Tata Chemicals is a good buy for six months

Tata Chemicals Ltd is a global company that serves a diverse set of customers across five continents through its Basic Chemistry Products Business (Soda Ash, Sodium Bicarbonate, Cement and Marine Chemicals). The company’s global supply chain gives it a unique advantage to serve the customers with assured supply and efficient service at competitive prices. With a capacity of around 4.3 million tonnes per annum, the company is currently the world’s third largest Soda Ash manufacturer. More than two-third of this capacity is natural Soda Ash based and located at the Green River Basin, Wyoming in the US. In addition to having lower manufacturing costs, natural Soda Ash has a lower energy and environmental footprint. On the other hand, Synthetic Soda Ash and Sodium Bicarbonate are manufactured in India and UK largely to cater to their respective domestic markets.

The Indian Soda Ash market grew by just under 4% for the FY 2018-19 against previous year’s growth of 12%. During the year, anti-dumping duty on imports in India from China, the European Union, Kenya, Iran, Pakistan, Ukraine and US were removed with no significant impact on pricing. Imports into India continued to be high at 8.9 lakh tonnes which is about 23% of the domestic demand. Domestic demand growth was quite modest due to lower demand from container glass and reduced Soda Ash consumption in detergents, due to increasing use of liquid detergents. Sodium Bicarbonate is a versatile product with a wide array of applications including food additives, animal feed, pharmaceuticals, dyes and textiles and air pollution control.

Tata Chemicals believes that given its wide range of existing and new applications, Bicarb is expected to sustain volume growth rates at above the GDP levels along with offering significant value addition potential in the future. It is the sixth largest producer of Bicarb globally, with a total capacity of around 2 lakh tonnes per annum spread across India and UK. Key drivers of Bicarb growth continue to be food, feed and pharma segments. However, the company expects use of Bicarb to add to the demand growth during the upcoming year with government’s increased focus on pollution control by mid-size power plants. Salt production continues to hold the third position next to China and US. Besides meeting the domestic requirement of edible and industrial salt, the industry did set a new record for exports. Production of iodised salt continued its progressive trend as it is gradually replacing ordinary iodised salt due to its preference by Indian consumers. The largely unbranded pulses industry presents a huge opportunity for consumers to migrate to better quality, branded pulses.

Tata Sampann taps into this opportunity as the first national brand of pulses. India is the world’s largest producer, consumer and exporter of spices, producing about 75 of the 109 varieties listed by the International Organisation for Standardisation and accounts for half of the global trading in spices. The spices industry is still highly fragmented and regional in nature with consumer taste palate changing across regions. Tata Sampann range of spices sets benchmarks through its superior product quality and offering products catering to regional tastes.

The Tata Chemicals stock quoting at Rs 666 can be bought by portfolio investors for a target price of Rs 725 in six months’ time perspective and even analysts and fund managers are betting on the company to deliver good financial numbers.

Rajiv Kapoor is a share broker, certified mutual fund expert and MDRT insurance agent.