and holds the bulk of shareholding in these companies. It is the

owner of the Tata name and the Tata trademark, which are registered in India and

several other countries.

Tata Chemicals is the pioneer and market leader in India and a globally reputed

company with interests focusing on three sectors in LIFE: Living, industry and firm

Essentials. The company was incorporated on 23rd January, 1939 at Mumbai and

began its business with the establishment of plant at Mithapur, Gujarat to

manufacture of marine chemicals (salt, by-products of salt etc.) from the ocean.

From these humble beginnings of TCL, it became market-leader in branded products

and Pioneer in India’s branded Iodized salt segment. With the introduction of an

innovative, low-cost, nanotechnology-based water purifier, it is providing affordable,

safe drinking water to the masses. The company expanded its operations across four

continents and become the world’s second largest producer of soda ash with

manufacturing units in Asia, Europe, Africa and North America and company provides

key ingredients to some of the world’s largest manufacturers of glass, detergents and

other industrial products.

Tata Chemicals Innovation Centre is one of the world-class R&D center across the

world, capabilities in the emerging areas of nanotechnology and biotechnology. The

company’s Centre for Agri-Solutions and Technology provides advice on farming

solutions and crop nutrition practices

The company has also entered into a JV to develop jatropha seedlings to enable bio

fuels capability with Singapore’s Temasek Life Sciences Laboratory (Joil).

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Products:

Tata Chemicals aim to touch people’s lives with wide range of products. Its wide range

of products that are use in industries such as pharmaceuticals, food processing, food

essentials

Tata Chemicals classifies its products under three categories:

Living essentials:

Basic products for daily living, such as salt, sodium bicarbonate or baking soda

products, fresh produce and water-related products.

� Consumer salt: Tata Salt, I-Shakti, Tata Salt Lite

� Pulses: I-Shakti

� Water purifier: Tata Swach

Industry essentials:

Products that form essential inputs to diverse industries across the glass, detergents,

mining and chemical processing sectors

� Soda ash

� Allied chemicals: Caustic soda, chlorine based products, bromine based

products, gypsum, sodium tripolyphosphate, phosphoric and sulphuric

acids

� Industrial salt

� Sodium bicarbonate

� Cement: Tata Shudh

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Farm essentials:

Farm inputs needed to improve crop health and productivity , such as fertilisers,

pesticides, specialty nutrients, seeds and agri-services.

� Fertilisers

� Customised fertilisers

� Biofuels

Subsidiary Companies

Rallis India Limited

Wyoming 1(Mauritius) Pvt Limited, Mauritius.

Tata Chemicals South Africa (Proprietiry ) Limited, United Kingdom

Tata Chemicals Magadi Limited, Kenya.

British Salt Limited, United Kingdom.

Tata Chemicals Europe Limited, United Kingdom.

Genial Chemicals (Soda Ash) Inc., USA

General Chemicals Canada Holdings Inc., Canada

Tata Chemical Asia Pacific Private Limited, Singapore

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Financial Results

12 Months Ended Profit & Loss Account (Consolidated)

Value(Rs.in.mn) FY10 FY11 FY12E FY13E

Description 12m 12m 12m 12m

Net Sales 95437.90 110601.50 142970.45 165845.72

Other Income 1688.10 961.90 1881.12 2106.85

Total Income 97126.00 111563.40 144851.56 167952.57

Expenditure -77063.50 -91966.40 -118985.88 -138066.56

Operating Profit 20062.50 19597.00 25865.68 29886.01

Interest -3931.80 -3508.30 -4239.87 -4833.45

Gross profit 16130.70 16088.70 21625.82 25052.56

Depreciation -4467.80 -4510.50 -4979.76 -5278.54

Exceptional Items -2333.90 -368.60 -1443.46 -1587.81

Profit Before Tax 9329.00 11209.60 15202.60 18186.21

Tax -2093.20 -2749.20 -3554.93 -4237.39

Profit After Tax 7235.80 8460.40 11647.67 13948.82

Minority Interst -1311.40 -1925.70 -1874.58 -1912.07

Share of P&L of Asso 134.70 0.00 -21.80 -23.98

Net Profit 6059.10 6534.70 9751.29 12012.77

Equity capital 2433.20 2548.20 2548.20 2548.20

Reserves 44731.00 51968.70 63616.37 77565.19

Face value 10.00 10.00 10.00 10.00

EPS 29.74 33.20 45.71 54.74

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Quarterly Ended Profit & Loss Account (Consolidated)

