Table of Contents

Rpt. 13143133 TATA CHEMICALS LTD 2 - 13

12-Feb-2008 PIONEER INTERMEDIARIES PVT LTD
- AGARWALLA, ASHWANI

Rpt. 12603021 TATA CHEMICALS LTD 14 - 32

28-Aug-2007 PIONEER INTERMEDIARIES PVT LTD
- AGARWALLA, A.

These reports were compiled using a product of Thomson Financial. www.thomson.com/financial

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 TATA CHEMICALS LTD.
Q3 FY 2008 update HOLD

RESEARCH Sector Chemicals & Fertilisers I CMP Rs 273

KEY HIGHLIGHTS
STOCK DATA On a consolidated basis Tata Chemicals Ltd (TCL) reported 4%
decrease in net sales to Rs17.5bn due to 13% fall in revenue
Market Cap Rs66bn. from fertiliser and subdued growth in chemical division.
Book Value per share Rs106
However, OPM expanded by 22 bps to 15.2% on the back of
Eq Shares O/S (F.V. Rs.10) 231mn.
slump in low margin trading business. Surge in capital charges
Median Vol (12 mths) 407,448 (BSE+NSE)
52 Week High/Low Rs431 / 187
and penalty on prepayment of loan impacted net profits which
Bloomberg Code TTCH.IN plummeted by 42% to Rs0.9bn.
Reuters Code TTCH.BO z Fertiliser shines but chemicals spoil the show
Changes in fertiliser policy, timely realization of subsidies and lesser
trading in fertiliser boosted the performance of the fertiliser segment.
SHAREHOLDING PATTERN (%)
Manufactured-urea sales increased by 3% to 296 mt, however lesser
Qtr. Ended Jun-07 Sep-07 Dec-07
trading of fertiliser resulted in overall sales declining by 13% to Rs8.6bn.
Promoters 31.6 31.6 29.9 Shortage of salt impacted production of soda ash which was flat at
Banks/FIs/MFs 30.3 30.8 31.0 190k mt and sales dipped by 3% to 182k mt. However increased
FIIs/NRIs/OCBs 6.2 6.0 8.9 realisations in soda ash, pushed sales by 13% to Rs4.2bn. However,
PCBs 5.0 5.3 5.5 high power and fuel cost eroded the increased profitability.
Indian public 26.9 26.3 24.7
z Political unrest and plant shutdown impacts BMG
Eq Shares.(mn) 215 215 227
Sales and production were hampered at the Magadi plant due to political
STOCK PERFORMANCE (%) unrest in Kenya. Inspite doubling of capacity at Kenya, production
increased by only 15% to 115k mt. Shutdown at UK plant resulted in
1M 3M 12M 6% drop in production to 298k mt. High input cost without corresponding
Absolute (25.1) (4.1) 26.9 increase in realisations & high capital charges affected profitability.
Relative (14.1) 2.6 1.3
z Acquisition of General Chemicals Industrial Products
TCL has acquired 75% stake in General Chemicals Industrial
STOCK PRICE PERFORMANCE Products(GCIP), a 2.5mn mtpa natural soda ash manufacturer in US for
Rs40bn. The move makes TCL the second largest manufacturer of soda
ash globally with a capacity of 5.5mn mtpa.
TCL BSE (Rebased)
480 VALUATIONS AND RECOMMENDATION
405
At the CMP of Rs273, TCL is trading at a P/E of 9.3x, EV/Sales of 1.0x
and EV/EBIDT of 5.0x its FY09E consolidated estimates. We believe
330 that full capacity utilisation at Magadi, higher realisations, expansions
at Babrala should help deliver a better performance. However,
255
continuous delay in efficient utlisation of new plant at Magadi, increasing
180 direct costs and capital charges dilute the valuation of the company.
Feb-07 May -07 Aug-07 Nov -07 Feb-08 The current CMP of Rs273, fairly values the earning potential of TCL.
Hence, we downgrade our recommendation to 'HOLD'.

KEY FINANCIALS (CONSOLIDATED) KEY RATIOS

Quarter Ended* Yr Ended (March) Yr Ended (March)
Rs mn
Jun-07 Sep-07 Dec-07 2005 2006 2007 2008E 2009E 2005 2006 2007 2008E 2009E
Net Sales 6,689 12,551 12,240 30,081 40,344 58,096 63,404 72,749 Dil. EPS (Rs) 14.0 17.6 20.9 22.1 29.2
YoY Gr. (%) (11.4) 11.5 (6.4) - 34.1 44.0 9.1 14.7 ROCE (%) 13.2 18.0 20.0 19.2 22.5
Op. Profits 1,632 2,092 2,046 5,155 7,565 10,105 10,812 13,128
RONW (%) 17.0 20.3 21.2 17.5 18.8
Op. Marg. (%) 24.4 16.7 16.7 17.1 18.8 17.4 17.1 18.0
P/E (x) 19.5 15.5 13.1 12.4 9.3
Net Profits 1,212 1,426 1,255 3,406 4,283 5,080 5,381 7,122
EV/Sales (x) 2.0 1.8 1.2 1.2 1.0
Eq Capital 2,152 2,310 2,310 2,152 2,152 2,152 2,436 2,436
* Standalone numbers EV/EBDIT (x) 9.9 8.4 6.5 6.3 5.0

Analyst - Ashwani Agarwalla I ashwania@pinc.co.in I Tel: +91-22-6618 6482 12 February 2008 1

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 PERFORMANCE OVERVIEW (STANDALONE)
TCL reported a 9% decrease in standalone net sales to Rs12.2bn owing to a 14% fall in
fertiliser revenues to Rs8bn while the inorganic chemical division registered a 13% rise
in revenues to Rs4.2bn.
Urea production increased by 2.5% to 283k mt (capacity utilisation-129%) and due to
shortage of sulphur and phosphoric acid, complex fertilisers were flat at 190k mt (capacity
utilisation-99%). Shortage of raw salt at Mithapur resulted in lower production of soda
ash which was flat at 190k mt (capacity utilisation-80%) and production of edible salt
rose by 13% to 132k mt.
Sales & Production Volumes (mt)
Q3FY08 Q3FY07 YoY(%) 9MFY08 9MFY07 YoY(%)
Sales
Urea 296,000 287,000 3.1 832,000 805,000 3.4
Soda ash 182,000 187,000 (2.7) 487,000 541,000 (10.0)
Salt 120,000 114,000 5.3 344,000 350,000 (1.7)
Complex fertiliser 237,000 236,000 0.4 587,000 603,000 (2.7)
Production
Urea 283,000 276,000 2.5 784,000 746,000 5.1
Soda ash 190,000 191,000 (0.5) 508,000 549,000 (7.5)
Salt 132,000 117,000 12.8 353,000 332,000 6.3
Complex fertiliser 190,000 191,000 (0.5) 497,000 565,000 (12.0)

Favourable policy changes
& low trading boosts
profitability...
Shortage of salt & high
coal and fuel prices impact
performance...
Fertiliser (India)
Production volumes directly had an effect on sales volume, as a result urea sales volumes
increased by 3.1% to 296k mt while sales of complex fertiliser was flat at 237k mt.
However, due to sharp fall in trading of complex fertilisers, revenue from the segment
slumped by 14% to Rs8bn.
Favourable changes in fertiliser policy of reimbursing ammonia prices on a monthly
basis vis a vis on a quarterly basis earlier, improved subsidy realizations. Till Q1FY08,
cost of ammonia was reimbursed at the average price prevailing in trailing quarter,
which impacted profitability in a rising price scenario. The revised policy reimburses the
cost at the average price prevailing in the trailing month. Hence, the loss suffered in a
rising price scenario is lesser.
From Q1FY08, the urea manufacturers were allowed to retain gains above 110% capacity
utilization which resulted in a substantial expansion in realization and profitability. Earlier,
the manufacturers had to share 65% of gains with the government if the production
exceeded 100% of the capacity. Due to perennial shortage of urea in India, TCL has
been operating its plant at ~130% capacity, which resulted in higher profits for the
segment. Furthermore, the company has ceased trading in loss making DAP fertilisers.
Despite, disruption of gas supply at the HBJ pipeline which forced higher usage of naphtha
at the Babrala plant, there was no substantial impact on profitability of the division as
the raw material cost is pass through. PBIT margin of the segment improved by 518bps
to 11.3%, hence PBIT surged by 59% to Rs904mn.
Inorganic Chemicals (India)
Inspite of modernisation of Mithapur plant and implementation of cost rationalising and
efficiency increasing programme ‘Udaan’ at the plant, there has not been any substantial
increase in volume and profitability at the plant.
In the quarter, the production volumes of soda ash declined by 1% to 190k mt due to
shortage of salt (a key raw material), consequently sales volumes dropped by 3% to
182k mt while sales of edible salt rose by 5% to 120k mt. Prices of soda ash has been
inflationary in last 1 year and they have escalated ~40% to USD250-300/mt. Earlier,
TCL had entered in long term selling contracts at ~USD190/mt , as a result the realisations
did not increase in tandem with the spot prices. The contracts are being renewed in
phases, consequently there has been expansion in realisations and we expect the margins
to improve from Q1FY09 as most of the contracts will be renewed then. Higher realisations
pushed the revenue of chemical division by 13% to Rs4.2bn.

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 Prices of coke (currently ~USD500/mt vs. ~USD270/mt in FY07), and coal (~USD100/
mt vs. ~USD60/mt in FY07) firmed in the quarter. Even though the realisation of soda
ash increased but extensive use of coke and coal as fuel at Mithapur hampered its
profitability. Consequently, PBIT margins fell by 38bps to 24.4% and PBIT edged up only
by 11% to Rs1bn.
Input cost impact overall margins
Strong performance from the fertiliser segment was dampened by the chemical segment.
Consequently, OPM expanded by only 321bps to 16.7% and operating profit rose by 16%
to Rs2bn.
Other income plunged by 61% to Rs125mn as TCL had posted translation gains of Rs208mn
in Q3FY07 due to appreciation of the rupee. Even though operating profits were higher
and capital charges declined, net profit increased by only 7.6% to Rs1.3bn due to lower
other income.
Brunner Mond
BMG, a 100% subsidiary, posted sales of Rs4.3bn. Production from European plants
Political unrest & plant
decreased by 5.7% to 298k mt (capacity utilisation -99%) due to a 2 week unplanned
shutdown impacts
shutdown at the plant in UK. As a result, sales in Europe dropped by 3% to 300k mt.
performance...
Inspite of doubling of capacity at Magadi, the plant witnessed a meager 15.3% increase
in production volumes to 115k mt (capacity utilisation - 66%) due to political unrest in
Kenya. The new capacity at Magadi was suppose to commence operation in Q3FY07 but
due to refractory design issues it was delayed by 3 quarters. Currently it is operating at
60% utilisation and is expected to scale up to full capacity by Q2FY09.

BMG - Sales & Production Volumes (mt)

Q3FY08 Q3FY07 YoY(%) 9MFY08 9MFY07 YoY(%)
Sales
Europe 300,000 310,000 (3.2) 909,000 904,000 0.6
Africa 100,000 97,000 3.1 288,000 282,000 2.1
Total 400,000 407,000 (1.7) 1,197,000 1,186,000 0.9
Production
Europe 298,000 316,000 (5.7) 914,000 898,000 1.8
Africa 115,000 100,000 15.0 295,000 290,000 1.7
Total 413,000 416,000 (0.7) 1,209,000 1,188,000 1.8

Sales at BMG are mostly through long term contracts (1-2 years); whereas the
manufacturing costs or sourcing of raw materials are not bound by any matching long
term contracts. There was a substantial hike in prices of coke (currently ~USD500/mt
vs. ~USD270/mt in FY07), coal (~USD100/mt vs. ~USD60/mt in FY07) and other raw
materials which could not be recovered from the buyers. As a result, the OPM fell to
8.2% against an yearly average of 15%. Hence, the operating profit was restricted to
Rs350mn. TCL had entered in long term selling contracts at ~USD180/mt , as a result
the realisations did not mirror the spot prices and profitability was lower. The renewals
of contracts have started from Jan '08 and are expected to be complete by April '08.
Hence, we expect, soda ash realizations and profitability to enhance from Q4FY08.
Overall soda ash production volumes of BMG declined by 1% to 413k mt and sales
increased by only 3% to 100k mt. Consequently, overall sales volume of BMG declined by
2% to 400k mt.
BMG had borrowed debt at a high cost (LIBOR+4.5%) for setting up the new plant at
Magadi. TCL prepaid the debt along with Rs145mn as prepayment penalty and the debt
was refinanced at a fixed rate of 6.4% owing to strong financials of TCL. The refinancing
at lower cost will entail a saving of Rs60mn p.a. to the company.
BMG also accounted for higher depreciation and interest charges incurred due to
commissioning of the new plant in FY07 at Magadi. As a result of the above it incurred a
net loss (pre-tax) of Rs310mn.

