Will soda ash prices bottom out? Tata Chemicals investors watch closely

Tata Chemicals' Ebitda per tonne for soda ash and related basal chemicals successful India fell  30% year-on-year successful FY24 and 10% for North America.

The institution earned than 75% of past year’s Ebitda from its Indian and North American plants engaged successful soda ash manufacturing. This excludes the Ebitda attributable to Rallis India, the company’s subsidiary with astir 55% holding, arsenic it is engaged successful seeds and agrochemicals concern and thus, valued separately.

The operations successful the UK and Africa bash not lend thing substantial. In fact, Tata Chemicals has recognized a write-down of ₹963 crore for its UK operations owing to the erosion successful value.

Adjusted for the worth of Rallis’ stake, the endeavor worth (EV) for Tata Chemicals, which is marketplace capitalization positive nett debt, comes to ₹30,000 crore. Based connected FY24 Ebitda, the EV/Ebitda aggregate comes to 12x.

For calculating the endeavor value, oregon EV, the marketplace worth of Tata Chemicals' holding successful radical companies, chiefly Titan worthy astir ₹3,500 crore has not been considered arsenic liquid investments arsenic it seems much of a strategical nature.

Now, for each commodity companies, portion deciding whether the valuation aggregate is connected the higher broadside oregon lower, it is important to find astatine what signifier of the rhythm is the underlying commodity terms successful presumption of highest oregon trough.

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As such, buying astatine a precocious aggregate astatine the trough of the rhythm does not wounded arsenic the borderline of information is high. But it is risky to bargain astatine highest commodity prices adjacent astatine a little aggregate arsenic valuations tin rapidly grow aboriginal erstwhile terms realization drops causing nett to collapse.

Soda ash prices are surely not astatine their highest with imported soda ash prices plummeting to $219 per tonne past period from $373 successful April 2023. So, immoderate rebound successful prices could bring down Tata Chemicals’ double-digit valuation multiple.

As measurement is the lone controllable adaptable for growth, the institution is keen to proceed expanding capacity. After the ongoing enlargement of 185,000 tonnes comes connected watercourse from Q2FY25 for Indian operations, Tata Chemicals is looking to turn capableness by different 30% with capex of ₹2,000 crore implicit FY25-FY28. North America volition besides spot enlargement of 4 lakh tonnes.

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Post FY24 results, astir brokerage houses person kept their people terms for Tata Chemicals astatine slightest 10% little than the existent marketplace terms of ₹1,099. However, the banal terms had not corrected adjacent aft anemic Q3FY24 results arsenic investors anticipation soda ash prices are nearing the bottom.