Tata Chemicals pins hope on fertilisers, consumer goods sales

Tata Chemicals saw 33-per cent profit growth in the first quarter even though volumes have shrunk in some sections of the fertiliser segment. Most of the soda ash units in India, the UK and the US have seen robust growth and expansion in margins, mainly on the back of reduction in input costs. The consumer business has also done well. Speaking to BTVI , Tata Chemicals Managing Director R Mukundan says the company remains positive on consumer, chemicals and farm businesses. The farm business will see a positive fillip with the arrival of the monsoon, he said. The company is also well prepared for any rise in energy costs as it hedges the fuel prices as soon as it gets orders, he said. Excerpts:

Can you take us through the highlights of the Q1 earnings, especially the underlying profit, price and volume growth?

If you look at the underlying growth on the revenue side, the volume has shrunk and revenues have come down mainly on account of the drop in fertiliser revenues. Other than fertiliser, other segments have either grown or remained stable.

The fertiliser segment witnessed de-growth because of the 15 days of annual shut-down in our urea unit. In addition to that, we also shut our operations at Haldia for phosphate fertiliser because of sharp reduction in margins. The urea plant is fully operational now and phosphate plant is also scheduled to move on with the same strength, albeit with reduced margin structure. The increase in margins is because of the good performance of the consumer business and all our operating units in soda ash. They have seen robust growth and expansion in margins mainly on the back of improved performance in India, the UK and the US due to reduction in input costs. The UK unit has moved from negative to positive zone due to restructuring done in the recent past.

As far as soda ash is concerned, all our units are profitable today. On the consumer side, the business has grown in both salt, pulses and gram flour — pulses and gram flour has grown by 8 per cent. We remain positive on consumer, chemicals and farm businesses. .

What is the update on gas hedging. Is it profitable now? How is working capital matrix looking due to the delay in subsidy payment by th government?

The gas mark-to-market was negative last quarter. This quarter, it turned positive. So there is movement on that. As far as working capital is concerned, we are fairly comfortable except for the delayed subsidy payment of ₹1,478 crore.

What about the raw material tailwinds? They have helped you improve margins. But do you see the peak now?

In the last two quarters, we benefited from falling international prices of all energy inputs. That probably has tapered off and there could be periods of increase in terms of energy costs. However, we do hedge our input costs back-to-back the moment we book an order. So, we are well covered through our hedges on raw material inputs.

What about the capex plan and the outlook for FY17? What should investors expect on capital allocation among various businesses?

On a normal cycle, we have got most of the capital spends for maintenance capital and sustenance capital. In terms of growth needs of the business, we have very small capital allocated to expand our salt operations. Other than that, our growth areas remain the consumer and speciality businesses, which are not so capital intensive.

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