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 IMACID
The 33% JV, reported net sales of Rs900mn owing to higher realizations and ramp up in
volumes. However, high sulphur and rock phosphate prices marred operating margins,
which stood at 17%( annual average has been ~25%). Consequently, operating profit
was Rs150mn and net profit was Rs100mn.
Consolidated Performance
Subdued performance from BMG negated the domestic performance. Consequently,
consolidated net sales declined by 4% to Rs17.5bn, operating profit fell by 3% to Rs2.6bn
(OPM increased by 22 bps to 15.2%). Net profit plummeted by 42% to Rs0.9bn.
Acquisition of GCIP
TCL has acquired 75% stake in GCIP of USA from Harbinger Capital Partner for USD1bn.
Acquires 75% stake in GCIP owns natural soda ash mines of capacity 2.5 mn mtpa in Green River Basin in
2.5mn mtpa natural soda Wyoming. Post acquisition, the total soda ash capacity of TCL will augment to 5.5mn
ash plant... mtpa which will propel it to the position of second highest soda ash producer in the
world. Solvay (soda ash capacity-8.2 mn mtpa) and FMC (soda ash capacity-5.4 mn
mtpa) are the two other major players in the industry.
The acquisition will help TCL expand its presence to Asia Pacific, North America and
Latin America. Post acquisition TCL will be able to develop a strong foothold across the
major continents.
TCL had acquired 100% stake in BMG of Europe (soda ash capacity-1.6mn mtpa) in
FY06 for a consideration of Rs8bn and enterprise value of Rs19.5bn (including off balance
sheet item of Rs3.5bn). However, the prices of soda ash has spiked from USD160/mt in
FY06 to current levels of USD250-300/mt, consequently the valuation of the soda ash
capacities has also been pushed up. Due to lack of clarity on the company it is not
possible to comment on the financials and valuation of the GCIP.
Projects/Capex

Projects/Capex
Event Capex (Rs bn) Timeline

Urea debottlenecking at Babrala (325k mtpa) 1.5 Nov FY09

Increase in soda ash, salt, cement capacity at Mithapur 2.5 FY10
Bio-fuel plant at Parbhani (30kl/day) 0.5 Q2FY09
Khet Se - 50 stores 7.5 FY10-11
Gypsum blockwall plant (Haldia) 0.3 NA

Khet Se
TCL's plan to operate two stores initially. The first store is likely to be operational at
Ludhiana from Q1FY09 while the second store is due to be opened in Navi Mumbai. It
plans to incur a capex of Rs7.5bn for opening 50 stores pan-India in the next 2-3 years.
Bio-fuel
The construction of pilot plant for producing 30 kiloliters/day of bio-fuel will be completed
by Nov '09. The plant, which is being set up by Praj Industries will be scaled up to
100 kl/day. TCL has entered in contract farming for cultivation of Jatropha and Sweet
Sorghum for production of bio-fuel.
Tanzania project
Apart from the above mentioned projects, TCL also plans a 0.5 mt natural soda ash
project in Tanzania, which has been delayed due to environmental concerns. TCL is
contemplating various options for erection of the facility near Lake Natron.
OUTLOOK
Positive changes in urea policy aimed at rationalising subsidies helped TCL improve
recoveries. Further changes in the policy are expected, which is likely to enhance the
profitability profile of the sector.

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 Soda ash demand has declined in US due to slow down in construction activities; however
the buoyant construction activity in China, South East and Middle East Asia will keep the
prices firm in the region. Besides, soda ash prices are likely to remain firm in the region
on account of supply shortages caused by dislocation of plants in China and US due to
environmental concerns.
Around 50% of TCL's soda ash sales contracts from Mithapur plant are on long-term,
which are renewed annually. In FY07, the company had contracted at a price of ~USD190/
mt as against the current spot prices of USD250-300/mt, we expect improvement in
realisation by USD20-25/mt during Q1FY09 which will improve the profitability.
Stabilization of the new plant at Magadi from Q2FY09 will add 220k mt of natural soda
Continuous delay at Magadi ash in FY09 (350k mtpa). However, the performance of BMG has been continuously
and increasing cost to marred due to delay in production from the new plant, rising cost, low realizations,
impact performance... restructuring and political unrest in Kenya. BMG has suffered substantial loss of profit
due to delay and shutdown as the price of the commodity is at the peak of the cycle.
Phosphoric acid and sulphur prices are likely to soften from the current levels but may
not retrace to the earlier levels, consequently the profitability of IMACID is likely to
stabilize.
Due to lack of clarity, we have not factored in any earnings from GCIP, the new acquisition.
The de-bottlenecking of Babrala plant will increase the urea capacity by ~350k mtpa.
Modernisation at mithapur plant is expected to increase production of soda ash and salt
by ~5%. Production from the new capacity at Magadi is also likely at full capacity from
Q2FY09. Renewal of soda ash contracts at Mithapur and Magadi will improve the
realisations. Realisations from IMACID are likely to increase due to substantial rise in
phosphoric acid prices.
Considering the above, we expect consolidated net sales to climb by 9% to Rs63bn and
by 15% to Rs73bn in FY08 & FY09 respectively. We expect high realisations to be set off
by high input cost, hence OPM is likely to be ~17% in FY08. However, we expect growth
in revenue to outpace input cost and OPM should improve to 18% in FY09. TCL should
be able to post an operating profit of Rs10.8bn in FY08 and Rs13.1bn in FY09.
Capital charges are expected to escalate due to commissioning of new plant at Magadi
and debottlenecking. As a result, we expect net profits to grow by 5.9% to Rs5.4bn in
FY08 and by 32% to Rs7.1bn in FY09.
VALUATIONS
At the CMP of Rs273, TCL is trading at a P/E of 9.3x, EV/Sales of 1.0x and EV/EBIDT of
5.0x its FY09E consolidated estimates. We believe that full capacity utilisation at Magadi
We revise downward our and higher realisations should enable BMG to generate improvement in OPM. Expansions
recommendation to at Babrala should further help deliver a better performance. However, continuous delay
‘HOLD’ ... in efficient utilisation of new plant at Magadi, increasing direct costs and capital charges
dilute the valuation of the company. The current CMP of Rs273, fairly values the earning
potential of TCL. Hence, we downgrade our recommendation to 'HOLD'.
CONCERNS
1. Adequate availability of gas at feasible prices is crucial for optimal performance of
the fertiliser business and shortage of the same will impact profitability.
2. The chemicals and complex fertiliser business has high sensitivity to prices of
phosphoric acid, coke, sulphur and sodium compounds. Thus, any adverse
movements in price cycle of raw materials and products will hamper performance.
3. Continued increase in subsidy arrears and consequent stretching of working capital
cycle will impact financing costs.
4. Any delay or stoppage in production at the new or existing capacities will impede
performance.

Company description:
Tata Chemicals Limited is India’s leading manufacturer of inorganic chemicals. It also
manufactures fertilisers and food additives. Incorporated in 1939, the company has
an annual turnover of over Rs58bn and is a part of the Rs900bn (USD22bn) Tata
Group, India’s foremost business conglomerate.

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 Financial Results for the quarter & nine months ended 31 December 2007 (Standalone)
Quarter Ended Nine Months Ended Year Ended
Particulars (Rs mn)
31/12/07 31/12/06 Gr % 31/12/07 31/12/06 Gr % 31/03/07

Net Sales 12,240 13,073 (6.4) 31,448 31,879 (1.4) 39,910

Total Expenditure 10,195 11,308 (9.8) 25,712 26,689 (3.7) 33,043
(Inc)/dec in stock in trade 623 2,523 - 1,252 1,510 - 82
Consumption of raw material 4,572 3,890 (19.0) 11,979 11,834 (0.8) 16,093
Staff cost 392 382 2.5 1,211 1,072 13.0 1,490
Cost of traded goods 899 1,534 (41.4) 2,410 3,642 (33.8) 3,905
Stores, Spare Parts & Consumed 478 532 (10.0) 1,292 1,370 (5.7) 1,807
Power and Fuel 1,608 1,021 57.5 3,245 2,958 9.7 3,922
Freight & Forwarding Charges 746 752 (0.7) 2,048 2,075 (1.3) 2,743
Other expenditure 877 675 30.0 2,275 2,228 2.1 3,002
Operating profit 2,046 1,765 15.9 5,736 5,191 10.5 6,867
Other Income 125 323 (61.4) 689 851 (19.1) 943
PBDIT 2,171 2,089 3.9 6,425 6,042 6.3 7,810
Interest 39 42 (6.7) 53 81 (34.8) 48
Depreciation 373 392 (4.9) 1,107 1,122 (1.3) 1,504
PBT & extra-ordinary items 1,759 1,655 6.3 5,265 4,839 8.8 6,259
Provision for current tax 537 478 1,709 1,440 1,846
Provision for deferred tax - 1 33 34 51
Fringe benefits 13 9 - - -
Extraordinary items (46) - (369) (132) (80)
Net Profit 1,255 1,167 7.6 3,892 3,498 11.3 4,442

Equity Capital (F.V. Rs 10) 2,310 2,152 2,310 2,152 2,152

Diluted equity 2,435 2,435 2,435 2,435 2,435
Reserves (excl. rev. res.) - - - - 21,777
EPS for the period (Rs) 5.4 5.4 16.8 16.3 20.6
Diluted EPS (Rs) 5.2 4.8 16.0 14.4 18.2
Book Value (Rs) - - - - 99.4

OPM (%) 16.7 13.5 18.2 16.3 17.2

NPM (%) 10.3 8.9 12.4 11.0 11.1

Expenditure (% of Net Sales)

Raw materials (incl. stock adj.) 42.4 49.1 42.1 41.9 40.5
Staff cost 3.2 2.9 3.9 3.4 3.7
Cost of traded goods 7.3 11.7 7.7 11.4 9.8
Stores, Spare Parts & Consumed 3.9 4.1 4.1 4.3 4.5
Power and Fuel 13.1 7.8 10.3 9.3 9.8
Freight & Forwarding Charges 6.1 5.8 6.5 6.5 6.9
Other expenses 7.2 5.2 7.2 7.0 7.5

Median PE v/s Daily PE PE Band

Daily PE Median PE 500
20
18x
375 15x
15
12x
10 250
9x

6x
5 125

0 0
Feb-04 Feb-05 Feb-06 Feb-07 Feb-08 Feb-04 Feb-05 Feb-06 Feb-07 Feb-08

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 Financial Results for the quarter & nine months ended 31 December 2007 (Consolidated)
Quarter Ended Nine Months Ended Year Ended
Particulars (Rs mn)
31/12/07 31/12/06 Gr % 31/12/07 31/12/06 Gr % 31/03/07

