The Hindu Business Line : Sedate show by Tata Chemicals

After adjusting for extra-ordinary items, Tata Chemicals has reported a disappointing set of numbers for the financial year 2007-08. Excluding the ‘other income’ component, net profits have registered a marginal decline against last year, while net sales inched up by 3.6 per cent.

The 90 per cent growth in the reported profits, for the consolidated operations in 2007-08, has been helped considerably by contribution to the tune of Rs 487 crore from profit on sale of investments. The company had already announced its intention of cashing in on some of its investments to fund recent acquisitions and expansion plans.

Margins down

Surprisingly, the segment-wise numbers show a compression in margins on the chemicals business, while the fertiliser business reported a strong profit growth. Prices of chemical products such as soda ash were extremely strong over the past year. But the compression in margins appears attributable to rising raw material costs, which the company has probably been unable to pass-on fully to its users.

Medium term bright

The medium-term prospects for both of the company’s businesses continue to be bright. High global demand for soda ash has contributed to strong price increases in this product in recent months. Tata Chemicals’ acquisitions of large natural soda ash makers such as Brunner Mond and General Chemical Industrial Products are expected to reduce the cost structure for its soda ash operations, and contribute to better margins, once the integration process is complete. On the other hand, the fertiliser business may benefit from favourable policy changes in the domestic context.

A transition from a product-based to a nutrient-based subsidy system, now on the cards, can be expected to help demand for complex fertilisers. Entrenched low-cost producers of fertilisers such as Tata Chemicals would also be the key beneficiaries of any policy move to reimburse incremental production at import parity-linked prices, which are currently hovering far above the domestic production costs. Reports suggest that such a policy move is under consideration.

More Stories on : Fertilisers | Financial Performance | Tata Chemicals Ltd

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