Captains Speak

Published: Dec 29, 2021
Updated: Dec 29, 2021

Tata Chemicals: Focus on investment, cash flow, deleverage

Maintaining that “the prospects for Tata Chemicals are quite encouraging”, MD and CEO R Mukandan says,”What we have seen from the start of the year is that the demand environment across all geographies has been positive and it is likely to improve further going forward. I think we will see sequentially even further improving demand going forward. But compared to previous years, certainly the quarter one of the current year was much better in terms of demand. Volumes have improved substantially, especially in soda ash, and we see across all product categories that the volume pickup has been fairly strong.” On the price outlook, Mr Mukandan says, “Broadly speaking, we have always maintained that as the volume picks up and as the utilisations improve, the ability of manufacturers to pass on cost increases to customers also improves, and we are seeing that already. In the spot market, the prices are already up. And as contracts reopen, we expect the price improvement will continue sequentially going forward, even though in many of the contracts, the prices are still at the previous year or slightly below previous year levels.”

Reviewing the performance of various units, Mr Mukandan comments that “all our units have performed well, especially in India. North America has done equally well. And Kenya also has had a very outstanding run in terms of volume and we will continue to see a good performance.” According to him, “as far as Tata Chemicals Europe is concerned, while it’s being steady, they had the head wind of mainly the carbon price, which has impacted them. And we are putting in place a plan to deal with this, especially through cost improvement programmes, both in TCE as well as in Kenya, where we expect to have further efficiency improvements even though they have gone into the profit zone.”

KEY CHALLENGES

On the challenges ahead, Mr Mukandan says, “The key challenges would be the rising input energy costs and supply chain bottlenecks which are happening mainly in the shipping area. And lastly the carbon price in Europe, which has shot up to over euro 50. At the current numbers this would impact the UK business with an additional cost of about 2 million pounds for the quarter. The exact figure would be depending upon the carbon prices.”

Commenting on the company’s salt business, he says, “The business has done well, largely driven by volumes and it will continue to grow well. We had approximately 5% growth and that growth rate will sustain going forward.” As regards its subsidiary Rallis, Mr Mukandan says, “Rallis did perform well domestically and their seed business had a soft quarter. Overall, it contributed at pretty similar levels to what the contribution was in Q1.” Highlighting the three key priorities of TCL, Mr Mukandan elaborates that “the first one is to continue to invest and grow in India as we see a good opportunity for all our businesses. Secondly, to continue to focus on free cash flows and use that appropriately to reinvest in business, especially in India. And thirdly, to focus on the free cash flow to delever and pay down the international debt. These are broadly the three pillars of how we will be operating going forward.”

NEW BUSINESSES

Commenting on two new businesses of the company, Mr Mukandan says, “Silica, and nutraceuticals and prebiotic business have shown a healthy growth. We are waiting for further customer approvals to ramp up the output. These products are tending to start to move towards at least becoming less and less EBIT- negative and that trend will continue every quarter.” Referring to the move to replace lithium-ion batteries, with sodium- ion batteries, Mr Mukandan says, “The work is going on in our lab. We will come back when anything specific happens but the sodium -ion batteries have some distance to go before they become fully commercialised.”

Giving an investment break-up, he says, “In terms of investment in India, we have earmarked about Rs 2,700 crore for the Mithapur site itself. And that capex investment is on schedule. It is slated to increase the capacity of soda ash by about 20%. And the salt capacity would also go up by about 30%. There are other products which will also increase in capacity but overall, these are the two big drivers of volume and revenue and bottomline growth. Of Rs 2,700 crore, the company has spent Rs 950 crore till June 2021. The balance Rs 1,750 crore is being scheduled to be spent by March 2024. This will increase the manufacturing capacity of soda ash by 2,30,000 tpa, bicarb by 70,000 tpa and salt by 3,30,000 tpa. As regards the investment plans for Rallis, Mr Mukandan reveals, “They have a plan to invest about Rs 800 crore to Rs 900 crore and that also is pretty much on schedule. I think in both these activities, capex was a bit impacted by about a few weeks of delay due to the difficult second wave of Covid. We are working with all our partners to get them on schedule to meet our customer commitments, which have already been lined up.”

PRODUCT PORTFOLIO

TCL’s product portfolio is broadly divided into three categories. Under basic chemistry products, it manufactures soda ash (41,17,000 tpa), salt (16,00,000 tpa) and bicarb (2,35,500 tpa). Marine chemicals and cement also fall in this operating segment. Speciality products include prebiotic (5,000 tpa) and speciality silica (10,000 tpa). Its listed subsidiary Rallis India (TCL holds a controlling stake of 50.06%) manufactures seeds, and crop care and crop protection products like herbicides, fungicides and insecticides.

TCL has a sound footprint across four continents, with 13 manufacturing units employing 5,000 people supported by three state-of-the-art R&D centres and 228 scientists. The company also has a strong portfolio of intellectual property, under which it holds 152 patents (cumulative) and 93 active applications.