Net Sales 17,001 17,804 (4.5) 45,628 45,663 (0.1) 58,096

Total Expenditure 14,411 15,130 (4.8) 37,651 38,248 (1.6) 47,991

(Inc)/dec in stock in trade 525 2,533 1,015 1,607 215

Consumption of raw material 5,415 4,656 (17.4) 14,630 14,226 (1.2) 19,320

Staff cost 1,124 1,017 10.5 3,179 2,812 13.0 3,480

Cost of traded goods 918 1,578 (41.8) 2,441 3,774 (35.3) 4,071

Stores, Spare Parts & Consumed 558 729 (23.5) 1,651 1,879 (12.1) 2,445

Power and Fuel 2,889 1,970 46.6 6,488 5,715 13.5 7,640

Freight & Forwarding Charges 1,338 1,168 14.6 3,776 3,426 10.2 4,602

Other expenditure 1,643 1,480 11.0 4,472 4,810 (7.0) 6,217

Operating profit 2,591 2,674 (3.1) 7,977 7,415 7.6 10,105

Other Income 125 133 (5.8) 690 973 (29.1) 996

PBDIT 2,716 2,807 (3.2) 8,667 8,388 3.3 11,101

Interest 446 214 108.9 974 589 65.3 962

Depreciation 793 711 11.4 2,345 1,999 17.3 2,739

PBT & extra-ordinary items 1,478 1,882 (21.5) 5,348 5,800 (7.8) 7,400

Provision for current tax 461 563 1,718 1,618 2,297

Provision for deferred tax - - - - 53

Fringe benefits 13 9 33 34 51

Extraordinary items 93 (248) (770) (132) (81)

Net Profit 911 1,559 (41.6) 4,367 4,280 2.0 5,080

Equity Capital (F.V. Rs 10) 2,310 2,152 2,310 2,152 2,152

Diluted equity 2,435 2,435 2,435 2,435 2,435

Reserves (excl. rev. res.) - - - - 23,567

EPS for the period (Rs) 3.9 7.2 18.9 19.9 23.6

Diluted EPS (Rs) 3.7 6.4 17.9 17.6 20.9

Book Value (Rs) - - - - 119.5

OPM (%) 15.2 15.0 17.5 16.2 17.4

NPM (%) 5.4 8.8 9.6 9.4 8.7

Expenditure (% of Net Sales)

Raw materials (incl. stock adj.) 34.9 40.4 34.3 34.7 33.6

Staff cost 6.6 5.7 7.0 6.2 6.0

Cost of traded goods 5.4 8.9 5.4 8.3 7.0

Stores, Spare Parts & Consumed 3.3 4.1 3.6 4.1 4.2

Power and Fuel 17.0 11.1 14.2 12.5 13.1

Freight & Forwarding Charges 7.9 6.6 8.3 7.5 7.9

Other expenses 9.7 8.3 9.8 10.5 10.7

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 Segmentwise results for the quarter & nine months ended 31 December 2007 (Consolidated)
Quarter Ended Nine Months Ended Year Ended
Particulars (Rs Mn)
31/12/07 31/12/06 Gr % 31/12/07 31/12/06 Gr % 31/03/07

Segment Revenue
Inorganic Chemicals 8,400 7,909 6.2 23,374 23,551 (0.8) 31,513

Fertilisers 8,601 9,895 (13.1) 22,254 22,112 0.6 26,583

Total 17,001 17,804 (4.5) 45,628 45,663 (0.1) 58,096

Less: Inter-segment sales - - - - - - -

Net Sales 17,001 17,804 (4.5) 45,628 45,663 (0.1) 58,096

PBIT

Inorganic Chemicals 1,029 1,420 (27.5) 3,084 3,937 (21.7) 5,323

Fertilisers 995 771 29.0 3,189 2,165 47.3 2,728

Total 2,024 2,191 (7.6) 6,273 6,102 2.8 8,050

Less: Interest 446 214 108.9 974 589 65.3 824

Less: Other Unallocable 193 (153) (226.2) (819) (420) 95.2 (255)

PBT 1,385 2,130 (35.0) 6,118 5,933 3.1 7,481

Capital Employed

Inorganic Chemicals 24,330 25,952 (6.2) 24,330 25,952 (6.2) 27,031

Fertilisers 9,022 15,705 (42.6) 9,022 15,705 (42.6) 16,832

Unallocable 18,006 8,925 101.7 18,006 8,925 101.7 3,620

Total 51,358 50,582 1.5 51,358 50,582 1.5 47,484

ROCE (%)

Inorganic Chemicals 16.9 21.9 16.9 20.2 19.7

Fertilisers 44.1 19.6 47.1 18.4 16.2

Total 15.8 17.3 16.3 16.1 17.0

PBIT Marg (%)

Inorganic Chemicals 12.3 18.0 13.2 16.7 16.9

Fertilisers 11.6 7.8 14.3 9.8 10.3

Total 11.9 12.3 13.7 13.4 13.9

Sales Mix (%)

Chemicals 49.4 44.4 51.2 51.6 54.2

Bulk Fertilisers 50.6 55.6 48.8 48.4 45.8

PBIT Mix (%)

Chemicals 50.8 64.8 49.2 64.5 66.1

Bulk Fertilizers 49.2 35.2 50.8 35.5 33.9

8
9
 Year Ended March (Figures in Rs mn)

Income Statement 2005 2006 2007 2008E 2009E

Revenues 30,081 40,344 58,096 63,404 72,749

Growth (%) - 34.1 44.0 9.1 14.7

Total Expenditure 24,926 32,779 47,991 52,592 59,620

Operating Profit 5,155 7,565 10,105 10,812 13,128

Growth (%) - 46.7 33.6 7.0 21.4

Interest & dividend income 1,017 1,003 996 1,193 1,732

EBIDT 6,173 8,568 11,101 12,004 14,861

(-) Interest 246 482 962 1,048 931

(-) Depreciation 1,377 1,840 2,739 2,890 3,253

PBT & extraordinary items 4,550 6,246 7,400 8,067 10,677

(-) Tax provision 1,124 1,723 2,401 2,686 3,556

Net Profits 3,406 4,283 5,080 5,381 7,122

Fully diluted Eq. sh. O/s (mn no) 244 244 244 244 244

Book Value (Rs) 82 91 106 146 164

Basic EPS (Rs) 15.8 19.9 23.6 25.0 33.1

Diluted EPS (Rs) 14.0 17.6 20.9 22.1 29.2

Balance Sheet 2005 2006 2007 2008E 2009E

Equity Share Capital 2,152 2,152 2,152 2,436 2,436

Reserves & Surplus 17,827 20,042 23,567 33,164 37,573

Net worth 19,978 22,194 25,718 35,600 40,009

Total Debt 13,242 18,277 18,642 13,600 13,000

Deferred Tax liability 3,534 3,230 2,912 2,912 2,912

Deferred Capital Grants - 239 211 211 211

Capital Employed 36,754 43,939 47,484 52,324 56,132

Fixed Assets 15,624 27,794 30,561 30,171 29,918

Net current assets 11,726 2,588 926 6,155 10,216

Investments 9,387 5,475 7,753 7,753 7,753

Deferred Tax Assets - 936 576 576 576

Misc exp. 17 70 37 37 37

Total Assets 36,754 43,939 47,484 52,324 56,132

9
10
 Year Ended March (Figures in Rs mn)

Cash Flow Statement 2005 2006 2007 2008E 2009E

PBT & extraordinary items 4,550 6,246 7,400 8,067 10,677

Depreciation 1,377 1,840 2,739 2,890 3,253

Interest & dividend inc. (318) (536) (920) (1,193) (1,732)

Interest paid 246 312 944 1,048 931

Misc Exp W/off (287) (219) (480) - -

Tax paid 42 (875) (2,144) (2,686) (3,556)

(Inc/Dec in working capital 493 (5,121) 1,612 (5,306) (3,986)

Cash from operations 6,103 1,648 9,151 2,819 5,587

Net capital expenditure (692) (1,893) (5,204) (2,500) (3,000)

Net investments (incl sub.) (2,727) (5,887) (2,255) - -

Interest & dividend recd 415 703 923 1,193 1,732

Cash from investing activities (3,004) (7,077) (6,536) (1,307) (1,268)

Issue of eq. shares - - - - -

Preference Shares Repaid - - - - -

Change in debt 5,448 1,004 369 1,651 (600)

Dividend paid (1,338) (1,589) (1,716) (2,191) (2,713)

Interest paid (419) (557) (953) (1,048) (931)

Cash from financing activities 3,691 (1,142) (2,300) (1,588) (4,244)

Inc/Dec. in cash 6,790 (6,571) 316 (76) 75

Key Ratios 2005 2006 2007 2008E 2009E

EBIDT (%) 20.5 21.2 19.1 18.9 20.4

ROACE (%) 13.2 18.0 20.0 19.2 22.5

ROANW (%) 17.0 20.3 21.2 17.5 18.8

Sales/Total Assets (x) 0.8 0.9 1.3 1.2 1.3

Debt:Equity (x) 0.7 0.8 0.7 0.4 0.3

Current Ratio (x) 2.5 1.2 1.0 1.3 1.5

Debtors (days) 51 66 58 68 72

Inventory (days) 71 77 48 47 44

Net working capital (days) 135 22 6 34 51

EV/Sales (x) 2.0 1.8 1.2 1.2 1.0

EV/EBIDT (x) 9.9 8.4 6.5 6.3 5.0

P/E (x) 19.5 15.5 13.1 12.4 9.3

P/BV (x) 3.3 3.0 2.6 1.9 1.7

10
11
 Team

Equity Desk Ashish Dangi - Associate - Lifestyle / Retail Products

R. Baskar Babu - Head - Equity Broking
baskarb@pinc.co.in 91-22-66186465
Gealgeo V. Alankara - Head - Institutional Sales
alankara@pinc.co.in 91-22-66186466
Sachin Kasera - Co-Head - Domestic Equities
sachink@pinc.co.in 91-22-66186464
Sailav Kaji - Head - Derivatives & Strategist
sailavk@pinc.co.in 91-22-66186344
ashishd@pinc.co.in 91-22-66186481
Ashwani Agarwalla - Associate- Agro Products /Fertilizers
ashwania@pinc.co.in 91-22-66186482
Abhishek Gangwani -Associate - Electronics / Hardware
abhishekg@pinc.co.in 91-22-66186385
Naveen Trivedi - Associate - Speciality Chemicals
naveent@pinc.co.in 91-22-66186384
Abhinav Bhandari - Associate - Real Estate / Construction
abhinavb@pinc.co.in 91-22-66186371

Research Anand Rajgarhia - Associate - Shipping / Logistics

anandr@pinc.co.in 91-22-66186377
Sameer Ranade - Capital Goods / Utilities
sameerr@pinc.co.in 91-22-66186381 Sales:

Sujit Jain - Real Estate / Construction Anil Chaurasia Alok Doshi

sujitj@pinc.co.in 91-22-66186379 91-22-66186483 91-22-66186484

Amol Rao - Hospitality / Pipes / Packaging Sapna Mehta Sundeep Bhat

amolr@pinc.co.in 91-22-66186378 91-22-66186485 91-22-66186486

Nirav Shah - Sugar / Textiles

niravs@pinc.co.in 91-22-66186383 Dealing:

Rishabh Bagaria - Auto / Auto Ancilliary Chandrakant Ware/Rajesh Khanna/Shivkumar R/Ashok Savla
rishabhb@pinc.co.in 91-22-66186391 idealing1@bloomberg.net 91-22-66186326

