Tata Chemicals December quarter results disappointed with a consolidated net loss of Rs 15.9 crore due to higher energy costs and extraordinary expense of Rs 82.4 crore associated with restructuring of European operations. Energy costs increased sharply to R650 crore (up 43% y-o-y and 18% q-o-q) resulting in an Ebitda margin erosion by 177bps y-o-y to 11%. India fertiliser subsidy receivables increased to R1,600 crore (from R1,200 crore in Sept 2013) on account of delay in receipt of urea subsidy. As of Dec 2013, consolidated debt stood at R6,600 crore.
North American operations reported a strong performance with revenue up 9% y-o-y and Ebit up 23% y-o-y, supported by higher realisations.
We have reduced our FY14-16 EPS estimate by 10% each and valuation by 7% to R270 per share on expectation of continued weakness in margins at TCLs European and African operations due to high energy costs. Despite reasonable valuations (FY14 P/B of 1x), we rate TCL a hold on muted earnings growth of 4% CAGR over FY14-16E.