Stock to Buy: This Midcap Tata Group Stock Grew 25.44% In 3 Months, Brokerage Sees Further 19% Upside

ICICI Direct has suggested investors buy the stock of Tata Chemicals Limited with a revised target price of Rs 1,345 per share. The brokerage's given target price indicates that the stock is likely to jump 19% from its current level. Tata Chemical is a midcap Tata group company in the Chemicals sector having a market cap of Rs 29,061.32 crore.

Commencing operations in 1944, Tata Chemicals has come a long way to become one of the top five players in the global soda ash market. Under basic chemical, TCL offers soda ash, sodium bicarbonate, cement, salt, marine chemicals and crushed refined soda. Speciality chemical consists of solution towards agro chemical through Rallis and other specialty solutions such as nutritional products and HDS. Basic chemical forms 75% of overall revenue while the rest comes from speciality products.

Stock Outlook & Returns

The Current Market Price (CMP) of Tata Chemicals is Rs 1,143.60 apiece, trading 1.03% up as compared to its previous close. Today, it opened at Rs 1,136 apiece.

The stock over the past 1 week has fallen 1.33%. Whereas, in the past 1 and 3 months, it has given 3.32% and 25.44% positive returns, respectively. In the past 1 year, it has given 26.63% positive returns. Over the past 3 years, it has given 82.1% positive returns to shareholders. Whereas, in the past 5 years, it gave 55.74% positive returns.

Its ROE is 6.88%. Its 52 week low level was recorded on 1 July 2022 at Rs 773.35 and its 52-week high is recorded on 11 October 2022 at Es 1,214.90, respectively.

 

Q2FY23 Results

Reported strong numbers across the board largely led by robust realisation growth across all geographies in basic chemical segment. Reported revenue growth of 40.2% YoY to Rs 4239 crore, led by good growth in basic chemical segment (+45% YoY) & in speciality products (+27% YoY). Gross margins remained flat YoY at ~77% while EBITDA margin expanded 510 bps YoY to 21.7%. EBITDA was up 84% YoY to Rs 920 crore. Energy cost increased 50% YoY to Rs 732 crore while other expenses increased by 30% YoY to Rs 687 crore. Adjusted PAT was at Rs 628 crore vs. Rs 201 crore in Q2FY22.

 

Buy with revised target price of Rs 1,245/share

The stock appreciated at 61% CAGR in last three years. "We maintain BUY on the back of 1) tighter soda ash supply scenario, 2) upbeat management commentary regarding demand and pricing and 3) the company's ability to pass on the cost escalation via consistent price hikes. We value Tata Chemicals at SOTP valuation to arrive at a revised target price of Rs 1345/share (earlier Rs1370/share)," the brokerage has said.

Key triggers for future price performance

Improvement in the soda ash pricing environment bodes well for future growth outlook. Revival in export demand for North America unit to sustain group performance. Higher share of speciality business to command better valuations for the overall group.

Disclaimer

The stock has been picked from the brokerage report of ICICI Direct. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.