What is Happening in Tata Chemicals Stock? | Yadnya Investment Academy

The market has responded very negatively to the Q4FY21 results of Tata Chemicals. But before this heavy downfall in the stock price of Tata Chemicals, the stock witnessed an impressive rally in the past. Hence, in this blog, we will be discussing the possible reasons behind this significant rally in the stock and downfall in the stock prices post its Quarterly Results.

Introduction:

Tata Chemicals is part of the Tata Group engaged in the chemical business. In the recent past, Tata Chemicals has witnessed a significant rally in its stock prices, but post its quarterly result of the last quarter of the Financial Year 2021, the same has fallen by more than 10% in few trading sessions.

A) Possible Reasons behind the rally in the Stock Price of Tata Chemicals:

i) Positive Sentiments in Chemical Sector:

• Tata Chemicals Stock got highly benefited by the developing positive sentiments in the Chemical Sector.
• Tata Chemicals unlike other chemical companies are eyeing Specialty Chemical Sectors and have made Capex Investment for the same.
• Specialty Chemical Sector will be having a good growth opportunity at least for 5-6 years.

ii) Management:

• The strategy of the Tata Group business under the leadership of New Chairman N. Chandrasekaran is also quite appreciable.
• Under this strategy, the consumer business of Tata Chemicals has been demerged to Tata Consumer Products Limited in FY20.
• This restructuring of the company and complete focus on the chemical sector was also responsible for the surge in stock prices.

iii) Stake in Tata Group Business:

• Tata Chemicals is having stakes in other businesses of Tata Group as well. It is having a stake in Tata Sons (parent company of the Tata Group), Rallies India, and Titan.
• The total value of the stake of Tata Chemicals in all these companies amounts to around Rs. 20,000 Cr.
• Even if we apply a “Holding Company Discount” of 20% in investments of Tata Chemicals in Tata Group, in that case also, Tata Chemicals justifies the market valuation of Rs. 16,000 Cr.
• The current Market Capitalisation of Tata Chemicals is around Rs. 18,000 Cr.

iv) Prospects:

• The Company has shown great visionary prospects regarding chemicals, specialty chemicals, and even for manufacturing Lithium-ion batteries.
• Tata Chemicals will play a vital role in the EV ecosystem of Tata Group which also includes other Tata Group companies like Tata Motors, Tata Power, TCS, and Tata Elxsi.

B) Reason behind Disappointment of the Market:

i) Tata Chemicals has posted very disappointing quarterly results for Q4FY21.

ii) Operating Profit Margins (OPM) of the company has fallen to 13% from the levels of 21%-25%.

iii) Reason behind the fall in Operating Profit Margins is due to the rise in prices of raw materials.

iv) But the major reason behind the fall in stock price was no clear information or plan was discussed by the management in the quarterly updates which were highly expected in the market.

Conclusion:

Role of Tata Chemicals in the EV Ecosystem of the Tata Group was one of the core reason behind the rally in the stock prices but in the same context, this price began to move towards a downward trajectory when no clear indication was provided by the management regarding Lithium-Ion battery manufacturing during the quarterly results. This disappointment in the market for the Tata Chemical Stock is short-term, as there is a low downside risk available in this stock. Do proper research and study before investing.