Not Tata Motors or TCS or Titan, this Tata Group company stock favourite among analysts and brokerages – Here’s why

Despite reporting a nearly two-and-half times (2.5x) jump in the second quarter profit for the financial year (2022-23) Q2FY23, Tata Chemicals' share price slipped almost 5 per cent to Rs 1,132 apiece on the exchanges at the market close on Friday.

The Tata Group chemical company has been a blue-eyed boy for many analysts and brokerages in comparison to other heavyweights such as Tata Motors and TCS. Many of them recommended the stock to Buy for bumper returns on a long term during Muhurat Trading earlier this week.

Why Analysts/Brokerages Bullish

The reason for the stock to be favourite among analysts/brokerages is that it is among the cheapest in the chemicals space. The stock was always considered a dark horse among the stocks owned by Tata group given its lucrative valuation and years of underperformance, Vinit Bolinjkar, Head of Research, Ventura Securities mentioned.

Finally, the company has got things in place with the demand situation also improving which made it a compelling buy for the long term, the market analyst also added.

Q2 Performance

The chemical company of Tata Group reported results on Thursday, October 27, 2022, which were largely in line with Zee Business expectations, however, operationally below estimates, marginally.

In Q2FY23, the company’s consolidated revenue grew 40 per cent year-on-year (YoY) to Rs 4239 crore against an estimate of Rs 4131 crore, while profit jumped 154 per cent YoY to Rs 680 crore versus an estimate of Rs 545 crore and margins came at 22 per cent, which was below the estimate of 23 per cent.

What Should Investors Do?

Over the short term, “one can look to book partial profit but for medium to long term the story is intact,” Bolinjkar said, adding that the stock is still cheap given it is trading at 12x FY23 EPS.

Investor community believes overall Tata Chemical demand continues to remain robust across geographies and across products, resulting in improved realisations going forward hence the company reported nearly three-fold jump in consolidated net profit in Q2FY23, Prashanth Tapse, Research Analyst-Sr VP Research, Mehta Equities said in his comment.

According to the Q2 earnings report, the company’s gross debt has been reduced due to the prepayment of debt of $12.5 crore in overseas units during the first half of FY23.

Fundamentally Strong

Fundamentally, Tata Chemicals looks strong as Soda Ash prices continue to remain robust across geographies resulting in improved realizations in the US, UK, and Kenya. The cost environment may also remain stable. The management is also focusing on deleveraging and executing expansion projects, the head of research at Ventura Securities said.

The long-term bullish outlook for the Soda Ash cycle based on the robust growth in demand of at least 3-4 per cent is aided by: traditional end uses and new demand for Solar Glass and Lithium Carbonate (used in Li-ion batteries) and limited increase in supply, Ramesh Sankaranarayanan, research analyst at Nirmal Bang had said in its report.

Technical View

Tata Chemicals – Target: 1230-1250; Stop Low: 1000; Recommendation: Accumulate

Overall, the daily chart suggests uptrend. But the current short-term scenario looks to be corrective towards 1090 levels which can be a level to start accumulating. Post testing that, reversal could be seen towards 1220 and above levels, Prashanth Tapse, Research Analyst-Sr VP Research, Mehta Equities said in his comment.

Concerns

Nirmal Bang believes that the global slowdown could hurt Soda Ash end-use demand, thereby squeezing Basic Chemistry segment margins and are cautious compared to the bullish view, as the outlook for housing/autos may weaken in Europe and the US due to the rising interest rates.

Share Price History

The stock in the one last year has gained nearly 26 per cent, while it jumped 24 per cent year-to-date as compared to an over 1 per cent rise during the same period in the BSE Sensex. The counter in the last month has corrected by around 4 per cent against an over 6 per cent rise in the benchmark index.