India’s own proxy for Tesla disappoints in first step; brokerages rush to degrade it

MUMBAI: In the first four months of 2021, shares of soared nearly 70 per cent driven by the expectations that the company will soon set up a lithium-ion battery plant in the country to capitalise on the growing demand for such energy storage units and the production-linked incentive plan announced by the government.

The sentiment was buttressed by the company’s announcement earlier this year that it has acquired 127 acre land in Gujarat’s Dholera region to set up a lithium-ion plant, which will produce the batteries and then export them to various markets.

For many investors, unable to invest in stocks like Tesla to capitalise on an industry of the future, Tata Chemicals became a natural proxy.

It is no surprise then that investors were irked after the company was unable to provide any plan of action or timeline as to when it expects to break ground on the lithium-ion battery plant in its latest post-earnings conference call.

The company has not finalised its foray in the Li-ion battery business, other than the existing small-scale recycling plant; no investments have been approved by the board so far and any decision may be calibrated on domestic demand, policy incentives and technology tie-ups, said brokerage firm Kotak Institutional Equities.

Shares of the company fell 10 per cent in the past two sessions with heavy volumes. The pessimism was compounded by weak earnings that the company announced for March quarter when most of its peers reported strong numbers.

Lithium-ion batteries are at the heart of the electric vehicle revolution, currently under way across the globe. As demand for electric vehicles is set to soar in the coming years, so will the demand for batteries based on lithium-ion.

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“Over the next decade, we at Tata Chemicals intend to become a leading, integrated electrical energy storage solutions company in India,” the company said on its website.

Tata Chemicals’ earnings performance for the March quarter also left much to be desired. Consolidated operating profit plunged 36 per cent sequentially due to weak margins in the bread-and-butter soda ash business, whereas net sales declined 11 per cent year-on-year to Rs 2,636.2 crore.

“Execution risk persists in the energy science business, coupled with the risk of margin pressure due to increasing input prices; particularly, energy costs in soda ash pose a risk to near-term performance,” said brokerage firm Motilal Oswal Financial Services.

Both Motilal Oswal Financial Services and Kotak Equities downgraded their earnings estimate and rating on the stock given the lack of visibility on the lithium-ion battery plan and weak earnings.

Kotak Equities cut its rating to ‘sell’, while Motilal Oswal Financial downgraded the stock to ‘neutral’.

“We find the recent rally in the stock price unwarranted in anticipation of value creation from foray into the Li-ion battery value chain in the medium term despite no decision made by the company yet,” Kotak Equities said.



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