Tata Chemicals : Q2 FY 22 Earnings Conference Call Transcript February 11, 2022

Tata Chemicals Limited

Q2 FY 22 Earnings Conference Call Transcript

February 11, 2022

Moderator: Ladies and gentlemen, good day and welcome to the Q3 FY22 Earnings Conference Call of Tata Chemicals Limited. Please note, that this conference is being recorded.

I now hand the conference over to Mr. Gavin Desa from CDR India. Thank you and over to you, sir.

Gavin Desa: Thank you, Steven. Good day, everyone. And thank you for joining us on Tata Chemicals Q3 and 9M FY22 Earnings Conference Call. We have with us today, Mr. R. Mukundan, Managing Director & CEO; Mr. Zarir Langrana, Executive Director and Mr. Nandakumar Tirumalai, the Chief Financial Officer.

Before we begin, I would like to mention that some of the statements made in today's discussion may be forward-looking in nature and may involve risks and uncertainties.

I now invite Mr. Mukundan to begin proceedings of the call. Over to you, Mr. Mukundan.

R. Mukundan: Thank you, Gavin. And good morning and welcome everyone to the quarterly earnings call. I'm joined by my colleague, Mr. Zarir Langrana, Executive Director; and our CFO, Mr. Nandakumar Tirumalai for today's call. I will highlight some operational issues and strategic direction after which Mr. Nandakumar will take us through the financial performance for the quarter.

As such, this quarter, was relatively good compared to the challenges we faced during the quarter. And this has been possible because of the revenue and margin momentum we've seen in our soda ash business. As we mentioned previously, the demand supply dynamics for soda ash has turned favorable, and is likely to remain favorable for certain amount of time, I would say couple of more years and we are -- if we define it like this it'll be medium term. Let me move on to individual segments within soda ash.

Indian business has delivered performance and profitability. As you know, in three of our sites, we had taken maintenance shutdown, which India,

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USA, and in Kenya. And so, they were a bit of a low volume this quarter, but we've seen very strong demand and prices have remained firm during the quarter, and we expect them to remain in a similar zone going forward too.

On the international business again TCNA has had growth of domestic and growth in export more importantly because there has been a bounce back of underlying demand. And there again, the shutdown had meant that in -- if you look at the trailing quarter, which is Q2 to Q3, we lost some volume. And also, because maintenance shutdown was taken, it has increased our fixed costs a little bit in both India and the US.

Magadi, has also performed well. And sequentially also we've seen improvement in operational performance. As far as UK is concerned, I think this quarter, Mr. Nandakumar will explain some of the elements of the Carbon Capture Unit as well as the hedging of co2, carbon, buying carbon in the market to hedge the future have all come in and helped us. And I think that strategy will play out so that we are well protected from any variations or any sudden spikes in the marketplace. And we continue to have a very strong risk mitigation strategy, not just on energy, input energy, but also now on carbon markets.

As far as salt is concerned, it continues to be strong and steady, both in India and UK. And Bicarb business again, I think India and UK have done well. In terms of nutrition, the Nutraceuticals and HDS, these are focused and our goal is to get to positive EBITDA level, which is what we are working to and we're working to secure customer acceptance and ramping up of our utilization.

Rallis also has declared its numbers. It's both domestic and international delivered healthy growth in revenue. Seed business had some stress. Company is investing for growth and is working on backward integration for some of the products which should help in its supply chain and margin.

As far as the strategy of Tata Chemicals standalone itself is concerned, our focus remains to expand capacity in our core segments of soda ash, salt and bicarbonate and also move the needle in terms of the HDS and Nutra. On HDS we may be accelerating the investment because we are seeing a strong demand pull from our customers. With this I'd like to state that our strategy of focusing on core business ensuring the supply dynamics are delivered well on the ground, and we support the demand recovery with strong supply chain performance, and also mitigating some of the risks which we had faced in terms of the input costs have been done well.

Also wanted to highlight that we now have a good understanding of the market supply and supply situation on the input side. And we do strongly believe that the company will be able to manage the stresses which had come on the input cost side in quarter 2, we have overcome them in quarter 3 and going forward in quarter 4, with the prices having been renegotiated

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across customers, you would see the margins also reflect the resilience which we have built in in terms of the input cost management, vis-a-vis the pressures which are coming from the external market.

With this, I will now hand over the floor to Mr. Nandakumar to take us through the financial performance.

Nandakumar T: Thank you, Mukundan. And good morning, to all. I'll just walk you through the performance for Q3. Our consol revenues for the quarter was at Rs. 3,142 crore up 21% more than previous year and PAT at Rs. 340 crore almost 70% more than last year. This is mainly due to the growth in soda ash and bicarb volumes, notably in US, UK and Kenya and the impact of price increases in India and other geographies.

Coming to India now, revenue was at Rs. 931 crore up 15% for previous year. The EBITDA margin was 26% an increase of 3%. The PBT has gone from Rs. 148 crore to Rs. 214 crore up 45% jump compared to last year's Q3. The CapEx is on track.

Coming to US. The volumes rebounded from previous year and revenue was INR 891 crore is up 20%. And PBT is at Rs. 37 crore. The US volumes remain strong with growth in domestic and export markets as compared to previous years. Export volume mix is higher than previous years. Export pricing is seeing recovery while domestic prices remain stable.