Ruchir Desai - Technology Raju Bhavsar / Manoj Parmar / H Prajapati / Pratiksha

ruchird@pinc.co.in 91-22-66186372 idealing1@bloomberg.net 91-22-66186323

Syed Sagheer - Logistics / Light Engineering

syeds@pinc.co.in 91-22-66186390 Directors

Chandana Jha - Banking / Financial Services Gaurang Gandhi

chandanaj@pinc.co.in 91-22-66186398 gaurangg@pinc.co.in 91-22-66186400

Rahhul Aggarwal - Metals Hemang Gandhi

rahhula@pinc.co.in 91-22-66186388 hemangg@pinc.co.in 91-22-66186400

Dipti Solanki - Media Ketan Gandhi

diptis@pinc.co.in 91-22-66186392 ketang@pinc.co.in 91-22-66186400

Faisal Memon - Associate - Metals Rakesh Bhatia - Head Compliance

faisalm@pinc.co.in 91-22-66186389 rakeshb@pinc.co.in 91-22-66186400
11
12
 Infinity.com
Financial Securities Ltd
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Member : Bombay Stock Exchange & National Stock Exchange of India Ltd. : Sebi Reg No: INB 010989331. Clearing No : 211
1216, Maker Chambers V, Nariman Point, Mumbai - 400 021; Tel.: 91-22-66186633/6400 Fax : 91-22-22049195

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12
13
 TATA CHEMICALS LTD.
Gearing up for a big leap...
Company Update

SUMMARY
COMPANY DETAILS
Auditors M/s S B Billimoria & Co „ Tata Chemicals Ltd (TCL), a leading
M/s N M Raiji & Co manufacturer of inorganic chemicals &
Chairman Ratan N Tata fertilisers operates the largest inorganic
Reg. Office Bombay House, chemical complex at Mithapur in Gujarat.
24 Homi Mody Street Fort
Mumbai - 400001
„ TCL also operates an urea plant in Babrala. With
Website www.tatachemicals.com merger of Hind Lever Chemicals Ltd (HLCL) in
2004, TCL ventured in manufacturing of
complex fertiliser at HLCL’s plant at Haldia.
S C R I P D E TA I L S „ TCL acquired 100% stake in Brunner Mond Group
Market Capitalisation Rs.53 bn
Ltd, (UK) in FY06 at an enterprise value of
Book Value per share Rs.120 Rs~16 bn.
Equity Shares O/S (F.V. Rs. 10) 215.2 mn „ TCL acquired 33% stake in Indo Maroc Phosphore
Median Volumes (12 mths) 260,983 S.A. (IMACID), Morocco for a consideration of
52 Week High/Low Rs. 270 / 187
Rs ~1.7 bn to ensure uninterrupted supply of
BSE Scrip Code 500770
phosphoric acid, a key raw material.
NSE Scrip Code TATACHEM
Bloomberg Code TTCH@IN „ IMACID is a JV with Chambal Fertiliser &
Reuters Code TTCH.BO Chemicals Ltd and Office Cherifien des
Phosphates, Morocco (OCP) as the other two
partners with equal stake.
SHAREHOLDING PATTERN (%) „ In FY07, TCL made a foray into manufacturing
Qtr. Ended Dec-06 Mar-07 Jun-07 bio-fuels and is setting up a plant at Parbhani
Promoters 31.6 31.6 31.6 (Maharashtra) for manufacturing bio-ethanol.
Banks/FIs/MFs 30.9 30.4 30.3
FIIs/NRIs/OCBs 4.2 5.4 6.2 „ The new capacity at Magadi could not be
PCBs 5.2 5.0 5.0 commissioned commercially due to refractory
Indian public 28.2 27.7 26.9 design problems.
KEY FINANCIALS „ TCL plans to invest Rs 4.5 bn in next 3 years for
Qtr End. (Standalone) Year Ended (Cons.) expansion of soda ash, cement, salt and fertiliser
Rs Mn
Dec-06 Mar-07 Jun-07 2007 2008E* 2009E* capacity domestically.
Net Sales 13,073 8,031 6,689 58,096 65,406 73,053 „ In Q1FY08, sales fell by 11% to Rs ~6.7 bn.
YoY Gr. (%) 3.9 6.5 (11.4) 44.0 12.6 11.7 Operating profit increased by 3% to Rs 1.6 bn
Op. Profits 1,765 1,544 1,632 10,105 11,172 12,890
Op. Marg. (%) 13.5 19.2 24.4 17.4 17.1 17.6
while net profits grew by 61% to Rs 1.2 bn.
Net Profits 1,167 944 1,212 5,080 6,078 7,188 „ At CMP of Rs 245, TCL is trading at a P/E of 8.3x,
Equity Capital 2,152 2,152 2,152 2,152 2,435 2,435
EV/Sales of 0.9x and EV/EBIDT of 4.7x discounting
KEY RATIOS (CONSOLIDATED) its FY09E consolidated estimates. With its
Year Ended EPS ROCE RONW P/E EV/Sales EV/EBIDTA expansions underway, TCL should deliver a
(March) (Rs.) (%) (%) (x) (x) (x)
superior performance. We reiterate our ‘BUY’
2007* 20.9 20.0 21.2 11.7 1.1 6.0
2008E* 24.9 20.0 19.6 9.8 1.0 5.5
recommendation with a price target of Rs 320 on
2009E* 29.5 21.6 18.6 8.3 0.9 4.7 a one year investment horizon.
* Equity diluted for FCCB conversion
Aug 28, 2007 Sensex : 14919 Nifty : 4321 CMP : Rs 245 Recomm : BUY

Analyst - Ashwani Agarwalla 1

14
 P L A N T L O C AT I O N TATA CHEMICALS LTD.

Business Profile
Tata Chemicals Ltd

Inorganic Chemicals Fertilisers New Initiative

Plant at Mithapur,
Gujarat

Domestic International Urea - Plant at Khet Se

Plant at Mithapur, Soda ash & Babrala capacity Distribution of
Gujarat Sodium bicarbonate -0.9 mn mtpa fresh produce

SodaSoda
Ash Ash BMG Lake Natron, Complex Fert. 2 centers to be set
Capacity-0.9 mn Capacity-1.7mn Tanzania Plant at Haldia up at Kolkata &
mtpa mtpa. Operations Feasibility study capacity-0.8 mn Ludhiana
in Uk, Netherlands undertaken mtpa
Salt & Kenya
Bio-fuel
Capacity- 0.5 mn
mtpa IMACID
JV in Morocco for
Cement sourcing of
Capacity-0.5 mn phosphoric acid Plant to be set at
mtpa Parbhani, research
center established
Other alkaline at Pune
chemicals

Source: PINC Research Mithapur (Kutch, Gujarat)

Plant locations
TCL has seven manufacturing units, 3 in India , 3 in
Europe and 1 in Kenya. Synthetic soda ash and other
inorganic chemicals are produced at Mithapur plant
(Gujarat), urea is manufactured at Babrala (UP) and
complex fertiliser is manufactured at Haldia (West
Bengal). The European plants manufacture synthetic
soda ash while the plant in Kenya produces natural
soda ash.
The Mithapur plant is located on the coast of Gujarat
and was commissioned in 1927 for manufacturing of
synthetic soda ash. Presently it manufactures soda
ash (capacity-917k mtpa), chloro-caustic chemicals,
marine chemicals, salt (capacity-550k mtpa) and
cement (capacity-440k mtpa).
The plant has been located strategically at the coast
of Gujarat. It is near the Kandla port which facilitates
cheap and quick transportation.

Scrip performance vis-a-vis BSE Sensex Consolidated Rev. Break Up - FY07 (Rs 58 bn)
Vol.in '000s (NSE+BSE) TCL BSE (Rebased) IMACID
Soda Ash (India)
5%
320 2,000 13%
Salt
Soda Ash (BMG)
6%
285 1,500 27%
Cement
250 1,000 3%

215 500
Urea
180 0 15%
Others
Aug-06

Feb-07

Aug-07
Nov-06

May-07

9% Complex fertilisers
22%
Source: Company

2
15
 P L A N T L O C AT I O N
Plant Locations
Babrala
Mithapur
Haldia
Source: Company
Soda ash is manufactured using the Solvay process.
Availability of salt is the main reason for the soda ash
industry being concentrated in the Kutch region as
Gujarat accounts for ~70% of India’s salt production
of ~20 mn mt.(~1.7 mt to 1.9 mt of salt is required for
production of 1 mt of soda ash) The coastal region of
Gujarat has adequate flat land for construction of solar
pond required for production of salt.
Limestone is a key raw material in manufacturing
soda ash as it is a reactant for extracting soda ash
from the ammoniated brine. (~1.4 mt to 1.7 mt of
limestone is used for production of 1 mt of soda ash)
In India, limestone is concentrated in four regions
viz. Andhra Pradesh, Gujarat, Karnataka and UP. TCL
has captive capacity for mining limestone in the Kutch
region, which ensures steady supply. Apart from
ensuring a steady supply, a captive source also helps
minimise operating costs. It also sources additional
requirements from Rajasthan or imports from Oman.
In CY02, TCL had undertaken a program ‘Manthan’
for enhancing efficiency and cost rationalisation
across the board. Motivated by the success of
Manthan, in FY07 TCL undertook ‘Udaan’ ,a program
in consultation with 'Mckinsey’ for increasing
efficiency and cost rationalisation at Mithapur plant.
TATA CHEMICALS LTD.
Consequently, it has been able to increase production
of soda ash by ~5% and it also plans to rationalise
operating costs.
Babrala (UP)
TCL predominantly operated in inorganic chemical
industry till 1994 when it set up a dual feedstock urea
plant at Babrala (UP).
The plant is strategically located to cater to the high
fertilizer consuming belt of north and east India. The
chief markets of TCL are Punjab, Haryana, Uttar
Pradesh, Jharkhand, Bihar and West Bengal. The
plant manufactures urea and ammonia with rated
capacity of 865k mtpa and ~500k mtpa respectively.
Haldia (West Bengal)
Till CY04, TCL was a dominant player in the urea
industry, the merger of HLCL marked its foray in
complex fertilisers. The integrated plant is located at
the port town of Haldia, which helps reduce freight
cost owing to the high proportion of imported raw
materials (phosphoric acid, rock phosphate) for
manufacturing complex fertilizers. Its product profile
includes complex fertilizers, sulphuric acid, and
phosphoric acid. It has a total production capacity of
~0.8 mn mtpa of complex fertilizers.
Northwich (UK), Netherlands and Kenya
With acquisition of BMG in 2005, TCL acquired the 4
soda ash producing units of the company. Two plants
are located in Northwich, UK (capacity-900k mtpa)
and one in Netherlands (capacity-300k mtpa) where
synthetic soda ash is manufactured using the solvay
process. The European operations have a higher
operating cost due to high labour and fuel costs.
The fourth plant is located at Lake Magadi, Kenya
(capacity-720k mtpa including the new 350k mt
capacity) where natural soda ash is produced. The
new capacity of 350k mtpa could not be
commissioned due to refractory design problems.
IMACID
TCL entered in a 33% JV with Office Cherifien des
Phosphates, Morocco (OCP) and Chambal fertilisers
& Chemicals Ltd for sourcing phosphoric acid. The
plant has a capacity of 350k mtpa. TCL has entered in
a volume contract with IMACID, the price of
phosphoric acid is fixed annually.
3
16
BUSINESS SEGMENTS TATA CHEMICALS LTD.

