Tata Chemicals Ltd

Educational Exercise on Tata Chem demerger. This is my personal view and obviously valuations are tricky to justify in a demerger

Implied Residual Value No of shares CMP Value
Tata Chem 25,47,56,278 720 18,342
Tata Global 1.14 -
Less : Tata Global Shares (29,04,22,157) 354 (10,271)
Residual value 8,072
Our Calculation of Demerged Entity
Value of Basic Chemistry Business 6,363
Value of Rallis Stake 1,100
Value of Surplus Assets 50% 1,894
Total Expected Value 9,357
Upside 16%

US Business has Trone Mines and is lowest cost producer in World
The recent deal where Tata Chem bought 25% stake from its partner was done at 1400 Crore for 25% Stake i.e. 5600 Crore EV, implying deal value of 8 times

Since India and Europe have Synthetic process, valuing them lower.At same time India has displayed good EBITDA margins

Valuation of Surplus Assets at 50% Discount

Name No of Shares CMP Value (Crores)
The Indian Hotels Co. Ltd. 1,06,89,348 135 144
Oriental Hotels Ltd. 25,23,000 35 9
Tata Investment Corporation Ltd. 4,41,015 909 40
Tata Steel Ltd. 28,90,693 381 110
Tata Steel Ltd. Partly Paid 1,99,358 100 2
Tata Motors Ltd. 19,66,294 130 26
Crystal Peak Minerals Inc. 2,90,55,612 9.29 27
Titan Company Ltd 1,38,26,180 1255 1,735
Important Unlisted Entities
Indo Maroc Phosphore, S.A. , Morocco 33% 392
Tata International Ltd. 12.0% 141
Tata Projects Ltd 10% 267
Tata Sons Ltd. 10,237 56
Investment Porperty Fair Value 363
Tata Industries Ltd. 476

Disclosure : Gave it a miss, due to fund restrictions



Looks like a big beneficiary of reduced imports from China?

As a shareholder of tata chemicals I have received 142 shares of tata consumers ltd for 125 shares held in tata chemicals. Now suppose 100 rupees per share amounting to Rs.12,500/- is my investment in tata chemicals then what is the cost of acquisition of tata consumer share?

Sorry for naive question and thanks in advance

Companies are required to provide this information to shareholders for Income Tax purpose, however here i had written to company & their registrar, & got reply from registrar that they will provide this later. Now its really strange that this is the basic information which they should have pass to shareholders along with demerger but they fail. Even in case of Tata Communication demerger ,where shares of Hemisphere Property alloted ,they fail to provide this basic detail.

My head is spinning!

Tata global beverage ltd
Tata chemicals

All are now merged into Tata Consumer Products Ltd ?

I guess it would be pointless to compare quarter results declared today, lets merged all the threads into one, better create a new one for Tata Consumer Products Limited.

The co sent details as under

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Thank u very much for the clarification

Tata Global Beverages has been renamed to Tata Consumer Products Limited now. So no merger there. The consumer products division of Tata Chemicals - basically Tata Sampann and frontend of the salt business (not salt manufacturing) - has been merged into Tata Consumer Products Limited. The rest of Tata Chemicals continues as is. As a result of this transaction, shareholders of Tata Chemicals were allotted shares of Tata Consumer Products Limited.

The LHS of the slide that you have shared is misleading and made by someone with very poor written communication ability, so pls disregard it.


Does anyone have any idea what the other income of 6000 cr is ? Is it due to the org restructrue

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Yes. See notes to the Q4 results.

I think at this stage Tata chemicals is really cheap. I am not sure whether I am missing something that the market knows but it is available at half the book value and single digit P/E. Cash flows are an issue but they have been doing big expansions and operating cash flows have been great.
It seems like a good bet right now. After the COVID 19 impact on markets and the lockdowns, the stock is still depressed. There might be a few reasons investors are not flocking to it. Demerger of its consumer business and commodity nature of the business at hand is a starter as investors tend to stay away from commodities. Lack of free cash flow in past few years might be another problem as well but they have been undertaking massive expansions. Debt is also an issue but they have strong assets with financial support of TATA group.
The major business they deal are commodities i.e. Soda Ash, Bicarbonates and Salt. But despite being commodities , they have been consistently earning well form them for the past 10 years. They are venturing into new businesses and doing aggressive Capex Plans which might yield great cash flows in the future.

  1. Basic Chemistry Business – It consists of 3 major products. Soda Ash , Bicarbonates and Salt. Revenue rom this division last fiscal was around 8300 Cr( 7600 Cr in FY2018) with EBIT of 1300 Cr (1450 Cr). The revenue is geographically diversified with India contributing around 2000 Cr, Europe with 1400 Cr, America with 3000 Cr with rest going to other parts of Asia and Africa. It also manufactures cement but the revenue from it is miniscule compared to other divisons.

