Tata Chemicals at new high

about 1 month ago
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Tata Chemicals is currently the top gainer on the BSE; from its close of Rs.1178.55, the stock opened at Rs.1189.90 and rose to a new 52-week high at Rs.1332, up 13%.

The reason? Ever since the credit rating agency, Fitch affirmed its rating on 1st March, the stock has been up.

Fitch Ratings has, on March 1, 2024, affirmed Tata Chemicals Ltd (TCL) Long Term Foreign Currency Issuer Default Rating (IDR) at BB+ and revised the outlook on the rating to Stable from Positive.

In the note put out by Fitch, it justified the rating revision due to its expectation that TCL's net EBITDA leverage will remain below 2x over the financial year ending March 2023 (FY23) to FY26 (FY22: 1.9x).

It also expect its free cash flow (FCF) margin to improve over FY24-FY26, from an average of -2.5% in FY19-FY23, despite high average capex intensity of 10%.

The company could generate better FCF than its forecasts through stronger-than-expected earnings and/or prudent management of its capex programme, which is reflected in the outlook.

Fitch added that it believes that the company’s leading market position, cost-competitive operations and the sector's end-market diversification mitigate the risks to its credit profile from its smaller EBITDA scale versus 'BBB-' rated chemical industry peers, which Fitch regarded as a drag on its rating in the past.

TCL's cash flows have remained resilient in recent years despite the pandemic-induced demand shock and rising energy costs amid geopolitical pressure, notwithstanding its smaller scale, which is due to the soda ash sector's smaller market size than other chemical and commodity sectors.

TCL is the world's third-largest producer of soda ash, with a global capacity of 4.137 million tonnes per annum, or 4.353 million tonnes including sodium bicarbonate, and manufacturing operations spread across India, the US, UK and Kenya.

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