Business Segments Manufacturing processes of soda ash

The business of TCL can be broadly divided in two Solvay Process
segments viz. inorganic chemicals and fertilizers. Saltwater (Brine) is reacted with ammonia to obtain
Inorganic chemicals business constitute soda ash, ammoniated brine. The brine is then passed through
salt, cement and alkaline chemicals while fertiliser activated carbonators, where the brine reacts with
portfolio comprises urea and complex fertilisers. carbon di-oxide and forms sodium bicarbonate slurry.
Inorganic chemicals contributed 54% to the revenue Through use of centrifugal force, sodium bicarbonate
and 66% to the profitability of TCL while the fertiliser crystals are collected from the slurry. The crystals are
division contributed 46% to the revenue and 34% to then passed through steam tube drier to form soda
the profitability of TCL. ash. Limestone and coke are mixed in vertical shaft
Indian inorganic chemical division contributed kilns which yields carbon dioxide. Ammonia is
25%, fertiliser division 42% to the revenue of TCL recovered from the solution of ammonium chloride
and together the two divisions contributed 84% to and sodium chloride.
the profitability. BMG and IMACID contributed 28% TCL uses Solvay process for production of soda ash at
and 5% to the revenue while their contribution to the mithapur plant. The process uses more raw
profitability was 12% and 4% respectively. materials and heat and generates higher wastage as
Soda Ash-'The high potential business' compared to other processes, hence it incurs a higher
cost as compared to other process.
In FY07, the Indian division of TCL earned a revenue
of Rs 7.5 bn from sales of 722k mt of soda ash which Producers with newer plants enjoy a lower cost due
accounted for 50% of the inorganic chemical to improved efficiency owing to better technology.
division and 18% of total revenue. TCL has
consistently maintained its leadership position and Solvay Process
commands a 32% market share of Indian soda ash
industry. Ammonia
Ammonia Absorber Salt
TCL manufactures synthetic soda ash at Mithapur
through the ‘Ammonia-Soda’ process also known as Limestone Coke
the ‘Solvay Process’, which uses limestone, salt and Carbonating Tower
coke as the key raw materials. CO2
Lime Kiln
It has expanded capacity in the last 6 months from Bicarbonate Filter
875k mtpa to 917k mtpa and is further expanding it to Lime
~1.2 mn mtpa. This additional capacity is likely to be
commissioned in Q4FY09. Bicarbonate Calciner
Ammonia Recovery

Soda Ash Sales (mn mt) & Realisation (Rs/mt)

Calcium Light Soda
Soda ash (quantity -mn mt) Realisation/ mt Chloride Ash
1.0 13,500

0.9 12,000
10,916 11,134 Modified Solvay Process or Dual Process
10,446
0.8 10,176 10,500
In the modified process there is a better utilisation of
0.8

0.8
0.7
0.7

salt and it also generates lesser waste.

0.7

0.7

0.7 9,000
0.7

7,975 8,641 Dry Liming Process

8,297
0.6 7,500 Dry Lime process consumes lesser raw materials and
FY08E

FY09E
FY03

FY04

FY05

FY06

FY07

has a perfect steam and power balance which results

in substantial energy saving.
Source: PINC Research

4
17
 BUSINESS SEGMENTS TATA CHEMICALS LTD.

Domestic scenario Domestic Demand Supply Position (mn mt)

Soda ash is mainly used by detergent & soap, glass, Demand Domestic Production
paper & pulp, metal and textile industries. Detergent 3.5
and soap industry uses light soda ash and this sector

3.1
3.1
3.0
consumes 32% of soda ash manufactured in India.

2.8
3.0

2.7
The demand for soap and detergent is relatively

2.4
2.5

2.3
inelastic to income and price since these products

2.3
2.2

2.2
2.2
2.1
2.1
2.0
are necessities to a large extent. While growing

1.9
1.9
2.0
population generates demand at a base rate, rising
hygiene consciousness results in incremental 1.5
demand for the products. Considering the above, we

FY02

FY03

FY04

FY05

FY06

FY07

FY08E

FY09E
expect the soap & detergent industry to grow by ~4-
5% over the next few years. Source: Crisinfac & PINC Research

Peaking capacity utilisation and stable prices

Soda Ash Consumption in India (CY06)
Presently, the soda ash industry is operating at ~90%
capacity utilisation. While an additional ~700k mt is
Soaps & Detergents
Others
32%
expected in next two years, but a steady increase in
27% demand is likely to help sustain prices at around
current levels of ~Rs 10,000/mt.
Domestic demand for soda ash was ~2.8 mn mt in
FY07 as compared to production of ~2.4 mn mt with
Chemicals
9% the difference being met through imports. Imports
largely cater to demand emanating from the coastal
Silicates Glass consuming regions, which find it more economical
11% 21%
(in terms of freight) to import vis-a-vis transporting
Source: Crisinfac
from other parts of country.
The demand for soda ash is expected to grow at a
The glass industry accounts for 21% of the total CAGR of ~5% over the next few years owing to the
demand for soda ash. Due to acceleration in buoyancy in demand in consuming sectors like soaps,
construction activity over the last few years along with detergents and glass. Thus, we expect demand to grow
rising demand for automobiles has resulted in higher to 3.3 mn mt in FY10.
offtake of soda ash. For last 3 years the industry grew
at a rate of ~10%, we expect the glass industry to grow Global scenario
by ~11% annually over the next few years. Globally, the total demand for soda ash is 43 mn mtpa
which is likely to grow at a rate of 4% due to higher
Soda Ash Domestic Market Share (CY06)
demand from Asian and East European countries. US
Nirma and China account for more than 50% of global
26% production owing to abundance of natural soda ash,
TAC
flat land and long coastline in these countries.
5%
DCW Presence of natural soda ash is limited to US, Kenya,
GHCL 4%
22%
Tanzania and Ukraine & parts of China. As a result,
Others bulk of consumers have to rely on synthetic soda ash,
11% which accounts for 73% of the world production.

TCL
Against the concentration of natural soda ash in the
32% above nations, the bulk of demand is emanating from
Southeast Asia and Middle East.
Source: Company

5
18
 BUSINESS SEGMENTS TATA CHEMICALS LTD.

Major Exporting & Importing Countries

ope
al Eur
z C entr
z
USA z
z Eastern Asia
z z China z
z

z
z
Synthetic Soda Ash z z
Latin America Africa
Natural Soda Ash z Australia

Exporting Hubs

z Importing Hubs

Source: World Soda Ash Conference & PINC Research

While cost of producing natural soda ash is ~50% of TCL exports ~15% of its soda ash produce to the
synthetic soda ash, the high freight costs in neighbouring, south east Asian countries and Oman
transporting natural soda ash from US and Africa to & UAE in the middle east.
the Asian region restricts the supply . Also, there is Brunner Mond- 'Expanding capacity and markets'
increasing pressure on some US-based soda ash
players due to environmental considerations. To set up a global footprint and to expand capacity,
TCL acquired 100% stake in Brunner Mond Group in
Further, 3 major Chinese manufacturers have been
Feb‘06. This helped TCL expand its soda ash capacity
forced to relocate their plants due to environmental
by 1.6 mn mtpa.
concerns, which are expected to take 18-24 months to
recommence operations. Global Soda Ash Consumption (CY06)
Thus, global soda ash prices are expected to remain
firm despite additional capacity of ~3 mn mt to be Water treatment
Glass
commissioned in Middle-east in the next couple of 51% 2%
years, growing demand is likely help prices stabilize Pulp & Paper
at current levels of ~$200 /mt. 2%
Consumption pattern and export opportunities
Soaps & Detergents
As compared to a 21% share in India, glass industry 11%
globally accounts for 51% of soda ash manufactured
while detergents constitute 11% of demand. The Others Chemicals
increasing construction activity in China led by 8% 26%
Olympics and World Trade Fair is driving offtake of glass.
Source: Cris infac

6
19
 BUSINESS SEGMENTS TATA CHEMICALS LTD.

Brunner Mond Volumes in FY07 ('000 MT) We expect profitability to improve in FY08 as revenues
from additional capacity will be reflected in FY08. TCL
had undertaken a program 'STEP', which aimed at
Particulars Europe Africa Total increasing efficiency and reducing costs.
Sales 1,209 364 1,573 Restructuring staff cost
Production 1,188 382 1,470
Further, to trim down its retirement costs, BMG has
Source: Company shifted from ‘defined benefit plan’ to ‘defined
TCL acquired 100% stake in Brunner Mond Group Ltd, contribution plan’. As per the plan, BMG will have
UK (BMG) in Feb’06 in two phases through its wholly to contribute a defined amount to the retirement
owned subsidiary Homefield Pvt UK Ltd. for ~Rs 8 bn. benefit fund and will now not be responsible for
BMG is engaged in manufacturing soda ash (sodium the performance of the fund and the returns
carbonate), which also yields sodium bicarbonate, thereon.
calcium chloride and other alkaline chemicals. At the time of acquisition of BMG, the pension fund
Globally, BMG has four plants, two plants in had an unfunded liability of Rs. ~3.5bn, which is to
Northwich, UK (capacity-900K mt), one in Delfzijl, be funded over a period of 10 years. Currently, the
Netherlands (capacity-330K mt) and one in Magadi, unfunded status is Rs 3.34 bn.
Kenya (capacity-720K mt) which produces natural Delay in new capacity at Magadi
soda ash. Due to teething problems, production at the new
In UK and Netherlands, synthetic soda ash is Magadi capacity could not be commercialised in
manufactured using brine, coke and limestone Q1FY08 but the capital charges were accounted for,
through the Solvay process (ammonia-soda process). which impacted the profitability. . Production is likely
In Q3FY07, BMG increased its capacity in Kenya by to commence in Q3FY08 in a phased manner and
~350k mtpa. It caters specially to the glass achieve peak capacity utilisation by Q4FY08.
manufacturers as the soda ash manufactured here is (Production was planned to commence in Q3FY07, it
refined to remove the fluoride content. has been delayed by over 3 quarters till date). TCL will
market the additional production in the Asia-Pacific
Natural soda ash and South East Asian region.
In Kenya, soda ash is extracted from trona (source With acquisition of BMG, TCL has been able to expand
for natural soda ash and is self replenishing) from its market significantly due to the cost and locational
lake Magadi. Trona is mineral deposit of hydrated advantages. It now has a footprint in Europe and
sodium bicarbonate carbonate formed by increased its presence in African and Mid-East region.
evaporation of water, which is deposited on lake
beds or beneath them. They occur naturally in US,
Europe and parts of Africa. Trona is dredged from TCL & BMGL Combined Markets
the lake and is then heated for producing soda ash. Asia Europe Middle-East &
Trona is a self renewing resource depending upon Africa
the salinity of water and climatic conditions. Thus, India UK Oman
higher salinity and hot conditions enable recovery Bangladesh Netherlands UAE
of larger amounts of soda ash through evaporation.
Srilanka Germany Kenya
The company has extended the lease of Lake Magadi
to 2053, which will ensure a steady supply of 1 mn Indonesia France South Africa
mt of soda ash p.a. Thailand Belgium Nigeria
Pakistan Sweden Saudi Arabia
In FY07, BMG posted a revenue of Rs 16.5 bn with an
operating profit of Rs 2.6 bn and net profit of Rs 630 Philippines Ireland Morocco
mn. Vietnam Norway
Malaysia Denmark
The European operations provide a lower margin due
to higher labour cost and fuel charges. The OPM is Source: Company
less than 10% from European operations. Markets added through BMG

7
20
 BUSINESS SEGMENTS TATA CHEMICALS LTD.