Soda Ash – It’s the third largest manufacturer in the world with plants in India and Kenya. Soda Ash has only 3 players in India. Nirma has market share of 27%, GHCL of 25% and Tata Chemicals has 20%. Rest are all imports. Considering the situation right now, these players can eat into the remaining share of imports and Tata chemicals has also recently expanded its Soda Ash capacity from 0.8 MTPA to 1 MTPA at Mithapur plant which might help them to cater the demand. TCL also imports Soda Ash from its plant at Magadi in Kenya. It has an overall capacity of 4.3 MTPA. Apparently, it works out for them despite the transportation as they have stated in the concalls. Also, Soda Ash is used in flat glass, container glass, detergent, metals, paper, etc. Glass and detergent use around 42% whereas glass demand in auto sector is about 15%. So, soda ash has many uses in lower value added segments in diverse industries. Also, management in one of their concalls stated that soda ash is one of the main materials for Lithium Carbonate which are used in Li ion battery for EV market. This may increase the demand for Soda Ash. So, some of the end user industries are cyclical whereas some are not. Global capacity is around 70.6 MT and the whole industry is in oversupply right now which limits pricing power as of the moment. There is no major capacity expansion happening right now and TCL is one of the few to do it.
So overall, Soda Ash is oversupplied worldwide. It is a commodity but scale is a big barrier to entry such that only three players in India are there. They earned 6000Cr in FY2019 form soda ash.

Salt- It is the largest salt manufacturer in India and was previously integrated as a consumer product. Now, with the demerger it manufactures salt and the branded business has since then gone to Tata consumer products. At mithapur, the capacity is undergoing an expansion from 1 MTPA to 1.4 MTPA. It will a big bulk of its manufactured salt to Tata Consumer branded salt business which commands more than 40% of branded salt market share in India. So, the business will be more or less stable considering a lot of the business deals in trade wit group entities. They earned 1600 Cr from Salt business last year but the breakup might be different this year considering the demerger. Overall, It is a much more stable business.

They earned around 500 Cr in revenues from this division. They produce Medikarb and other pharmaceutical based Bicarbonates and are also currently expanding capacity.

  1. They are the parent and own 51% in agrochemical-based company Rallis India. They are investing around 900 Cr in Rallis for expansion of its capacities and product portfolio. Rallis has a leading position in many agrochemical intermediates, pesticides and fertilizers. The agrochemical space in India has been growing. The recent ban on 27 pesticides does not impact much of Rallis revenue (estimates range about 1% or 2%). The business is not cyclical with limited pricing power and immense potential for growth.

  2. Speciality Chemicals and Nutraceuticals Business- The management has many times stated that they want to venture into more speciality products which are higher margins and not commoditized. Currently nutraceuticals contribute to low percentage of revenue and that is unlikely to change but it can be a business of higher margins and can considerably improve the bottom-line and return ratios of the company. A 250 Crore plant at Nellore for Nutraceuticals has been almost done and over as stated in concall. Also for their speciality business, they have a pilot plant for manufacture in Sriperumbudur and a silica plant in cuddalore which is producing food grade and rubber grade material. Revenue estimates are unknown but it can be an area to watch out for.

  3. Energy Business is a new venture for the company. For the Lithium plant, they have purchased the land and will be investing around 800 Cr for the manufacture of Li ion batteries. This can have a huge potential. Initially, there will a 2 GW plant and trial run will take place. As the demand picks up, more capacity will be added. A lot of area will be left vacant on the land purchased in case there are any future expansions. This is an optionality kind of business that can generate great returns for the company in the future. They have the financial backing and management to make it work. Its difficult to know the kind of revenue they can generate from this division as the market has not matured enough but it can be a major gamechanger.

Overall, the business generates most of its profit from basic chemistry division. Soda Ash being the major cash cow is somewhat with limited pricing power and fluctuating margins but over many years it has produced decent profits. It’s end user industries are varied and many of them are not cyclical. And over a long period of time cyclicality should not be a problem. Also, scale of operations does give it some advantage. Salt is somewhat more stable business and is not much impacted by cycles. Same with Bicarbonates.
There is good optionality regarding the company’s foray into speciality chemicals, nutraceuticals and Energy business. All of them have great major but energy business can be a major cash churner of the lot. But, It will likely take some years to materialize and make a major impact on the income statement even if things go out well. So, they can be seen as a growing revenue stream. Also, the company holds the majority holding in Rallis. So, TCL earns about 800 Cr in a bad year and 2000 Cr in a good year. It had only one bad year of performance in the last decade i.e. 2014 where it lost around 1000 Cr and has made free cash flows of around 7000 Cr in last 5 years despite a major capex in excess of 3600 Cr. The cyclicity is a concern but I believe that the risk is overly priced in. Also, the stock may not be seen attractively by investors since the demerger as consumer products are generally loved by investing community and did not see them favourably for the company. But, TCL earned a small portion of its profit or revenue from its consumer division.

