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Tata Chemicals hits 52-week low on Q3 loss, weak margin; analysts cautious

The Q3FY25 results saw Tata Chemicals report a net loss of Rs 53 crore, from Rs 158 crore profit in Q3FY24

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Tanmay Tiwary New Delhi

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Tata Chemicals’ December quarter performance for fiscal year 2025 (Q3FY25) disappointed analysts, as the company grappled with declining realisations and pricing pressure in its key soda ash segment. 
 
The Q3FY25 results saw Tata Chemicals report a net loss of Rs 53 crore, from Rs 158 crore profit in Q3FY24. The sharp decline in profitability caused a ripple effect in investor sentiment, leading to a drop in the company’s stock price. Tata Chemicals shares dropped as much as 4.81 per cent to hit a fresh 52-week low of Rs 899.40.
 
The revenue also dipped 3.8 per cent to Rs 3,590 crore in Q3FY25, falling short of Bloomberg’s expectations of Rs 3,803 crore. The company’s Ebitda stood at Rs 434 crore, considerably below both the previous year’s figure of Rs 542 crore and the Bloomberg estimate of Rs 572 crore. 
 
 
The company’s consolidated earnings before interest, taxes, depreciation, and amortisation (Ebitda) plummeted 20 per cent year-on-year (Y-o-Y) and 30 per cent quarter-on-quarter (Q-o-Q). The drop in Ebitda was primarily attributed to a combination of factors, including weaker realisations, higher fuel and freight costs, and major production outages at its plants in the United States, analysts said.
 
As a result, the Ebitda margin squeezed 240 bps to 12.1 per cent, down from 14.5 per cent in the same quarter last year.
 
R. Mukundan, managing director and CEO of Tata Chemicals said, “Company’s overall performance was down as compared to the same quarter of previous year, mainly due to lower Soda Ash pricing across geographies and higher fixed cost in US due to plant production outage during the quarter.” 
 
Challenges in the Soda Ash segment
 
The key challenge faced by Tata Chemicals is the persistent pricing pressure in its soda ash segment, which is expected to continue for the next 3-6 months. The company’s management pointed to a global demand-supply imbalance as the primary cause of the weak pricing environment. Although realisations showed a slight improvement sequentially, they are still well below the desired levels, leading to concerns over the segment’s short-term profitability.
 
Tata Chemicals’ US operations have been particularly hit hard by plant production outages, further complicating the company’s ability to meet its revenue targets. Despite this, the management remains hopeful that pricing in the soda ash market will stabilise at lower levels over the coming months, particularly as demand picks up in markets such as India, Asia, and the US. However, the outlook for the Western European market remains more muted, with expectations of flat or marginally declining demand.
 
Analysts’ view
 
Analysts have responded to Tata Chemicals’ Q3 results with caution. Motilal Oswal has downgraded its FY25 Ebitda estimates by 11 per cent, factoring in the weak performance in Q3, as well as the closure of the Lostock plant in the UK, which accounted for around 8 per cent of the company’s total revenue in FY24. 
 
Additionally, pricing pressures in the soda ash segment are expected to limit profitability in the near-term. As a result, Motilal Oswal has revised its Ebitda  estimates for FY26 and FY27 downward by 10 per cent and 6 per cent, respectively. The brokerage has maintained a ‘Neutral’ rating, with a reduced target price of Rs 1,030.
 
Similarly, Kotak Institutional Equities highlighted the company’s international operations’ margin pressures and the continuing weakness in pricing. While Tata Chemicals expects prices to eventually recover from their current depressed levels, Kotak Institutional Equities has sharply cut its earnings per share (EPS) estimates for FY25, slashing them by 26-34 per cent. The brokerage has also lowered its fair value (FV) estimate for Tata Chemicals to Rs 750 from Rs 840, maintaining a ‘Sell’ rating on the stock.
 
That said, in the face of ongoing pricing pressures, rising costs, and production challenges, Tata Chemicals appears to be in for a challenging few months. 
 
While the company is optimistic that the soda ash market will recover over time, the road to recovery looks long, and investors may need to brace themselves for a continued period of volatility. 

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First Published: Feb 04 2025 | 12:07 PM IST

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