Tata Chemicals to continue the positive momentum in Q2FY23; Kotak Securities

Mumbai: Kotak Securities expects Tata Chemicals Ltd (TCL) to witness another strong performance in Q2FY23 on the back of rising soda ash prices. The average prices of soda ash exports from the US have risen to US$273/ton in July 2022 (vs US$269/ton in June 2022 and US$253/ton in May 2022). This indicates a likely increase in TCL’s average realization in North America every quarter. TCL is bound to benefit as the US business accounts for over 60% of TCL’s sales volumes. The increase in realization is being driven by the renewal of past export contracts at a higher rate.

Kotak Securities mentioned in the note that there have been no signs of any softening in prices across key markets, despite the economic slowdown. Their channel checks suggest that prices remained firm in Aug-Sep as well, with import prices of dense soda ash at Rs35/kg in Sep 2022 versus an average price of Rs28/kg for Q1FY23. Also, the average prices, at which TCL’s Kenya operations export to India, have firmed up to Rs33/kg in Sep 2022 from an average of Rs32/kg in Q1FY23

The US business is expected to report improved results on the back of higher volumes and realizations, resulting in 18% higher EBITDA every quarter. Q1FY23 witnessed the loss of 10 KT of volumes due to a maintenance shutdown, however, these volumes are expected to be recouped in subsequent quarters. Energy costs in the US are largely stable every quarter and while they are up year-on-year basis, the company has implemented surcharge clauses that should protect margins.

India business is expected to report 5% higher revenue, but assume that higher energy costs led by coal will result in a 3% quarterly decline in EBITDA. Europe and Africa businesses to report increased revenues, supported by higher soda ash volumes and firm realizations, but expect lower EBITDA every quarter in the UK due to a sharp increase in energy costs.