Tata Chemicals Ltd

Stake gain

Current Price Rs. 315
Target Price Rs. 341
– Hold

During November, Tata Chemicals Ltd acquired about 1 million equity shares of Rallis India Ltd at Rs908.50 per share, raising its stake from 46% to 50.1%, thereby making Rallis India a subsidiary of Tata Chemicals.

The acquisition of a majority stake in Rallis India will bring about a positive change in the business model of Tata Chemicals. As a result of the consolidation of Rallis India’s financials with those of Tata Chemicals, the latter’s estimated FY2011 profit after tax (PAT) will increase by Rs51.60 crore (50.06% of Rallis India’s estimated FY2011 PAT), leading to a 6% increase in its estimated FY2011 earnings per share (EPS) to Rs37.80. The upward revision in the EPS estimate for FY2011 would act as a trigger for raising the price target for the stock going ahead. Our earning estimates do not include the consolidation of Rallis financials. At the current market price of Rs315, the stock is trading at 11.3x and 9.2x its FY2010 and FY2011 expected earnings.

—Sharekhan