So, It is a trusted and experienced management with financial backing of a strong group. It is available really cheap in terms of cash flow generated per year. Capex of in excess of around 3600 Cr is being carried out with 2500 Cr at Mithapur for debottleneck and expansion and 500 Cr at Nellore and Cuddalore and 800 Cr at Dholera. A lot of that Capex has already been done and its affect will likely show up in the income statement a few years from now. It is highly diversified as of now and in future, it will be more diversified than it is today with Energy and Speciality chemicals coming online. With its basic chemistry business alone it is cheap and with new businesses it may be a really good bargain. And it holds Rallis too. I think it may be a great bargain with less to lose from here and if certain things play out right, can give great returns.

Disclosure : Invested
I have tried my level best to understand the business and will be happy for some feedback. There may be some inaccuracies as well and will be happy to be pointed out by some fellow member.


This mirrors my sentiments too. Another way I look at this business as follows.

In 2017, Nirma offered 1.5-2 billion USD for Tronox Alkali. This business had a capacity of 3.7 M MT representing 22% of natural soda ash capacity. Genesis Energy finally purchased it for 1.33 Billion USD. Hence we arrive at a valuation of 359 USD per MT.

In 2019, the total natural soda ash production of Tata Chemicals was 3.634 MMT. This should value the company at 1.30 Billion USD or 9400 crores. Current market Cap at 312 INR per share is 7900 crores. Thus the base business itself without considering the other businesses (synthetic soda ash, cement, rallis, lithium ion, specialty chemicals) is cheaper by 20%. There is a huge margin of safety here in my opinion.

Also Ciner Group, the largest producer of natural soda spent above1.35 billion dollars for a 2.7 MMT plant which went live a couple of years back. Thus the replacement cost of the asset is 500 USD per MT thus making the current share price of tata chemicals very attractive.


That is a very good analysis, however, in general the deals are struck with various other factors affecting the pricing. Also, such deal values may give a reflection of value but mostly do not indicate the value at which the comparing company usually arrives.

Current value of Tata Chemical should come from its growth drivers and longevity of core business. Specialty Chemicals is the buzz word around since couple years and more so now - unfortunately they dont seem to have significant presence here and any significant action indicating that focus.

Battery for Automobiles - This is a nascent area with multiple possibilities on how the manufacturing, supply chain, usage and maintenance would happen in future. Very difficult to bet on this part of business.

The branded consumer business - The charm which got me attracted to it initially, is now with Tata Consumer Products.

So basically it is left with its core business and some debt…

Having said that, Tata’s have been constantly reinventing themselves ever since Chandra happened. So it is important keeping track of this company

Also what is not lost though - Is the management and people who had the capability to innovate and make a brand out of basic commodities. Huge respect for the creators of Tata Sampann!


Huge opportunity ahead in next 2 to 3 years


How they are going to utilise 6k crores received from Tata consume as part of business restructuring?

Tata Chemicals did not receive any cash from Tata Consumer as part of the deal. The deal consideration in the form of Tata Consumer shares was directly paid to Tata Chemicals shareholders.


@Adhiraj This is a Good Analysis!
Have you tried figuring out why they have not been able to grow their sales in the last 4 years? It is more or less around 10300 Cr. mark. Also, Operating margins are more or less the same (Around 20%). This is my only concern.

The good thing is that they hold around 51% in Rallis to which the market is giving a value of around 6000 Cr but I guess this is not appropriately reflected in the market cap of Tata Chemicals which makes it available at a fairly cheap valuation.

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I think it boils down to a few factors

  1. Capacity restraint
  2. Lack of new business verticals and CAPEX
  3. Fluctuating Price realizations
  4. Demand issues due to overall economic conditions
    Also, demerger of consumer division recently will have an impact on its revenue.

The way I see it, they are addressing point number 1 and 2. They have spent more than 3500 crores in past few years to increase capacity, debottleneck and enter new verticals such as specialty chemicals, nutraceuticals and energy. I don’t expect it to show any growth in coming year or two as overall economic condition looks weak for most countries including India due to the recent crisis. But it is very likely that when recovery happens, the new business verticals will add to the overall revenue and capacity expansions come into play.
For the next two points, I believe the company is somewhat at the mercy of the market conditions as it can’t dictate prices and demand despite having a good market share. But that doesn’t make it a bad business even if it is not immune to market cycles.
Soda Ash is oversupplied worldwide and is a commodity product. However, with high volumes, price can be a differentiator with only Nirma and GHCL in Indian market competing with them. The business is somewhat cyclical as it depends on many factors. So, market conditions will influence price realizations and margins. Sometimes for the better and sometimes for the worse. But over the long term, it should probably grow its overall revenue. In addition; the valuation, management and strong market position does give me comfort.

Also, I believe the growth will not be linear but fluctuating when one will consider YOY basis due to inherent nature of the business.


You have not commented on their Cement business. Whether they have plans to expand their exiting capacity?