Little upside due to increased prices Branded Salt Market Share

Lately, there has been an increase in spot prices Annapurna
(~$240/mt) of soda ash. TCL has entered in long term 22%
price contracts for >80% of production of soda ash, Captain Cook
hence the firm prices are unlikely to contribute 5%
significantly to the profitability. Tata Salt Aashirwaad
47% 4%
Salt business-’The cash cow’
TCL is the market leader in branded edible salt
industry with a market share of ~47% in the segment. Nirma
15%
It produces varieties of edible salt to cater to various
consumer segments. The company manufactures salt Others
7%
at Mithapur (capacity of >0.5 mn mtpa) and the
division contributes 9% to the total standalone Source: Company & PINC Research
revenues of TCL. The total domestic demand for industrial salt is
~8.5 mn mtpa while for edible salt it is ~7.7 mn
Salt Sales (mn mt) & Realisation (Rs/mt)
mtpa. Iodised salt constitute ~4.9 mn mtpa (65% of
Salt sales(quantity -mn mt) Realisation/ mt the total edible salt) out of which only ~1 mn mt is
0.7 7,000 branded. The domestic demand for edible salt is
0.7
0.6

not likely to increase significantly, but rapid

0.6
0.6

0.6 6,349 6,418 6,500

urbanization and development of organized retail
0.5

0.5 5,766 6,000 sector has led to an increase in consumption of

0.5

branded salt and there is an immense potential for

0.4

5,486 5,449
0.4 5,255 5,500 growth in branded segment.
5,051
0.3 5,000
In the last 4 years, TCL’s salt business has grown at a
CAGR of 11% in terms of revenue. In FY07 it sold 475k
FY03

FY04

FY05

FY06

FY07

FY08E

FY09E

mt of 'Tata Salt'. Total salt sales exceeded 0.5 mn mt

and realised ~Rs 3.5 bn in revenues.
Source: PINC Research

The domestic salt industry is dominated by the To gain a stronger foothold in south India by
unorganised sector. The total domestic production is targeting semi-urban & rural areas, TCL launched
~19.6 mn mtpa (edible & industrial), Gujarat, Tamil a new brand of salt "I-Shakti" priced competitively
Nadu and Rajasthan contribute more than 90% of the at Rs 2 less than the flagship brand. It also launched
total production. ~3.5 mn mt of salt is exported to the 'Topp Salt' brand in FY05 for export to Middle-
Japan, Philippines, Indonesia, Malaysia, Nepal, and East, Asia and African markets. Entry into new
Bhutan etc. markets, introduction of variants and segmenting
the customer is likely to boost the performance of
Domestic Salt Industry Structure (mn mt) the salt business.
Exports Cement-’Adding value’
3.8
Unbranded The cement division is a part of the inorganic
6.7 chemical division, it was set up to utilise the waste
Edible Salt
7.7 generated by production of soda ash & salt.
In FY07, TCL earned revenue of Rs 1.9 bn from sale of
512k mt of cement. With increasing demand, TCL has
been operating at more than rated capacity.
Branded Due to increase in production capacity of soda ash
Industrial salt 1.0
8.5
and salt, the cement capacity will also be ramped up
in FY08 from the current capacity of 440k mtpa to
Source: Indiastats & PINC Research ~800k mtpa.

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21
 BUSINESS SEGMENTS TATA CHEMICALS LTD.

Cement Sales (mn mt) & Realisation (Rs/mt) Industry Scenario

Cement (quantity -mn mt) Realisation/ mt
Increasing demand for food grains, improving
0.7 4,000
irrigation facilities and growing agri-business focus
3,773 3,773 is driving demand for fertilisers. Demand for urea grew
3,396 by ~2.5% CAGR to ~24 mn mt since FY2000 while
0.6 3,500
demand for DAP and NPK fertiliser grew by ~5%

0.6
2,908
CAGR over the same period to 15 mn mt.
0.5

0.5 3,000

0.5
0.5
0.5
0.4

2,409 However, due to shortage of raw materials and an

0.5

0.4 2,251 2,500 unfavourable fertiliser policy, no new capacity has

2,419 been added since FY99. As a result, ~4.7 mn mt of
0.3 2,000
urea and ~4 mn mt of complex fertilisers & DAP were
FY03

FY04

FY05

FY06

FY07

FY08E

FY09E
imported in FY07 at a cost of Rs 15k/mt whereas the
domestic cost is ~Rs9k/mt.
Source: PINC Research
Fertiliser- ‘In policy shackles’ Consumption of Fertiliser in India (mn mt)
TCL manufactures urea and complex fertilizers at its DAP NPK Urea
Babrala (capacity-865k mtpa) and Haldia plant 12.0 32.0
(capacity of ~800k mtpa) respectively. Both the plants 9.0 24.0
at Babrala and Haldia operated at more than full
capacity in FY07. 6.0 16.0
To benefit from the new urea policy which allows the 3.0 8.0
manufacturers to keep gains from production above
110% capacity , TCL is undertaking de-bottlenecking 0.0 0.0
measures at Babrala, which will increase the capacity

FY07E

FY08E

FY09E
FY00

FY01

FY02

FY03

FY04

FY05

to ~1.2 mn mtpa by Q4FY09. Babrala boasts the
reputation of being the most energy efficient plant in
the country.
Economies of scale due to increased capacity
utilisation will further improve TCL's profitability.
The fertiliser segment contributes ~59% to revenues
and ~40% to profitability. In FY07, TCL earned a
revenues of Rs 8.6 bn from sale of ~1 mn mt of urea,
which accounted for more than 4% of domestic
demand. The urea division contributed ~33% to the
fertiliser division revenue and ~21% to the total
revenues.
Urea Sales & Realisation (Rs/mt)
Urea sales (quantity -mn mt)
1.2
8,628
8,491
1.1
FY06
Source: Crisinfac & PINC Research
As per the latest urea policy, manufacturers are not
required to share the profits if they manufacture
fertilisers beyond 110% of capacity. This is expected
to act as an incentive to the industry to increase
production vis-a-vis importing the same.
Under provisioning of subsidies
The subsidy bill has increased substantially due to
increase in raw material prices, increased fertiliser
consumption, increase of costlier imports without
corresponding increase in endgate prices.
In FY07, due to under-provisioning of subsidy, there
Realisation/mt was a substantial delay in disbursal of subsidies,
9,000 thereby impacting profitability of the sector. As a
8,661 result, many manufacturers have consistently
8,834
8,500 curtailed production to avoid a bloated receivables
situation and extended working capital cycles.
1.1

1.0 7,601 8,000

1.0

7,679
To add to the existing woes, only Rs 220 bn was
1.0

0.9 7,500 budgeted as subsidy in the budget for FY08 against

1.0

7,181
1.0

requirement of ~Rs 420 bn (Source-Fertiliser

FY04 0.9
FY03 0.9

0.8 7,000
Association of India). Further, Rs 115 bn of subsidies
FY08E

FY09E
FY05

FY06

FY07

that are pending for FY07 which will have to be paid

from the budgeted amount.
Source:PINC Research

9
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BUSINESS SEGMENTS
Issue of Fertiliser bonds & additional provisioning
In Aug’07, the government of India has propose to
issue fertiliser bonds of Rs 75 bn. The bonds will be
freely tradeable in the market. It has further provided
for Rs 75 bn for the subsidy (net cash outgo-Rs 65 bn
and 10 bn from recoveries of crop husbandry). This is
likely to improve the profitability of manufacturers as
they will have lower liquidity crunch and lesser
interest cost. Due to lower working capital
requirement, the production of fertiliser is also likely
to increase.
However the subsidy bill is still under-budgeted
(expected subsidy is ~500 bn while only 370 bn has
been budgeted including the proposal) and the
issuance of bonds has just postponed the
immediate concern. The concern of ballooning
subsidy bill still looms large, the bonds will be
accounted as off balance sheet contingent liabilities,
hence the fiscal deficit and the borrowings are
artificially suppressed.
Sustaining on imported fertiliser is not feasible in the
long run as it is substantially costlier than domestically
manufactured fertilisers. Being the third largest
consumer of fertilisers globally, any increase in
imports will lead to a sharp appreciation in global
prices, making imports even more expensive.
Raw material a critical issue
Sourcing and the cost of the raw material has been a
constant concern to the industry and the government.
Naphtha, natural gas & fuel oil are being used
interchangeably as feedstock for manufacturing of
ammonia which is in turn used for manufacturing
urea. Fertiliser industry, specially the nitrogenous is
very energy intensive. Energy sources are used as
feedstock and also for power & fuel requirements.
Feedstock-Wise Share for Nitrogenous Fertiliser
Fuel Oil & others
9% Outsourced
14%
Mixed feedstock
10%
Naphtha
26%
Natural gas
41%
TATA CHEMICALS LTD.
Of the total domestic nitrogenous capacity, 86% has
captive ammonia production while 14% is outsourced.
Of the entire capacity of ~20 mn mtpa, 41% is based
on natural gas, 26% on naphtha, 10% on mixed fixed
stock while 9% uses fuel oil and other feedstocks.
The raw materials are subsidised by the government
at specific prices fixed by the government.
Prices of naphtha has been inflationary
(currently~$16/mt) and is more than 2 times costlier
than gas (~$6/mmbtu), causing the subsidy bill of
the government to balloon. To reduce the cost of
production and contain the subsidy bill, the
government is encouraging the manufacturers to
replace naphtha by natural gas.
However, the amount of gas being produced in the
country presently is insufficient to meet the entire
demand from the industry. The additional gas being
produced is used for power generation. Further, all
the manufacturers are not located in the vicinity of
the gas supplying pipelines. The government policy
is not conducive either for transforming the plant from
naphtha to gas as the capital charges are not
subsidised by the government.
Complex Fertilisers
Phosphatic fertilisers have various combinations
which uses phosphoric acid, natural gas , rock potash
and sulphur as raw materials. Phosphoric acid is the
key raw material, which is scarce leading to firming
up of prices. While the distribution of phosphatic
fertiliser is deregulated, the prices of these are
regulated.
To ensure uninterrupted supply, TCL entered in a JV
with IMACID, a manufacturer of phosphoric acid. The
JV ensures a constant supply of phosphoric acid at a
price that is fixed annually. While phosphatic fertiliser
prices are also regulated to a certain extent, the
distribution of these fertilisers is deregulated. The
import price of phosphoric acid have been fixed at
~$566/mt (vs. $461/mt in FY07).
TCL sold ~750k mt of phosphatic fertiliser, which
constituted ~5% of domestic demand and earned
revenue of Rs 15.6 bn (inclusive of Rs ~4 bn revenue
from trading of complex fertilisers). To utilise its huge
network of Tata Kisan Sansar and cater to the growing
demand of fertiliser, TCL also trades in complex
fertiliser which added Rs ~4 bn to its revenue.
The complex fertiliser segment contributed ~60% to
revenues of fertiliser division and 38% to total
standalone revenues in FY07.
10
23
 N E W I N I T I AT I V E S
International Business
IMACID- ‘A strategic JV’
For assured supply of phosphoric acid, TCL entered
into a 33% strategic joint venture named Indo Maroc
Phosphore S.A. (IMACID), Morocco with Office
Chérifien des Phosphates, Morocco, (OCP) and
Chambal Fertiliser & Chemicals Ltd. TCL acquired 16.6%
stake each from the previous two joint venture partners
for a consideration of Rs 1.7 bn.
TCL has entered into a volume contract with IMACID
to meet its phosphoric acid requirements for
manufacturing complex fertilizers.
IMACID was promoted in 1997 as a 50:50 JV between
Office Chérifien des Phosphates, Morocco, (OCP) a
state-owned company incorporated in the Kingdom
of Morocco and Chambal Fertilisers and Chemicals Ltd.
In FY07, TCL’s share of IMACID's revenue stood at Rs
2.7 bn with an operating profit of Rs 580 mn and a net
profit of Rs 240 mn. It supplied 145k mt of phosphoric
acid to TCL for the year.
Product Matrix
TCL’s various business segments can be plotted in
the BCG matrix given the growth rate of the respective
industries and the market share of TCL. The salt
business is classified as a star since TCL is the market
leader in the branded segment and the industry is
expected to witness a higher growth rate . The salt
industry is likely to grow at ~4% but due to increased
health consciousness and organised retailing the
branded segment is expected to grow at a higher rate.
Product Portfolio
Stars Question marks
High Soda Ash Fertiliser
Salt
Business
Growth Rate
Low
Cash Cow Dogs
High
Relative Position (Market Share)
Source: PINC Research
TATA CHEMICALS LTD.
To meet the growing demand and to maintain its
leadership position, TCL will have to augment its
capacity and explore new markets.
Soda ash also has been classified as a star because
TCL is the market leader in this segment and the
industry is expected to grow at a rate of more than 5%.
Considerable amount of capex has been planned for
the division for capacity expansion. Further
consolidation of its position in the market will be an
uphill task, the sustained demand in the domestic
industry will help the division generate profits.
Fertiliser business has been classified as a question
mark due to its low national market share and a
moderate growth of the industry. The fertiliser policy
and mounting subsidy arrears are not conducive for
the growth of the industry.
Regulation of urea sales and high freight cost prevent
the companies from increasing their market share .
Hence, the fertiliser sector will continue to be in the
question mark category. However, it has been
generating substantial cash for the organisation.
New Initiatives
Strengthening its core competency in manufacturing
of soda ash, TCL plans to set up a natural soda ash
producing unit in Tanzania.
It is also leveraging its distribution network of Tata
kisan Sansar for procurement of fresh produce.
TCL is also diversifying in producing bio-fuels, an
industry which is in nascent stage in India.
Soda ash- ‘Expanding in Tanzania’
TCL plans to set up a soda ash plant near Lake Natron
in Tanzania and has signed an MOU with Govt. of
Tanzania for the same.
Lake Natron is a source for natural soda ash and a
feasibility study has been undertaken to ensure
viability of the project. Results of the study are due to
be declared in Q2FY07 and if found feasible, the
project will have a gestation period of ~3 years. Also,
any work in and around the area will require
environmental clearance from the government as it
is a protected area and a tourist attraction. While
Low salinity of the water is lower than that at Lake Magadi,
the larger size of the lake will help extract higher
volumes.
11
24
 N E W I N I T I AT I V E S TATA CHEMICALS LTD.

