150% Dividend, Rs 2,000 Cr Fundraise: Tata's Chemical Stock Is Too Salty; Motilal Neutral, Kotak Gives Sell

Tata Group-backed 85-year-old salt maker, Tata Chemicals' share price is in focus as brokerages' views of SELL and Neutral on the stock after its financial report for Q4 and FY24. Broadly, Tata Chemicals faced subdued operating performances across its geographies which led to a massive dent of a whopping 54% YoY decline in EBITDA. As per Motilal Oswal, adverse demand-supply scenario hurts soda ash prices which is a short-term challenge for Tata Chemicals. Due to weak earnings and no signs of recovery anytime soon as geopolitical tensions mount, Kotak Institutional Equities has given a Sell call on Tata Chemicals. Motilal is Neutral.

On May 2nd, Tata Chemicals' share price stood at Rs 1100.70 apiece, up by 2.65% on BSE with a market cap of Rs 28,041.02 crore. The stock's 52-week high and low is at Rs 1,349.70 apiece and Rs 933 apiece respectively. Despite the latest surge, Tata Chemicals stock is down by 3.2% in the 5-day trading session of the latest.

Neutral On Tata Chemicals:

In its research note, Motilal Oswal said, "Tata Chemicals (TTCH)'s 4QFY24 consolidated EBITDA declined 54% YoY, primarily due to a subdued operating performance across geographies with India/US/UK/Kenya reporting 26%/68%/72%/57% decline YoY."

Motilal believes there are certain short-term challenges in the soda ash demand-supply dynamics owing to weak demand in Western Europe, that result in suppliers
(majorly from Turkey) exporting soda ash beyond Europe (impacting global prices adversely). However, the situation is expected to balance out in the medium term with the emergence of new applications, such as solar glass and lithium-ion batteries.

"We broadly maintain our FY25/FY26 EBITDA estimates and reiterate our Neutral rating with a SoTP-based TP of Rs 980," added Motilal.

SELL On Tata Chemicals:

Brokerage Kotak in its note said, "The cuts to estimates are driven largely by the US operations, which reported EBITDA/t of just $28 for 4QFY24; we now cut our US EBITDA/t estimate for FY2025 from $45 to $35 and thereafter, assume a recovery to $40 in FY2026. Our revised EPS estimate for FY2025 stands reduced by 20% to Rs25.9, while FY2026 falls by 12% to Rs31.4."

Despite the collapse in earnings (down from Rs91.7 in FY2023 to an estimated Rs25.9 for FY2025), the stock has held up surprisingly well, perhaps on hopes of an IPO of Tata Sons-which, however, does not seem to be happening, given news that Tata Sons is working on repaying debt to avoid going public. Any hopes around a large expansion into battery chemicals seem misplaced as well, Kotak's note added.

It added further, "Our revised SOTP-based March 2025 Fair Value ticks down to Rs770 (from Rs780)."

Tata Chemicals Dividend:

The company's board has approved a dividend of 150% amounting to Rs 15 per share for FY24. The dividend, if approved by the members at the ensuing 85th Annual General Meeting (AGM) of the Company, will be paid (subject to deduction of tax at source) within five days of the AGM.

This payout will come after it paid a 175% dividend valued at Rs 17.5 per share in FY23.

Currently, Tata Chemicals has a dividend yield of 1.4%.

Tata Chemicals Fundraising:

Apart from dividends. Tata Chemicals board has approved the proposal for raising funds through the issuance of Non-Convertible Debentures (NCDs) on a private placement basis, for an amount up to Rs 2,000 Crores. The Board also authorized an internal committee, to take all actions in respect of finalization of terms of issuance and allotment of NCDs.

Tata Chemicals Earnings:

For FY24, on a consolidated basis, Tata Chemicals income from operations stood at Rs 15,421 crore as compared to Rs 16,789 crore in FY2023. EBITDA stood at Rs 2,847 crore as compared to Rs 3,822 crore in FY2023. PAT (before exceptional items and Non-Controlling Interest ('NCI')) stood at Rs 1,310 crore as compared to Rs 2,452 crore in FY2023.

On a standalone basis, for the full year, the income stood at Rs 4,384 crore as compared to Rs 4,930 crore in FY2023. PAT stood at Rs 794 crore (before exceptional items) as compared to Rs 1,027 crore in FY2023.

About Tata Chemicals:

A part of the US$ 150 billion Tata Group, Tata Chemicals Limited, is a leading supplier of choice to Glass, Detergent, Industrial and Chemical sectors. The company has a strong position in the crop protection business through its subsidiary company, Rallis India Limited. Tata Chemicals has world-class R&D facilities in Pune and Bangalore.