‘Demand for speciality, organic fertilisers set to grow at 10-12%’

Tata Chemicals, which is celebrating its platinum jubilee, was referred to as the ‘Spartan child of Indian industry’ by one of its former directors, Vikram Sarabhai. Even the late JRD Tata opined that no other company has had to face the kind of hurdles that it went through at the start-up stage.

The company has since established its strength in a portfolio that spans salt, soda ash, fertiliser, specialty chemicals, pulses and water purifiers.

R Mukundan, the tall, trim and young Managing Director of the company is optimistic about its operations in India and the US. Problems in Europe are showing signs of bottoming out. He expects the restructuring process in the company to be over in about 18 months.

While there won’t be any major expansion in fertiliser and soda ash business, the company is pursuing growth opportunities in consumer (salt/pulses) and farm space.

Excerpts from an interview with Suresh P Iyengar and NS Vageesh :

Have you managed to reduce your subsidy receivables from the Government?

It is a tough spot. The new fertiliser pricing policy was implemented in only P and K (Phosphorus and Potassium) segments, leaving out urea. This pushed up P and K prices. Urea is available for less than $90 a tonne in India, while it costs $350-400 a tonne in the international markets. The Government subsidy is 500 per cent.

Farmers in neighbouring Bangladesh and Pakistan pay $250 a tonne for urea. The dichotomy led to subsidy bill ballooning. There is pressure on working capital as the Government does not pay subsidy dues on time. We are working with the Government to increase urea prices. With the rise in gas prices to $8.4 (per unit), the subsidy bill is expected to go up further.

On the positive side, there will not be overuse of urea if the prices are raised.

Are your 75-year-old soda ash plants cost competitive?

Our soda ash production cost of $130 a tonne is quite competitive. Our US plant produces it at $70 a tonne. But in the US, we produce natural soda ash and in India it is synthetic. Today, anybody can bring soda ash to India as the import duty is minimal. Long-term viability of the business in India depends on having access to low-cost natural assets.

When we acquired Brunner Mond, the natural asset at Magadi in Kenya came along. Similarly, General Chemical is a natural soda ash producer. Over time, synthetic soda ash producers will come under cost pressure, even though we are confident of sustaining it today. The idea behind our global acquisition was to link the finest production centres with the finest customers in Asia. Today, 50-60 per cent of Magadi’s output comes to India. Two years ago, we bought the first consignment from the US to India and shipments are increasing today.

What are your expansion plans in India?

I feel in India we are maxed out of capacity. You can produce only as much as the raw material available. You need limestone and access to salt is limited in India. In India, it has been very difficult to expand capacity in terms raw material security we have. Also, if you can make it at $70 in the US, I should put capital in the US rather than in India. Looking at the Government policy and situation on gas, we have also pulled out of Babrala expansion six months back.

How do you see the demand for soda ash?

Demand for soda ash will grow, but differently. The demand from detergents market is going to reduce, as Indian consumers shift to more value-added and sophisticated products. There is new material coming to serve the detergent market. The demand from the glass segment will grow at 6-7 per cent with urbanisation catching pace. India will need 120,000 to 200,000 tonnes of additional soda ash every year, and may be this number will increase to 300,000 tonnes going forward.

Effectively with the limits on the soda ash capacity we can put up in India, a bulk of the growth will be met through imports. The slowdown in the housing segment is a passing phase.

What is your take on fertiliser demand?

Fertiliser demand will grow at slower pace of 2-3 per cent. But the need for commodity fertiliser will shrink, while the demand for speciality and organic fertiliser and crop protection will grow at 10-12 per cent. So there are segments within the farm sector that will grow at a faster rate. The plain vanilla fertiliser what you call NP and K is going to grow slower. Farmers are willing to pay for higher productivity. So we have to bring products that will align with market needs.

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