Moody's Investors Service says that Tata Chemicals (Ba1 stable) results for the fiscal year ended Mar. 31, 2015 (FY2015), although improved from FY2014, were slightly below expectation.
''Tata Chemicals' EBITDA margin improved at a slower rate than we had expected in FY2015, while delayed payments of fertilizer subsidies led to an increase in net debt,'' says Kaustubh Chaubal, a Moody's vice president and senior analyst.
''However, more timely subsidy payments and improving conditions at its North American, European and African operations should further improve Tata Chemicals' operations in FY2016,'' adds Chaubal.
Chaubal was speaking on the release of a new report on Tata Chemicals, entitled ''India-Tata Chemicals Limited: Profitability Strengthens in FY2015, but Slightly Lags Expectations''. The report was authored by Chaubal and Vincent Tordo, a Moody's associate analyst.
Tata Chemical's consolidated results showed revenue up 8% year-on-year to INR172 billion, and reported EBITDA up 19% to Rs 21.6 billion.
Although the company's EBITDA margin improved to 12.5% in FY2015 from 11.4% last year, the margin was slightly below Moody's expectations and the 15%-16% achieved in FY2013 and FY2012.
By region, Tata Chemicals North America, Inc.'s (TCNA, Ba3 stable) US sales volumes were flat, mainly because extreme weather conditions interrupted operations at its boiler plant in Wyoming.
But with production issuers sorted, FY2016 sales volumes already tied up, and a shrinking capacity in the overall soda ash market, Moody's expects TCNA's EBITDA margins to improve from the current 23%.
The company's African sales volumes were down 22%, but Moody's expects the restructuring of its Kenya operations should improve its operations in the region. Similarly, sales volumes for the company's European business were down 26%, but the installation of a power generating turbine in the UK by September 2015 should support its operations there.
Finally, while subsidy receivables for its Indian fertilizer business increased to Rs 19.7 billion from Rs 18 billion, and net debt increased to Rs 69 billion from Rs 66 billion, quicker subsidy payments going forward and the government's new gas pooling policy for the urea sector should reduce working capital needs, improve liquidity, and support EBIT margins.
The new gas pooling policy, in effect since 1 June, will enable Tata Chemicals to run its plants at full capacity, making it economic to produce beyond cut-off capacity. As a result, Moody's expects the fertilizer business could return to the 7%-9% EBIT margins achieved in FY2012 and FY2013, from 5% in FY2015.
Shares of the company declined Rs 13.75, or 3.24%, to trade at Rs 410.80. The total volume of shares traded was 15,374 at the BSE (1.16 p.m., Monday).
