Tata Chemicals gains after CRISIL reaffirms rating

Tata Chemicals (TCL) rose 1.23% to Rs 753.20 after the credit ratings agency CRISIL reaffirmed its rating on the commercial paper (CP) of the company at 'CRISIL A1+'.

CRISIL Ratings has reduced the rated quantum of commercial paper to Rs 100 crore from Rs 600 crore based on the company's request. The reduction in rated quantum of commercial paper is in line with CRISIL Ratings policy of withdrawal.

During fiscal 2021, TCL's EBITDA margin declined around 400 bps, despite revenue registering marginal de-growth of 1.5%, primarily due to lower realisation during a large part of the fiscal.

In fiscal 2022, CRISIL Ratings expects revenue to grow 8-10%, driven by recovery in the glass industry (key end-user) which would support higher volumes. Prices are also expected to be higher as was visible in the fourth quarter of fiscal 2021, as further deferral of capacity expansion announced by players in domestic and global markets would keep prices firm since the supply-demand situation is expected to remain relatively tight.

The EBITDA margin is expected to improve 150-200 bps, aided by improving realisation and better spread of cost on higher revenue base.

Among international businesses, the operations in the US were most impacted wherein EBITDA margin declined around 1,000 bps in fiscal 2021, compared to the previous fiscal, due to slow recovery in volumes (down by 15%) particularly export volumes and subdued realisations.

From a debt perspective, TCL's standalone business continues to remain debt free, while majority of the debt resides in the international businesses. Overall, gross debt has reduced to Rs 6,933 crore as on 31 March 2021, from Rs 7,702 crore as on 31 March 2020. CRISIL Ratings derives comfort from TCL's past track record of successfully refinancing its overseas debt.

The rating continues to reflect the company's strong business risk profile, driven by its established market presence and healthy financial risk profile because of strong liquidity and financial flexibility. These strengths are partially offset by susceptibility to price volatility in the soda ash business.

TCL manufactures soda ash and related chemicals, including sodium bicarbonate, caustic soda and bromides. The company's subsidiary, Rallis, is one of the leading players in the domestic crop protection sector, and manufactures pesticides, herbicides and fungicides.

The company reported 85% drop in consolidated net profit to Rs 29 crore on a 11% rise in income from operations to Rs 2,636 crore in Q4 FY21 over Q4 FY20.

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