Tata Chemicals may wave off the fertiliser business

Tata Chemicals (TCL) is thinking about selling its fertiliser business for USD 1 billion. The company has appointed Kotak Mahindra Bank to find a strategic buyer. Tata Group Chairman Cyrus Mistry initiated the plan of major restructuring since his appointment to the board. TCL wants to cut its debt to improve the financial status of the company. It also wants to focus on the high growth consumer and industrial chemicals businesses. The share price of TCL increased by 3.73 per cent and was trading at Rs 436.6 on 1st July 2015.

TCL is a global company with interests in businesses that focus on living, industry and farm essentials. TCL has segments such as inorganic chemicals, fertilisers, other agriculture inputs. The company has two fertiliser plants 1.2 MTPA each at Babrala in Uttar Pradesh and Haldia in West Bengal. It also holds 33 per cent JV with Indo Maroc Phosphore S.A. (Imacid), Morocco for supply of phosphoric acid.

The current market cap of TCL is Rs 10722 crore. Out of the total valuation Rs 3000 crore is contributed by fertilisers business, as per media reports. The recent Zuari-Mangalore Chemicals deal shows that buyers are ready to pay double than market value for loss making and problematic units. Therefore company may get buyers at USD 1 billion.

Fertilisers industry in India has issues like large subsidy extend, delay in payments, shortage of domestic gas. The subsidy is paid on an average within two months but is now being paid over six months. The company is not seeing attractive business for commodity fertiliser due to fierce competition. The industry's outlook today appears much better with the government planning to bring the fertiliser industry under direct benefit transfer. This step will improve overall profitability for the sector.

TCL's consolidated net sales increased by 8.29 per cent to Rs 17203 crore in FY15 compared to previous financial year. Net profit of the company was Rs 596 crore in FY15 while it had loss of Rs 1032 crore in FY14. Its fertilisers business has 38.28 per cent amounting to Rs 6537 crore contribution in the net sales. The standalone PAT of the fertilisers segment is declined by 32.05 per cent from Rs 390 crore in FY11 to Rs 265 crore in FY15 in a period of 4 years.

The consolidated debt of TCL is about Rs 7000 crore as of FY15. After selling off the fertiliser segment the company will become almost debt free. It will be able to save Rs 450 crore finance cost as per FY15. Going forward in FY16, TCL will continue to focus on reshaping the portfolio to enhance the share of consumer product business and non-subsidized farm inputs business.

TCL exports to Northern Europe as well as parts of Asia and Africa. The company is also exploring if it can send the material to South America. The growth engines for the company are going to be the agricultural business including agrochemicals and seeds and the consumer business. TCL has set target of doubling the revenue every 5 years.