The performance in FY2008 was impacted primarily due to escalation in raw material costs, staff expenses and power and fuel expenses. Since the product prices failed to track the rising input costs, operating Margins were severely impacted.
Capacity expansion at Magadi, Kenya is still facing problems. The company integrated GCIP during March, effects of which will come in consolidated statements Q1FY2009 onwards.
We remain positive over the medium-term outlook for Tata Chemicals’ products. However, margin pressure is expected to take a toll on the overall performance of the company.
Additionally, financing costs for the GCIP acquisition are also likely to further scale up owing to the rise in interest rates across the globe.
Accordingly, we have reworked our numbers and await GCIP’s numbers. We believe that escalating input costs are likely to impact performance in the near term.
Based on our revised estimates, the stock is available at 10.6x FY2010 FDEPS of Rs28.1 and P/BV of 1.6x. We have not consolidated GCIP numbers in our estimates. We maintain a BUY, with a revised target price of Rs337 (Rs394).