Use Tata Chemicals rally to exit, says this analyst projecting a 33% downside

Kotak Institutional Equities is advising investors to use the recent rally in shares of Tata Chemicals Ltd. to exit their positions.

Shares of Tata Chemicals had rallied over 40% last week after Spark Capital, in a note on March 4 had mentioned that Tata Sons, the holding company will have to list by September 2025 to comply with the Reserve Bank of India's upper-tier NBFC regulations.

The note had added that the "only realistic way" to play this potential value unlocking opportunity will be through Tata Chemicals, which owns a 3% stake in Tata Sons.

Kotak Institutional Equities called that rally a "speculative flare up" and said that it should be considered as an exit opportunity.

"Recent news reports that state Tata Sons is evaluating options to avoid an IPO should deflate speculation around value unlocking at Tata Chemicals," the note from Kotak said.

Sources told CNBC-TV18 over the long weekend that the Tata Group is considering various options to work around the RBI norms, including reducing debt at the group level and even hiving off entities like Tata Capital.

Kotak Institutional Equities maintained its "sell" recommendation on Tata Chemicals with a price target of ₹780, which is a potential downside of 33% from current levels.

The brokerage further wrote in its note that it expects the company's Earnings per Share to fall by about two-thirds over financial year 2023 - 2025 amidst falling margins on Soda Ash.

Shares of Tata Chemicals are trading 3.4% lower at ₹1,135. The stock had declined 9% on Monday as well. Shares are in the F&O ban, which means no new positions can be created in the stock.