CMP (BSE): Rs. 344.85
CMP (NSE): Rs. 344.35
Industry: Fertilizers
Before I start with Tata Chemicals Limited, I just want to say that this is one stock that I want to have in my portfolio for the rest of my life. According to me, this is the best stock based on its fundamentals and business model. Above all, it is in TATA's that we trust.
Tata Chemicals Limited is a part of the US$ 70.8 billion Tata Group. It was established in 1939. It is a global company with interests in chemicals, crop nutrition and consumer products and they serve a diverse set of customers. It operates broadly in three sectors - Living Essentials, Industry Essentials and Farm Essentials.
Living Essentials: TCL covers products that are basic to daily living such as salt, baking soda products and water purifier. TCL is the pioneer and India's market leader (60% market share) in the branded, iodised salt segment and Tata Salt has been recognized as India's No.1 food brand for more than 5 years. I-Shakti, new refined salt is the second largest salt brand. Tata Salt Lite is the market leader in the low sodium salt category within the first year of launch. TCL is the 4th largest manufacturer of sodium bicarbonate in the world. To meet the challenge of providing safe drinking water to India's population and reducing the incidence of water borne diseases, TCL launched 'Tata Swach' - a unique, low cost and innovative nanotechnology based water purifier last year. It is a household water purification system that does not require electricity and uses natural materials . It is an attempt to provide health and wellness to the consumers.
Industry Essentials: TCL covers the products that are essential raw materials for various industries such as glass, detergents, mining and chemical processing. TCL is the second largest producer of soda ash in the world with manufacturing facilities in India, Kenya and USA. TCL has a capacity of approximately 5 million MT in soda ash. About 2/3rd of this capacity is based on natural soda ash. Due to this, it owns 35% of the global low cost and sustainable natural soda ash capacity. Due to its favourable geographic positioning, it caters to key glass and detergents industry in USA, Europe and Asia, which accounts for almost 95% of the production and 86% of the demand for soda ash. During the global crisis, the demand was shrunk considerably. However, now with the slow revival of the global economy, the demand is expected to increase.
Farm Essentials: TCL covers products that are needed to improve productivity of the farm such as fertilizers, pesticides, speciality nutrients, seeds, agri-services and crop protection products. It is India's leading crop nutrients player with its own manufacturing of urea and phosphatic fertilizers and a leading player in crop protection business through its subsidiary Rallis. The crop nutrition and agri-business has its presence across all the three key agro-nutrients - Nitrogen (N), Phosphorus (P) and Potassium (K). In order to secure raw material supply of phosphatic rock, it acquired an equal partnership in the Moroccan company Indo Maroc Phosphate S.A. (IMACID), along with others.
There are 75 million more people to feed in the world each year. In India, almost 70% of the additional earnings go towards spending on food. These factors are continually increasing the pressure on the world farmers to grow more grain and oilseeds leading to more demand for nutrients, seeds and efficient irrigation mechanism. In India the situation is that it has about 7% of the total land in the world, however it feeds almost 17% of the population (Indian population). Hence, in order to improve the productivity and feed the existing demand, India would definitely remain as one of the key drivers for the growth of nutrients demand in the world.
TCL, through its networks of Tata Kisan Sansars (673 stores, from 580 stores last year) in the northern states provide end to end solutions to the small farmers and help them enhance the yield from their land. These centres are one stop resource centres for the farmers. They even provide a variety of farming solutions such as advice on crops, information on weather and market price, application services, contract farming arrangements and market linkage for agricultural produce. It has also entered into a JV with Total Produce of Ireland to provide fresh produce from the farmers to the retailers. This is a 50:50 JV known as Khet-Se. Overall, TCL intends to increase its presence in the Indian farm.
The implementation of the Nutrient Based Subsidy (NBS), resulting in decontrolling of the Phosphatic (P) and Potassic (K) fertilizer, will help in improving the agricultural productivity and would also invite new investment. This will definitely prove to be beneficial for the company.
Aqusition of Rallis: In 2009, TCL acquired almost 50.06% stake in Rallis. Through Rallis, TCL will strengthen its presence in the entire agri-input space. Currently, TCL is a dominant player in the crop nutrition segment and Rallis has a leadership position in the Indian Crop Protection industry. Through this synergy, TCL will enhance value creation as well as will access business synergies in the agri- inputs sector.
TCL is quoting at 17.36 PE whereas the industry PE is 12.08. Even though the PE is high, I am very optimistic about this particular stock because of its bright future prospects and its entire business model. It has a well diversified business in itself thereby reducing the overall risk. In addition to this it has acquired Rallis in 2009 and the benefits of this synergy will seep in the topline as well as bottomline from the 1st year itself. The dividend yield is almost 2.57% at the current market price. It is quoting at 2 times its book value. Thus because of its good promising prospects, even at a premium I find this stock very attractive.
Buying this stock on dips would be a very good pick, somewhere around 300-315 levels.
Happy Investing.
An article in Business Line dated 5th Sep, 2010 stated that Canada and Australia specially grow pulses, just to export it to India, looking at its increasing demand for pulses (that is a key part of its meal). The potential that these 2 countries see is so high that they have some Special Economic Zone (SEZ) being set up, where pulses would be grown specially for India. 