Value(Rs.in.mn) 30-Jun-11 30-Sep-11 31-Dec-11 31-Mar-12E

Description 3m 3m 3m 3m

Net sales 29539.50 35709.60 38098.70 39622.65

Other income 178.70 817.70 453.70 431.02

Total Income 29718.20 36527.30 38552.40 40053.66

Expenditure -24271.80 -28969.20 -32541.10 -33203.78

Operating profit 5446.40 7558.10 6011.30 6849.88

Interest -935.40 -1015.60 -1111.10 -1177.77

Gross profit 4511.00 6542.50 4900.20 5672.12

Depreciation -1249.00 -1250.40 -1227.90 -1252.46

Exceptional Items -66.60 -482.60 -468.20 -426.06

Profit Before Tax 3195.40 4809.50 3204.10 3993.60

Tax -634.60 -1356.90 -644.90 -918.53

Profit After Tax 2560.80 3452.60 2559.20 3075.07

Minority Interst -562.10 -698.30 -299.60 -314.58

Share of P&L of Asso 0.00 0.00 -21.80 0.00

Net Profit 1998.70 2754.30 2237.80 2760.49

Equity capital 2548.20 2548.20 2548.20 2548.20

Face value 10.00 10.00 10.00 10.00

EPS 10.05 13.55 10.04 12.07

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Key Ratios

Particulars FY10 FY11 FY12E FY13E

No. of Shares(in mn) 243.32 254.82 254.82 254.82

EBITDA Margin (%) 21.02% 17.72% 18.09% 18.02%

PBT Margin (%) 9.77% 10.14% 10.63% 10.97%

PAT Margin (%) 7.58% 7.65% 8.15% 8.41%

P/E Ratio (x) 12.25 10.97 7.97 6.65

ROE (%) 15.34% 15.52% 17.60% 17.41%

ROCE (%) 48.95% 41.93% 44.52% 42.17%

Debt Equity Ratio 0.06 0.05 0.05 0.04

EV/EBITDA (x) 4.42 4.74 3.59 3.10

Book Value (Rs.) 193.84 213.94 259.65 314.39

P/BV 1.88 1.70 1.40 1.16

Charts:

NET SALES & PAT:

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P/E RATIO (x):

DEBT EQUITY RATIO:

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EV/EBITDA(x):

P/BV:

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Outlook and Conclusion

At the current market price of Rs.364.00, the stock is trading at 7.97 x FY12E

and 6.65 x FY13E respectively.

Earning per share (EPS) of the company for the earnings for FY12E and FY13E

is seen at Rs.45.71 and Rs.54.74 respectively.

Net Sales and PAT of the company are expected to grow at a CAGR of 20% and

24% over 2010 to 2013E respectively.

On the basis of EV/EBITDA, the stock trades at 3.59 x for FY12E and 3.10 x for

FY13E.

Price to Book Value of the stock is expected to be at 1.40 x and 1.16 x

respectively for FY12E and FY13E.

We expect that the company will keep its growth story in the coming quarters

also. We recommend ‘BUY’ in this particular scrip with a target price of

Rs.400.00 for Medium term investment.

Industry Overview

Industrial Chemicals in India achieved sales of 1,202 crores compared to sales of`

1,148 crores in the previous year. The year witnessed an increase of 5% in Gross Sales

Realisation (GSR) of Soda Ash at 14,400/ MT as compared to previous year figure of

13,690/MT. Growth of all key consuming sectors such as float glass, container glass

and detergents led to a 5% demand growth for soda ash. Sodium bicarbonate

continued to experience robust demand with the market growing by 15%on the back

of a 14% growth in Financial Year (FY) 2010-11. Key debottlenecking projects in both

soda ash and sodium bicarbonate along with one fully automated packing line for

sodium bicarbonate were completed during the year.

Salt

The average annual requirement of salt (Human consumption, Industrial use &

Exports) in last five years was 167 LT and it is expected to grow by nearly 7% in FY

2011-12. The salt supplies are projected to meet the demand in next five years with

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adequate pipeline stocks. However, the industry is vulnerable to weather disruptions.

The private sector plays a dominant role contributing over 88% of the salt production,

while the public sector contributes about2%, the cooperative sector contributes about

10%. Indian Domestic demand of Edible Salt is forecasted to grow by 1.34%. With

mechanization & yield improvement measures in place, increase in yield (more than

50%) is expected incoming years.

Soda ash

With the Indian economy continuing to remain buoyant, Indian soda ash demand

grew approximately 5% due to increased consumption of flat glass, container glass

and detergents.

Global soda ash production capacity increased approximately 3% to 63 million MT

with the growth almost entirely occurring in China. Operating rates have recovered

from 70% experienced during 2009, but are still well below the 85% realized before the

financial crisis. However, the over-capacity is region specific. China and Europe have

more capacity than demand while the producers in US, Kenya and India are operating

at high rates. The natural soda ash producers are taking advantage of their low cost

positions to maximize their exports while the Indian producers are enjoying high

demand growth in their domestic market.