'Khet Se' - Joint venture with 'Total Produce' Most of the developed countries have initiated
TCL has entered in a 50:50 joint venture with 'Total manufacturing bio-fuels due to scarcity of fossil fuels
Produce' of Ireland for distribution of fresh fruits and and environmental concerns. To promote the same,
vegetables across India. The JV has been named as various countries are subsidizing and providing
'Khet Se'. incentives for setting up bio-fuel units. TCL is an early
mover in the industry in India. Increasing awareness
The JV plans to consolidate the supply chain from about benefits of bio-fuel and growth of the industry
producer-to-end consumer by directly sourcing from will provide a big fillip to the performance of TCL.
farmers and supplying to wholesalers and retailers.
Consolidation of supply chain will help increase Financial Performance
efficiency, improve the shelf life of products and In Q1FY08, TCL reported 11% fall in sales to ~Rs 6.7
reduce product losses. bn owing to fall in revenue from both fertilisers and
inorganic chemicals.
TCL has more than 600 centers of Tata Kisan Sansar, Revenue from inorganic chemicals and fertiliser both
which have established relationships with farmers witnessed a fall by~5.3% to Rs 3.5 bn and by 17.3% to
through selling of agri-inputs and advising on crop Rs 3.2 bn respectively.
patterns and soil testing. These centers will be utilized Sale of urea declined by 2.4% to ~200k mt while sales
for sourcing the produce. of phosphatic fertiliser fell sharply by 44% to 61k mt.
Total Produce is Europe's largest fresh produce Soda ash sales declined by 9.2% to 164k mt while
provider with a presence across farming, packaging salt sales increased by 5.4% to 118k mt.
and distribution. It has an annual turnover of ~Euro 2 Cost of raw materials (as a % of net sales) declined by
bn and has operations throughout Europe. TCL will 350 bps to 29% due to liquidation of old inventory.
be able to leverage Total Produce’s expertise in Due to lower trading activities, cost of traded goods
sourcing, packaging and supply chain management. declined by 32% to Rs 323 mn.
Power & fuel and freight & forwarding charges
TCL plans to open two centers in Kolkata and
declined by 18% and 6% respectively to Rs 739 mn
Ludhiana in FY08 and then plans to set up 40 centers
and 621 mn due to lower production and sales.
pan-India at a capex of Rs 560 mn.
Liquidation of old inventory and more than
Rapid urbanization and increase in organized retail proportionate decline in expenses pushed up the
will provide impetus to the fresh produce business. OPM, which increased by 340 bps to 24.4%. However,
Efficient supply chain management and better market due to lower volumes, operating profit increased by a
reach will further add value. paltry 3% to Rs 1.6 bn.
Bio-fuel- ‘A new story’ Other income increased by 124% to Rs 121 mn,
depreciation was flat at 367 mn while net interest
With depletion of fossil fuel reserves globally, bio-fuels
expenses declined by 61% to Rs 3 mn.
are an emerging opportunity. TCL has taken the
initiative for manufacturing of bio-diesel. It has set
up an innovation centre in Pune where 20 scientists Sales & Production Volumes (Standalone)
are developing products and processes via Sales (mt)
application of bio and nanotechnology. Q1FY08 Q1FY07
It is setting up a bio-ethanol plant in Parbhani, Urea 200,244 205,207
Maharashtra with an initial capacity of 30 kiloliters/ Soda ash 164,155 180,786
Salt 118,200 112,150
day. It is likely to start construction of the plant in FY08,
Phopshatic fertilisers 61,257 109,475
which is scheduled to be commissioned in FY09.
Production (mt)
Capacity will be scaled upto 100 kiloliters/day over
the next few years. Q1FY08 Q1FY07
Urea 216,947 246,855
The plant will use sweet sorghum as the feedstock. Soda ash 170,754 188,536
Though it is not cultivated in volume in the region, Salt 116,615 112,553
TCL will leverage its reach with farmers and expertise Phopshatic fertilisers 143,572 202,231
in contract farming for cultivation of the crop. Source: Company

12
25
 FINANCIAL PERFORMANCE TATA CHEMICALS LTD.

TCL incurred translation gains of Rs 378 mn (vs a loss FY07 Revenue Break-Up (Standalone-Rs 40 bn)
of Rs 162 mn in Q1FY07) due to appreciation of rupee.
The extraordinary gains pushed up the net profits, STPP
which grew by 61% to Rs 1.2 bn. Phosphatics 4%
Its 100% subsidiary, BMG posted sales of Rs 4.3 bn, Fertilisers Others
38% 5%
operating profits of Rs 680 mn (OPM of 15.9%) and
net profit of Rs 160 mn in. BMG accounted for interest
and depreciation expenses of the expanded capacity
Cement Soda Ash
at Magadi, which impacted overall profitability. 5% 18%
IMACID, its 33% JV, reported sales of 690 mn,
operating profit of Rs 200 mn (OPM of 29%) net profit Urea
21% Salt
of Rs 110 mn. 8%
Consolidated net sales of TCL were Rs 11.3 bn with Source: Company
operating profit of Rs 2.5 bn and net profit of Rs 1.4 bn.
Other income increased by 63% to Rs 943 mn due to
In FY07, TCL reported 14% increase in sales to ~Rs 40 maiden dividend received from Tata Industries, while
bn. Revenue from inorganic chemicals and fertiliser depreciation increased by 8% to Rs1.5 bn.
both grew by~13.5% to Rs 15 bn and Rs 24.9 bn
respectively. The interest expenses were Rs 48 mn in FY07 against
Sale of urea increased by 7% to ~1 mn mt while sales a net interest gain of Rs 148 mn in FY06 owing to an
of phosphatic fertiliser increased by 7% to 710k mt. interest on refund of taxes Rs 255 mn.
Soda ash sales were up by 2% to 721k mt while salt The appreciating rupee benefited TCL on account of
sales increased by 3% to 475k mt. Cement division translation gains on FCCBs issued in FY05. This
clocked a volume of 512k mt in FY07. resulted in an extraordinary gain of Rs 80 mn as
Cost of raw materials increased by 24% to 16 bn due against a loss of Rs 161 mn in FY06. TCL had raised a
to firm raw material prices . Due to increase in import 5-year zero-coupon FCCB of $150 mn in FY05
price of fertilisers, TCL scaled down its trading convertible into equity @ Rs 230.78/share at a fixed
activities. As a result, cost of traded goods declined exchange rate of Rs 43.65/$.
by 15% to Rs 3.9 bn. The extraordinary gain negated the impact of rise in
Power & fuel and freight & forwarding charges net interest expenses and consequently, net profits
increased by 22% each to Rs 3.9 bn and 2.7 bn grew by 26% to Rs 4.4 bn.
respectively as a result of higher freight costs. Consolidated net sales of TCL were Rs 59.7 bn with
Inspite of rising costs, OPM increased by 34 bps to operating profit of Rs 10 bn and net profit of Rs 5.1 bn.
17.2% due to reduction of trading component, which
Subsidiaries’ performance
earn lower margins. Consequently, operating profit
increased by 18% to Rs 6.9 bn. Its 100% subsidiary, BMG posted sales of Rs 16.5 bn,
operating profits of Rs 2.6 bn (OPM of 15.9%) and net
Sales & Production Volumes (Standalone) profit of Rs 630 mn in FY07. In H2FY07, BMG
Sales (mt) accounted for interest and depreciation expenses of
FY07 FY06 the expanded capacity at Magadi, which impacted
Urea 1,017,000 954,000 overall profitability for the fiscal.
Soda ash 721,947 707,000 IMACID, its 33% JV, reported sales of 2.7 bn and net
Salt 475,000 461,000
Phopshatic fertilisers 710,000 662,000 profit of Rs 240 mn in FY07.
Production (mt) Capex
FY07 FY06
TCL intends to invest Rs 4.5 bn over next 3 years in
Urea 1,011,000 960,000
India. At Mithapur, Rs 2.5 bn will be invested in
Soda ash 757,000 738,000
Salt 443,000 436,000 increasing soda ash capacity to 1.2 mn mt, cement by
Phopshatic fertilisers 759,000 687,000 100% to 1 mn mt as well as its salt capacity. TCL has
Source: Company

13
26
 OUR VIEW TATA CHEMICALS LTD.

Financial Performance Du-Pont Analysis

FY05 FY06 FY07 FY08E FY09E
Sales Operating profit Net Profit
80,000 9,000 NPM (%) 11.3 10.6 8.7 9.3 9.8
Asset Turnover (x) 0.8 1.0 1.3 1.3 1.3
60,000 7,000 Asset/Equity (x) 1.8 1.9 1.9 1.6 1.4
(Rs mn)

ROE (%) 17.0 20.3 21.2 19.6 18.6

40,000 5,000
Source: PINC Research
20,000 3,000
TCL is a cash rich company with cash and equivalents
0 1,000
of Rs 5.6 bn at end-Mar’07. It has further investments
FY08E

FY09E
FY05

FY06

FY07

of Rs 1.4 bn on its books, the market value of which is

currently Rs. 13.5 bn.
Source: PINC Research At CMP of Rs 245, TCL is trading at a P/E of 8.3x, EV/
Sales of 0.9x and EV/EBIDT of 4.7x discounting its FY09E
initiated debottlenecking for its urea capacity at consolidated estimates. We believe that post Magadi
Babrala at a cost of ~ 1.5 bn, which is expected to be expansion, BMG should be able to generate higher OPM.
completed in 18 months. TCL will invest ~Rs 500 mn With its expansions underway, TCL should deliver a
in its phosphatic fertiliser plant for debottlenecking. superior performance over the next few years.
Globally, TCL plans to grow inorganically in its Hence, we reiterate our ‘BUY’ recommendation with
fertilisers business. It plans acquisitions/greenfield a price target of Rs 320 on a one year investment
capacities in locations with availability of cheaper gas. horizon.
The Tanzania project is currently undergoing Concerns:
feasibility studies. 1. Adequate availability of gas at feasible prices is
crucial for optimal performance of the urea
The company has investments worth Rs 13.5 bn and business and shortage of the same will impact
huge cash reserves, we expect TCL to acquire companies profitability.
globally also for production of natural soda ash. 2. The chemicals business has high sensitivity to
Outlook movement in prices of phosphorus, coke and
We expect consolidated net sales to grow by 12% to sodium compounds. Thus, any appreciation of
Rs 65 bn in FY08 and by 12% in FY09 to Rs 73 bn due to prices beyond government recommended levels
contribution from additional capacity at Magadi and will force the company to absorb the higher costs
Mithapur. OPM is expected to be in range of 17%-17.5%. as the same will not be reimbursed in the form of
TCL should be able to post an operating profit of Rs 11 subsidy.
bn in FY08 and Rs 13 bn in FY09. We expect net profits 3. Mounting subsidy arrears and consequent
to grow by 19% to Rs 6.1 bn in FY08 and by 18% to Rs stretching of working capital cycle will impact
7.2 bn in FY09. financing costs.

