Synopsis–Tata Chemicals has staged a sharp rally off the recent lows. The stock is expected to touch Rs 620 in the short term, according to technical analysts.
MUMBAI: Here’s the next jewel in the famed Tata crown. With expansion plans that include lithium-ion cells for electric vehicles (EV), chemicals, nutritionals and agri-sciences, Tata Chemicals could well be the next Titan Industries – a multibagger idea from the storied conglomerate.
The stock has rallied 80 per cent in the last three months, and is currently trading at 1.11 times its book value and 20 times its trailing 12 months earnings, the cheapest among its peers in the chemical sector. Moreover, the Tata group has increased its stake in the company consistently in the last five quarters from 30.63 per cent in September 2019 to 37.08 per cent in the December 2020 quarter.
“Tata Chem’s visibility on investments in the complete EV battery ecosystem could help investors assess long-term growth from an emerging high-tech business, which requires domain expertise in technology in lithium battery, active ingredients recycling, distribution and after sales,” said Ramesh Sankaranarayanan, analyst, Nirmal Bang Institutional Equities. “EV battery based on Li-carbonate salt could add to soda ash use in the manufacturing of lithium batteries.”
Tata Group companies, such as Tata Motors, Tata Chemicals and Tata Power, have joined hands to develop a complete EV ecosystem. On Monday, Jaguar Land Rover (JLR) said that its Jaguar luxury brand will be all-electric by 2025.
The management of Tata Chemicals has plans to spend Rs 2,400 crore in expansion, of which Rs 800 crore has been already spent. The balance will be spent over the next two years. The capex would generate revenue of Rs 1,400 crore, with an EBIT of Rs 600 crore by FY25, according to estimates.
The stock has staged a sharp rally off the recent lows and is expected to touch Rs 620 in the short term, according to technical analysts.
“The higher tops & troughs structure or Tata Chem remain intact and a well-defined swing within the bullish price channel is being observed on daily charts,” said Sandeep Porwal, analyst, Ashika Stock Broking. “We now expect a breakout above Rs 587 and a subsequent rally to the level of Rs 620. Any dip up to the level of 555 shall be bought into, and key support is placed at Rs 542.”
Tata Chemicals holds 2.5 per cent stake in Tata Sons, which is valued more than Rs 20,000 crore compared to its current market capitalisation of Rs 14,861 crore. Tata Chemicals also owns 50 per cent stake in Rallis India worth Rs 2,600 crore and another 1.56 per cent stake in Titan valued at Rs 2,000 crore.
“The company’s utilization levels have been on the rise in recent months. With Tata Chem’s operations now back to pre-Covid levels, performance is expected to improve henceforth with pick-up seen in demand for soda ash and other products,” said Anil R, analyst, Geojit Financial Services