Coming to UK. Revenue was Rs. 551 crore up 47% and PBT is at Rs. 13 crore compared to Rs. 2 crore profit last year. UK soda ash sales volumes remain stable with higher sales price. Margins were higher for the quarter due to higher sales price despite rising input costs including Coke, ammonia, packaging cost. And as Mukund mentioned, we also started hedging our carbon in UK. The markets opened up in the UK ETS in the month of May or June and the counterparty were able to offer us the hedging for October 1st. So as of now we're hedging all our carbon exposures in UK.

Coming to Kenya. Revenues was at Rs. 132 crore up 24%, EBIT at Rs. 18 crore almost same as last year. Kenya performing well with improved sales volumes at higher sales price.

Coming to Rallis. Revenue at Rs. 628 crore, EBIT at Rs. 48 crore, revenue has been steady with growth coming from domestic crop care and international business. And margin were impacted due to the higher raw materials and fixed cost.

Our profits from our JV has been good mainly because of the joint venture in Morocco we had, see if the JV line in vis-a-vis its substantial jump compared to last year. Our CapEx spend was Rs. 1,040 crore for 9M as compared to Rs. 895 crore last year. Our net debt at Rs. 4,120 crore, Rs. 200 crore more than March.

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I now hand over the floor to Gavin for the Q&A.

Moderator: The first question is from the line of Sumant Kumar from Motilal Oswal.

Sumant Kumar: My question is regarding PLIs and the reference of the Tata Motors call when the participant asked why did the Tata Group not participate in the PLI for advanced chemistry sale, so, the reply was they found that contours scheme was not working out for us. So, what's your view on that? The plan is on? Or we are not going to go in for the battery cell manufacturing? Can you just talk about that?

R. Mukundan: So, I maintained the same thing which I have been maintaining that the -- if there is anything specific to discuss or present to shareholders we will do at that point of time. As of now there is nothing specific beyond what has been stated up till now.

Sumant Kumar: Okay. So, the for the time being we are not thinking of, if there will be any progress you will intimate. Still, we are going to work on that or we are going to -- or we are having a plan to enter into the business or not?

R. Mukundan: Yes. So, I think your comment is valid that I think if there is any change in the position, any change, anything substantial to be informed, we will do at that point of time.

Sumant Kumar: Okay. Now, talking about the financial side, we have seen an interest cost in this quarter was a lower, despite the gross debt is at a similar level. So, can you comment on that? What was the reason for that?

Nandakumar: So, I think that -- see if you look at we did some refinancing and repricing of a lot of loans in the US and we've been able to refinance the bulk of the loans which were at L plus 4% to L plus 1.5% during the last 4, 5 months' time, that's why the interest cost is lower compared to last year's Q3.

Sumant Kumar: Okay. Now talking about overall US business, we have seen a margin pressure in that, if we consider the Rs. 27 crore insurance claim we have in the base quarter and we will be adjusting the base quarter despite of that, we have a margin basis in the US business and the way export business is growing and the price is going to come up, what kind of margin profile we can look for the coming quarter. And do you think the input cost pressure is going to subside in the coming quarter?

R. Mukundan: So, broadly as a principal export realizations are lower than domestic realization. And you as you know, the domestic volume never went down in US substantially. So, they've been able to maintain the volume, the growth is coming primarily of export volume, which has a lower realization and a slightly lower margin structure. Of course, the full benefit of renegotiated export prices and all will come in Q4, which should improve the margins further, but the mix impact will continue, till it becomes a steady state

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numbered equal to what we -- what the mix impact was for steady year before pandemic, that is all I would say.

Sumant Kumar: Okay. Thank you so much.

Moderator: The next question is from the line of Rohit Nagraj from Emkay Global.

Rohit Nagraj: So, the first question is, sometimes during the end of 2020 Solvay had indicated that they would be adding soda ash and bicarb capacity of about

1. 1.4 million tonnes by 2022. This will be probably a brownfield expansion. Any further update on this, given that we have exposure across different continents?

2. Mukundan: So, I will not comment specifically about any company because it is unfair other than our own company, but I can give you a general comment on the market. Generally, our analysis shows market is about 3 million tonnes shortas we speak and this demand supply tightness of about 3 million tonnes is going to persist for at least till '25, '26 broadly, give or take 6 months here or there.

Rohit Nagraj: Right. Got it. So, the second question is on the domestic market. So domestic market, how has been the pricing environment during the last couple of months? And what will be the currently ruling prices in the domestic market?

R. Mukundan: Yes, I just want to say the point about pricing environment is fundamentally driven off the availability or lack of availability as it stands today. So, the material is not available, we are only giving to our consistent buyers or reliable buyers, buyers who have been, with whom we've had a long relationship and we've been very fair to people who have stood by us to continue to stand by them. The basic issue is like this that on the many input side there has been a big severe impact on both availability and cost from the input side.

Firstly, on the salt because of heavy rainfall in Kutch and extended rainfall is Kutch, salt availability has sharply come down. The salt prices, input salt prices have sharply gone up more than the prices I think availability itself is something which was a big problem in the Q3, it may improve towards Q4 as the harvesting season starts on salt but it is running on a very very thin ice.

The second issue has been on coal, many of the -- if you look at the Indian plant, especially our plants in India plant is using Indonesian coal, Indonesian government had put an export ban on coal. And it had created severe issues in terms of, in terms of availability for domestic market. So, both on input cost as well as input availability, as well as the, the other key element is the coking coal and anthracite availability, which is imported from South Africa, there were shipping problems, there were supply chain

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