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Tata Chemical Ltd.

Tata Chemical Ltd (TCL) has invested $290 million to acquire a 25.1% stake in the green field port base ammonia and urea fertilizer project in the Republic of Gabon (RoG). The other shareholders in the project are Olam International with a 62.9% stake while RoG would hold the balance 12% stake.

The total project cost for this phase is $1.3 billion (Rs5,100 crore) for the proposed 1.3mtpa urea cum ammonia plant. The same will be financed 65% through debt and 35% through equity. The plant is scheduled to complete in 2015 and expected to generate operating profits of $300-325 million annually.

TCL?s inorganic initiative to get equity stake in a low cost manufacturing urea producing unit overseas is a strategic and an extremely positive move. Though the acquisition could put some pressure on earnings in the intermediate term, it would be earning per share (EPS) accretive in the long run. We maintain our Buy recommendation and price target of Rs404 on the stock.