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Monday, Sep 09, 2002

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`Tata Chem to retain equity investments in group cos'

Latha Venkatraman
Aarati Krishnan

"For strategic reasons, equity investments in group companies are proposed to be retained. However, there is no particular merit in retaining the equity investments in other companies."

Mr Prasad R. Menon, MD

MUMBAI, Sept. 8

TATA Chemicals Ltd, which reported a turnover of Rs 1,516.05 crore during 2001-2002, is expected to grow by 5-10 per cent during the current fiscal, according to the company's Managing Director, Mr Prasad R. Menon.

While acknowledging that the dry spell in July may have impacted the offtake of fertilisers, he is hopeful of a recovery in urea demand in the rabi season.

The company has also been working on a debt restructuring plan to bring down interest costs. According to the annual report for 2001-2002, the company's borrowings from institutions and banks stood at Rs 1,060.71 crore as on March 31, 2002.

"Taking advantage of the easy liquidity conditions in the market, the company has availed of fresh borrowings at competitive interest rates and has utilised these funds to repay high-cost borrowings,'' Mr Menon said in an interview. Excerpts:

Tata Chemicals has reported a sharp jump in profits before taxes in 2001-2002 to Rs 132 crore from Rs 36 crore in 2000-2001. How has the company managed to achieve this?

During 2001-2002, there has been a distinct improvement in operating efficiencies. A number of steps taken by the management on cost-cutting have borne fruit. The exercise in cost-cutting under Project Manthan is a continuing one and its full impact will be felt in the coming years.

The company has effected economies in the procurement and consumption of raw materials, stores and packing materials as well as in power, fuel consumption and overheads.

Even the interest cost has gone down substantially due to financial restructuring initiatives. Moreover, a major revamping of the marketing network and strategies have resulted in reduction in sales promotion expenses as well as in distributor service charges/discounts.

Tata Chemicals has embarked on a debt restructuring exercise last year. What is the progress on this front?

The company has embarked on a major debt restructuring exercise with a view to bringing about a reduction in the interest burden.

Taking advantage of the easy liquidity conditions in the market, the company has availed of fresh borrowings at very competitive rates and has utilised these funds to repay high-cost borrowings.

The company has successfully negotiated with the consortium of lenders for roll-over of borrowings for the fertiliser project availed of in the past at interest rates ranging from 18.5 per cent to 19 per cent. The lenders agreed to roll over the outstanding balances of their loan at a reduced rate of interest of 13.75 per cent.

Borrowings for working capital aggregating Rs 300 crore are availed of by the issue of commercial paper at interest rates ranging from 6.2 per cent to 7 per cent; bank overdrafts bearing interest of 11-12 per cent remain unutilised. As a result of this ongoing exercise, the debt equity ratio is expected to further improve.

After the merger of an investment subsidiary last year, Tata Chemicals has inherited a large portfolio of equity stakes in listed and unlisted group companies such as Rallis, Tata Sons and Tata Industries. Will Tata Chemicals liquidate these to raise cash and retire debt?

For strategic reasons, equity investments in group companies are proposed to be retained. However, as there is no particular merit in retaining the equity investments in other companies, these may be disposed of from time to time depending upon market conditions.

The Government recently notified new retention prices based on the 7th and 8th pricing periods. What is the net impact of this on Tata Chemicals' financials? Has the company provided for this in its accounts?

The company is in the process of assessing the impact of new retention prices based on 7th and 8th pricing periods. The impact is not likely to be negative.

To what extent has the July drought impacted offtake of fertilisers?

Urea manufactured by the company is marketed mainly in Punjab, Haryana and Uttar Pradesh which relatively have better irrigation facilities as compared to other States. There has undoubtedly been some adverse impact of the widespread drought on the offtake of fertilisers during the kharif season. However, during August 2002, the monsoon has picked up and it is expected that this would help urea offtake in the rabi season.

Tata Chemicals has historically depended on Rallis to market its fertilisers. Is it now planning to do so on its own and stop routing sales through Rallis?

The agreement with Rallis comes up for review every year. We will be reviewing it this year too.

Tata Chemicals appears to have a high proportion of capital costs in relation to other fertiliser units commissioned in the 1990s. Will it be in a position to compete with imports if urea is decontrolled?

Capital costs were higher due to the installation of energy saving devices and other site-specific costs incurred. The production of urea at the company's Babrala Complex commenced in December 1994.

During the subsequent eight years, a large portion of the capital-related charges by way of interest have been absorbed and the borrowings for the fertiliser division have considerably reduced due to repayments. Similarly, the plant has been depreciated in the past eight years. Hence, both the interest and depreciation charges in the future years will be at a reduced level.

As a result, we do not foresee much difficulty in competing with other units in the event of urea being decontrolled.

In fact, the company will be at a distinct advantage as compared to naphtha-based units. Of course, this will also be dependent on the Government's policy on fixed stock pricing.

What is the progress on Tata Kisan Kendras? Sometime ago there was a mention of providing crop insurance along with an array of products for the farmers. Are you looking at newer areas?

We continuously look at new areas and means of catering to multiple needs of farmers and provide value-added inputs.

What is the overall outlook on your businesses during the current fiscal?

The outlook is positive. We plan to grow by 5-10 per cent this year.

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