Skip to main content

Stock Review: TATA CHEMICALS

THE proposed acquisition of British Salt will fill a key strategic gap for Tata Chemicals. Brunner Mond, Tata Chemicals' wholly-owned subsidiary in the UK, has signed an agreement to acquire British Salt for £93 million (. 656 crore approximately).
Brunner Mond was at risk of being hit by spurt in raw material prices after its supply contract with Ineos ends in 2016. By acquiring British Salt, it will have a captive and consistent source of raw material salt at reasonable cost.


The acquisition price that Tata Chemicals has agreed to pay for the acquisition is nearly six times the operating profits (earnings before interest, tax, depreciation and amortisation, or EBITDA) of the company. For a commodity chemicals company, this valuation is not cheap. However, the possible strategic synergies for Brunner Mond justify the pricing. The uncertainty over raw material supply at reasonable cost is eliminated for Brunner Mond's UK operations. As British Salt starts supplying salt in a few months' time, Brunner Mond's raw material bill is likely to fall. Lastly, as the acquired company mines underground salt from its fields, the cavities created can be used for storing natural gas. Within five years, the new owners expect to generate gas storage business worth £45 million.


The acquisition will be funded through debt raised on the books of Brunner Mond and British Salt. British Salt's is a high-margin business, with 45% to 50% operating profit margins and high cash generation, which will ensure easy debt servicing. Since the acquired company is profit-making, the acquisition will add to the EPS from the first year itself.


In this acquisition, Tata Chemicals has not repeated the mistake made while buying General Chemicals in the US in 2008. The pension fund liabilities in British Salt show a small surplus and there won't be any incremental liability on this count on Tata Chemicals in future. In the case of General Chemicals, the incremental pension fund liabilities had put pressure on the company's overall earnings for FY09 and FY10.


Tata Chemicals is back on a strong growth path after a couple of years of stagnation. Its acquisition of Rallis and foray into customised fertilisers are aimed at supplying a whole gamut of products to domestic farmers. While all these measures add to the corporate profitability, a mega-booster will come if it is able to double its urea capacity. The project continues to await firm gas allocations from the government.

Popular posts from this blog

ICICI Prudential Dynamic Plan Invest Online

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   ICICI Prudential Dynamic Plan             Invest Online This fund does remarkably well during falling markets, but fails to show the same prowess during a rising market. The fund sticks to its mandate to adapt to the dynamic nature of the market by shuttling between debt and equity. It takes aggressive asset calls in equity when the market surges by investing in quality mid-cap stocks. At the same time, it adopts a defensive strategy by investing in debt and cash when markets get overvalued, making it a good long-term choice.     For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call     Leave a missed Call on 94 8300 8300   Leave your comment with mail ID and we will ...

What are the factors affect the changes in Interest Rate of Fixed Deposits?

  What are the factors affect the changes in rate of Fixed Deposits? Fixed Deposits are now considered to be a very old fashioned method of saving, but still attract many investors since they have guaranteed returns at the end of the tenure of the investment at a decent interest rate. There are various factors that affect the rates of interest for a Fixed Deposit. Policies of the Reserve Bank of India   - The several norms and restrictions posed by the Reserve Bank of India , in order to gain optimum control over credit and inflow and outflow of fund throughout the country. The repo rate changes, cash reserve ration tends to change and these changes affect the banking products like Fixed Deposits, loans etc. Recession   - When unemployment in a country crosses the benchmark set Recession hits, and slowly the country faces an economic slow movement, affecting the purchasing power of the people in the country, forcing the Reserve Bank of India to release more funds in the financial marke...

Capital Protection Oriented Funds

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   Capital Protection Oriented Funds   Erosion of capital is one of the key concerns for investors wanting to invest in equity mutual funds. To address this concern, asset management companies have launched Capital Protection Oriented Funds (CPOFs). What are CPOFs? CPOFs are generally three to five-year, closed-ended funds where 70-80% of the portfolio is invested in fixed income securities, which mature on or before the scheme's tenure. The investment in fixed income securities grows to 100% at the end of the tenure, providing the investor with capital protection. The remaining portion (20-30%) is used to take exposure to equity, which provides the upside. Exposure to equities is either by directly buying equity stocks (plain vanilla CPOFs) or by b...

Understanding Your Cibil Credit Information Report

   WE ARE all familiar with the anxiety and uncertainty that we feel when applying for a loan. After all, it's the lender who decides whether we can own our dream home, our first car, or whether our children can pursue higher education. In a nutshell, a better life depends on the lender's decisions.    While other factors do play a part in the lender's decision, the Cibil Credit Information Report ( CIR ) plays a crucial role in a lender's decision to approve a loan application.    Previously, lenders would treat all loan seekers equally. Each applicant, if approved by the lender's internal credit policy, would be charged at the same interest rate for a particular loan size and purpose. The lenders would charge a higher interest rate to all the borrowers, in order to compensate for the possible default of a small portion of the loan disbursed. In other words, it's like a professor (the lender) punishing an entire class (borrowers) for the mischief played b...

Mutual Fund Review: ING Dividend Yield

  ING Dividend Yield's small assets enable the fund manager to churn in impressive returns… Strategy The aim of the fund is to invest in stocks which offer a high dividend yield. This fund deploys a value based strategy which aims to gain from investing in fundamentally strong and free cash flow generating businesses. The scheme focuses not only on growth but also on the cash generated by the business, which mostly leads to stable returns even in volatile markets. This fund has a low volatility because of its investment in high yielding stocks. The scheme tries to include stocks that yield dividend above the dividend yield of the Nifty and stocks with liquidity, which throws up a universe of 150 stocks.   Our View Launched in October 2005, this fund invests at least 65 per cent of its assets in high dividend yield stocks. The fund has consistently maintained a mix of stocks across varying market capitalisation, with a higher tilt to mid caps compared to small caps. Howev...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now