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Nirmal Bang Report
We have maintained Sell on Tata Chemicals Ltd. after marginal changes in estimates and have raised our target price a tad. The gradual recovery in Soda Ash industry towards a balanced demand and supply situation (as indicated by Tata Chemicals management and Genesis Alkali) could take another 12-24 months given the increase in new capacity.
We expect current concerns over margins (due to headwinds from weak demand and excess capacity) to persist until we see the closure of old synthetic capacities in the EU and China matching the addition in new tonnage. In our view, Q4 FY24 was the trough – which may linger for a while, but it is likely to gradually improve once US cuts interest rates - likely by end-FY25.
Please note that the street has cut estimates for FY25E/FY26E by 17.8%/11.8% versus the estimates post Q4 FY24 result. This and 9.9% YoY rally could put a cap on the stock.
The outlook on Rallis is constructive as per Tata Chemicals MD&A, and poses an upside risk if Rallis beats expectations that could boost its value in Tata Chemicals target price. The Tata Sons IPO is unlikely as per recent news.
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