Tata Chemicals - Risky or Future Ready

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Tata Chemicals — Risky or Future Ready

On Cusp of Energy Revolution — Part 2

What is a chemical company doing in an Article about “Energy Revolution”! I read a story some time back about Tata Chemical planning to invest in Lithium-Ion Batteries. This story triggered my interest after which, I started deep diving.

Photo by Sieuwert Otterloo on Unsplash

Tata Chemicals started its journey in 1927. Currently, it is one of the largest producers of Soda Ash and Sodium Bicarbonate. Company has a diversified portfolio and ventured into cement, Salt, Agriculture Sciences and more recently into Nutritional sciences, Nano Sciences, Material Sciences and Energy Sciences. Company is also geographically well-diversified with significant revenue coming for North America, Europe, India and Africa. (Source: Annual Report)

Tata Chemicals has 3 parts:

Basic Chemical Business is the cash cow for Tata Chemicals. The business is stable and generating cash and it will continue to do so for foreseeable future. The growth potential here is limited. Additionally, there is an oversupply. This business has no pricing power. The main products are Soda Ash, Bicarb, Cement and Salt. See the chart below.

Source: https://www.bseindia.com/xml-data/corpfiling/AttachHis/e6588c8b-c5fa-4fe1-83e9-bab16004ac0f.pdf

AgriSciences Business: Rallis India is a subsidiary of Tata Chemicals and is growing steadily and will probably continue to do so in the mid to long term. AgriSciences could perhaps grow at 10%+ (Conservatively)

Advance Sciences Business is the most interesting part of Tata Chemicals and has near ZERO contribution to Tata Chemicals revenue. Tata Chemicals will be multi-bagger if this business succeeds. There are three sub-divisions.

  1. Nutritional Science: The Nutritional Science division of Tata Chemicals Ltd, under the brand Tata NQ, The product is FOS and GOS which find applications in across health foods, beverages, cereals, nutraceuticals, confectionery, and specialised geriatric, infant, women and sports nutrition food supplements.
  2. Material Sciences: This division has two products, Nano Zinc Oxide and Speciality Silica. Both of these products have several applications.
  3. Energy Sciences: This is the division that got me interested and led to my research on Tata Chemicals. Just like Material Sciences and Nutritional Sciences, Energy sciences has no contribution to the revenue. There are two parts of this division: Energy Storage Solutions and Recycling Solutions. Tata Chemical is not just thinking about production but also about recycling.

Conclusion

The future of Tata Chemicals depends on its Advanced Science Business. At this moment they contribute nothing to Tata Chemicals. In near term future as well the contribution will be small. During this period, Basic Chemical Business and AgriSciences business will continue to generate sufficient cash to keep Tata Chemicals running. Hence, this provides a safety net and a runway. I like the strategy and I am willing to invest in such a company.

  • Please note these are strictly my views and not investment advice. Before investing do your research yourself after all it is your money.

 

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