Median PE v/s Daily PE PE Band

Daily PE Median PE 500
20
15x
375
15 12x

250 9x
10
6x
5 125
3x
0 0
Apr-03

Apr-04

Apr-05

Apr-06

Apr-07
Apr-03

Apr-04

Apr-05

Apr-06

Apr-07

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 TATA CHEMICALS LTD.
R E S U LT S T A B L E

Financial Results for the quarter ended Jun’30, 2007

Quarter Ended Year Ended
Particulars (Rs Mn)
30/06/07 30/06/06 % chg. 31/03/07 31/03/06 % chg.

Net Sales 6,689 7,547 (11.4) 58,096 40,290 20.00

Total Expenditure 5,057 5,961 (15.2) 48,030 32,930 45.9
(Inc)/dec in stock in trade (1,304) (1,716) - 215 (1,014) -
Consumption of raw material 3,245 4,169 (20.9) 19,320 14,660 31.8
Staff cost 388 342 13.5 3,480 4,619 (24.6)
Cost of traded goods 323 474 (31.9) 4,071 1,489 173.5
Stores, Spare Parts & Consumed 413 429 (3.8) 2,445 2,056 18.9
Power and Fuel 739 897 (17.6) 7,640 4,223 80.9
Freight & Forwarding Charges 621 659 (5.8) 4,603 3,112 47.9
Other expenditure 633 707 (10.4) 6,256 3,785 65.3
Operating profit 1,632 1,586 2.9 10,067 7,360 36.8
Other Income 121 54 124.3 943 818 15.3
PBDIT 1,753 1,640 6.9 11,009 8,178 32.9
Interest 3 8 (61.0) 909 284 220.1
Depreciation 367 365 0.6 2,739 1,840 48.8
PBT & extra-ordinary items 1,383 1,267 9.1 7,361 6,053 21.6
Provision for current tax 540 341 - 2,350 1,972 -
Provision for deferred tax - - - 51 (304) -
Fringe benefits 10 10 - - 55 -
Extraordinary items (379) 162 - (120) 47 -
Net Profit 1,212 754 60.8 5,080 4,283 18.6

Equity Capital (F.V. Rs 10) 2,152 2,152 - 2,152 2,152 -

Diluted equity 2,435 2,435 - 2,435 2,435 -
Reserves (excl. rev. res.) - - - 23,567 20,042 -
Basic EPS (Rs) 5.6 3.5 60.8 23.6 19.9 18.6
Diluted EPS (Rs) 5.0 3.1 - 20.9 17.8 -
Book Value (Rs) - - - 119.5 103.1 -

OPM (%) 24.4 21.0 - 16.9 17.7 -

NPM (%) 18.1 10.0 - 8.7 10.6 -

Expenditure (% of Net Sales)

Raw materials (incl. stock adj.) 29.0 32.5 - 33.6 33.9 -
Staff cost 5.8 4.5 - 6.0 11.5 -
Cost of traded goods 4.8 6.3 - 7.0 3.7 -
Stores, Spare Parts & Consumed 6.2 5.7 - 4.2 5.1 -
Power and Fuel 11.0 11.9 - 13.1 10.5 -
Freight & Forwarding Charges 9.3 8.7 - 7.9 7.7 -
Other expenses 9.5 9.4 - 10.8 9.4 -

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SEGMENTWISE ANALYSIS TATA CHEMICALS LTD.

Segmentwise results for the quarter ended Jun’30, 2007 (Standalone)

Quarter Ended Year Ended
Particulars (Rs Mn)
30/06/07 30/06/06 % chg. 31/03/07 31/03/06 % chg.

Segment Revenue
Inorganic Chemicals 3,532 3,729 (5.3) 15,041 13,266 13.4
Fertilisers 3,157 3,818 (17.3) 24,869 21,909 13.5
Total 6,689 7,547 (11.4) 39,910 35,175 13.5
Net Sales 6,689 7,547 (11.4) 39,910 35,175 13.5

PBIT
Inorganic Chemicals 914 913 - 3,651 3,214 13.6
Fertilisers 529 516 2.6 2,434 2,007 21.3
Total PBIT 1,443 1,429 1.0 6,085 5,220 16.6
Less: Interest (376) 170 - 3 269 (99.0)
Less: Other Unallocable 57 155 (62.9) (256) (158) 62.3
PBT 1,761 1,105 59.4 6,338 5,109 24.1

Capital Employed
Inorganic Chemicals 8,428 8,126 3.7 9,268 9,192 0.8
Fertilisers 12,591 13,461 (6.5) 14,413 14,617 (1.4)
Total 21,019 21,587 - 23,681 23,810 -

ROCE (%)
Inorganic Chemicals 43.4 45.0 39.4 35.0
Fertilisers 16.8 15.3 16.9 13.7
Total 27.5 26.5 25.7 21.9

PBIT Marg (%)

Inorganic Chemicals 25.9 24.5 24.3 24.2
Fertilisers 16.8 13.5 9.8 9.2
Total 21.6 18.9 15.2 14.8

Sales Mix (%)

Chemicals 52.8 49.4 37.7 37.7
Bulk Fertilisers 47.2 50.6 62.3 62.3

PBIT Mix (%)

Chemicals 63.3 63.9 60.0 61.6
Bulk Fertilizers 36.7 36.1 40.0 38.4

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 F I N A N C I A L S TAT E M E N T S TATA CHEMICALS LTD.

Year Ended March (Figures in Rs Mn)

Income Statement 2006 2007 2008E 2009E Cash Flow Statement 2006 2007 2008E 2009E

Revenues 40,344 58,096 65,406 73,053 PBT & Extraord. items 6,246 7,400 8,682 10,570

Growth (%) 34.1 44.0 12.6 11.7 Depreciation 1,840 2,739 2,901 3,253
Interest & dividend inc. (536) (920) (1,193) (1,559)
Total Expenditure 32,779 47,991 54,234 60,162
Interest paid 312 944 781 627
Operating Profit 7,565 10,105 11,172 12,890
Misc Exp W/off (219) (480) - -
Growth (%) 46.7 33.6 10.6 15.4 Tax paid (875) (2,144) (2,605) (3,382)
Interest & dividend income 1,003 996 1,193 1,559 (Inc/Dec in working capital (5,121) 1,612 (5,154) (4,991)

EBIDT 8,568 11,101 12,365 14,449 Cash from operations 1,648 9,151 3,414 4,516
Net capital expenditure (1,893) (5,204) (2,500) (2,500)
(-) Interest 482 962 781 627
Net investments (incl sub.) (5,887) (2,255) - -
(-) Depreciation 1,840 2,739 2,901 3,253
Interest & dividend recd 703 923 1,193 1,559
PBT & extraordinary items 6,246 7,400 8,682 10,570 Cash from inv. activities (7,077) (6,536) (1,307) (941)
(-) Tax provision 1,668 2,350 2,605 3,382 Issue of eq. shares - - - -

Net Profits 4,523 4,999 6,078 7,188 Preference Shares Repaid - - - -

Change in debt 1,004 369 651 (100)
Fully diluted Eq. sh. O/s (mn no) 215 215 244 244
Dividend paid (1,589) (1,716) (2,204) (2,547)
Book Value (Rs) 103 120 149 168
Interest paid (557) (953) (781) (627)
Basic EPS (Rs) 19.9 23.6 28.2 33.4 Cash from fin. activities (1,142) (2,300) (2,334) (3,273)
Diluted EPS (Rs) 17.6 20.9 24.9 29.5 Inc/Dec. in cash (6,571) 316 (228) 303

Balance Sheet 2006 2007 2008E 2009E Key Ratios 2006 2007 2008E 2009E

Equity Share Capital 2,152 2,152 2,436 2,436 EBIDT (%) 21.2 19.1 18.9 19.8

Reserves & Surplus 20,042 23,567 33,849 38,490 ROACE (%) 18.0 20.0 20.0 21.6

Net worth 22,194 25,718 36,285 40,927 ROANW (%) 20.3 21.2 19.6 18.6

Total Debt 18,277 18,642 12,600 12,500 Sales/Total Assets (x) 0.9 1.3 0.0 0.0

Deferred Tax liability 3,230 2,912 2,912 2,912 Debt:Equity (x) 0.8 0.7 0.3 0.3

Deferred Capital Grants 239 211 211 211 Current Ratio (x) 1.2 1.0 1.3 1.6

Capital Employed 43,939 47,484 52,008 56,550 Debtors (days) 66.1 58.3 68.4 74.9

Fixed Assets 27,794 30,561 30,159 29,407 Inventory (days) 76.7 47.6 46.0 43.4

Net current assets 2,588 926 5,851 11,146 Net working capital (days) 22.3 5.6 32.2 54.9

Investments 5,475 7,753 7,753 7,753 EV/Sales (x) 1.6 1.1 1.0 0.9

Deferred Tax Assets 936 576 576 576 EV/EBIDT (x) 7.7 6.0 5.5 4.7

Misc exp. 70 37 37 37 P/E (x) 12.3 11.7 9.8 8.3

Total Assets 43,939 47,484 52,008 56,550 P/BV (x) 2.4 2.1 1.6 1.5

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 Team

Equity Desk
R. Baskar Babu - Head - Equity Broking baskarb@pinc.co.in 91-22-66186465
Sachin Kasera - Co-Head - Domestic Equities sachink@pinc.co.in 91-22-66186464

Research
Sameer Ranade - Capital Goods / Utilities sameerr@pinc.co.in 91-22-66186381
Ajit Dange - Banking / Financial Services ajitd@pinc.co.in 91-22-66186377
Sujit Jain - Real Estate / Construction sujitj@pinc.co.in 91-22-66186379
Amol Rao - Hospitality / Pipes / Packaging amolr@pinc.co.in 91-22-66186378
Nirav Shah - Sugar / Textiles niravs@pinc.co.in 91-22-66186383
Nakul Dharmawat - Cement / Building Products nakuld@pinc.co.in 91-22-66186382
Rishabh Bagaria - Auto / Auto Ancilliary rishabhb@pinc.co.in 91-22-66186391
Ruchir Desai - Technology ruchird@pinc.co.in 91-22-66186372
Syed Sagheer - Logistics / Light Engineering syeds@pinc.co.in 91-22-66186390
Chandana Jha - Banking / Financial Services chandanaj@pinc.co.in 91-22-66186398
Rahhul Aggarwal - Metals rahhula@pinc.co.in 91-22-66186388
Dipti Solanki - Media diptis@pinc.co.in 91-22-66186392
Faisal Memon - Associate - Metals faisalm@pinc.co.in 91-22-66186389
Ashish Dangi - Associate - Lifestyle / Retail Products ashishd@pinc.co.in 91-22-66186481
Ashwani Agarwalla - Associate - Agro Products / Fertilizers ashwania@pinc.co.in 91-22-66186482

Institutional Dealing & Sales:

Janakiram Karra / Chandrakant / Rajesh Khanna / Raju equity@pinc.co.in 91-22-66186326
Shivkumar / Manoj Parmar / Pratiksha / Prajapati equity@pinc.co.in 91-22-66186323

Derivative Desk
Sailav Kaji - Head - Derivative sailavk@pinc.co.in 91-22-66186344
Anand Kuchelan - Sr. Analyst anandk@pinc.co.in 91-22-66186344
Shailesh Kadam - Sr. Analyst shaileshk@pinc.co.in 91-22-66186349

Directors
Gaurang Gandhi gaurangg@pinc.co.in 91-22-66186400
Hemang Gandhi hemangg@pinc.co.in 91-22-66186400
Ketan Gandhi ketang@pinc.co.in 91-22-66186400
Rakesh Bhatia - Head Compliance rakeshb@pinc.co.in 91-22-66186400

18
31
 Infinity.com
Financial Securities Ltd
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Tel.: 91-22-66186633/6400 Fax : 91-22-22049195

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