Tata Chemicals has reported disappointing numbers for the September 2010 quarter as its profits dropped significantly despite a strong topline growth. According to the leading soda ash manufacturer, h…
Tata Chemicals has reported disappointing numbers for the September 2010 quarter as its profits dropped significantly despite a strong topline growth. According to the leading soda ash manufacturer, higher costs of raw material and unexpected plant closures were the main causes for the decline. During the September 2010 quarter, the company“s net revenue increased 33% to INR 2,991 crore, while net profit decreased 43% to INR 127 crore, this latter figure not unexpected, considering the fact that in the year-ago period it had booked an extraordinary gain of INR 87 crore on the sale of its Brunner Mond unit in The Netherlands. The market, however, was surprised by the 290 bps drop in the company“s operating profit margin to 10.3%, mainly due to high raw material price, which, as a percentage of net sales, increased almost eight percentage points to 45%. Unanticipated plant shutdowns, caused by floods and change of calciner at Meethapur plant and a fire at General Chemicals plant in the US, affected production volumes, causing the margins to decrease even more. The company said that it intends to stop the decrease in margin by improving internal efficiencies, while taking efforts to pass on the cost hikes to consumers. At the current price-to-earnings multiple of 14.4 the company appears fairly valued.