Global soda ash prices began to increase in 2010, and continued into 2011 reflecting

both increased input costs across the world as well as tight soda ash supply in some

regions. Energy prices in particular have dramatically increased from the low’s of

2009, raising the costs of both natural and synthetic soda ash producers, and we

expect that energy and other input costs are likely to continue increasing, more so

forthe synthetic producers due to their higher energy intensity relative to the natural

soda ash producers. Consequently, soda ash prices will likely to increase in the short

term in line with energy and other input costs even in the face of excess capacity as

the marginal cost producers in China and Europe seek to pass on their cost increases.

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Sodium bicarbonate

In the domestic market, Sodium bicarbonate demand continues to demonstrate

healthy growth across all consuming sectors, particularly in food related applications.

Over the past year, the market grew 15% as against 14% in the previous years, and

such double digit growth rates are expected to sustain through the coming years.

Detergent and Chemical sectors

New flat and container glass plants are expected to come on-line in India in the

coming years along with expansion of existing operations. With the Indian economy

expected to continue robust growth, the detergent and chemical sectors are also

expected to maintain their growth trajectory. Consequently, soda ash demand in India

is anticipated to grow 6% through 2015.

Biofuels

With the crude oil prices ruling ~ US$ 120 per barrel, Biofuels are expected to be cost

effective and growing by 18-20% during 2011.

Water Purifier

The Indian household water purifier market has three product segments – Non electric

Storage water purifier, Ultraviolet (UV) and Reverse osmosis (RO). The market has

witnessed tremendous growth over the last few years, especially among the non-

electric storage water purifier segment. The last year has seen the entry of a large

number of industry players into the storage water purifier category with a flurry of new

launches. Water purifier is an under-penetrated category in India with approximately

2% of rural and approximately 10% of urban households as users. This points to a

large untapped market potential and would ensure that high growth rates can be

sustained over a longer period of time. This is attracting newer players leading to

category expansion and higher penetr Globalisation posses several Challenges to the

industry that has predominantly developed in a protected environment.

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In India, the rising income levels particularly at rural households are leading to a rise

in the demand for food grains. In order to ensure food security, the Government is

taking various steps to promote balanced use of soil nutrients as well as expand the

demand for fertilisers. In line with the same, the Government announced the

introduction of the Nutrient Based Subsidy (NBS) in 2010 for the phosphatic and

potassic fertilisers. This policy provides subsidy for basic nutrients (Nitrogen,

Phosphorus, Potash and Sulphur ) in a fertiliser, instead of the product based subsidy

which was prevailing. With the introduction of NBS, companies are being allowed to

increase prices without any formal approvals from the government. While there was

price increase by sellers to the tune of 10-15%, consumption of phosphatic and

potassic fertilisers grew by around 12% during FY10-11 as per latest estimates.

Having established NBS in phosphatic and potassic fertilisers, the focus of the

Government is on extending the same to Urea, which accounts for more than 50% of

the fertiliser consumption

From April 2000-April 2011, total FDI inflows into the Indian chemicals industry was

US$ 2.9 billion.100 per cent FDI is permissible in the Indian chemicals sector;

manufacturing of most chemical products are de-licensed.

Total production in the Indian Chemical industry has grown at an annual pace of 10

per cent since FY09. External demand has also contributed strongly to the growth in

the industry. Base chemicals cover more than half (52.3 per cent) of the Indian

chemical industry; the segment was valued at US$ 43.3 billion in FY10 followed by

pharmaceuticals (24.2 per cent).

Agrichemicals and Biotechnology are the minor components of the sector accounting

for 2.4 per cent and 3.0 per cent of production in FY10. Specialty chemicals are

relatively high valued; The sector is rapidly growing and have a diverse end-product

market.

Chemicals constitute more than 14 per cent of India’s total exports. Total exports of

chemicals grew from US$ 2.6 billion in FY02 to US$ 11.4 billion in FY10, a compound

annual growth rate (CAGR) of 20.1 per cent.

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________________ ____ _________________________ Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation

for the purchase or sale of any financial instrument or as an official confirmation of any

transaction. The information contained herein is from publicly available data or other

sources believed to be reliable but do not represent that it is accurate or complete and it

should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s

affiliates shall not be in any way responsible for any loss or damage that may arise to any

person from any inadvertent error in the information contained in this report. This document

is provide for assistance only and is not intended to be and must not alone be taken as the

basis for an investment decision.

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