Tata Chemicals: Targeting growth in soda ash and fertilizers
1:50 PM MDT | July 7, 2014 | —Lindsay Frost
Tata Chemicals Limited (TCL), the chemcial operations of the Indian conglomerate Tata Group, has been growing domestically and internationally—with a clear leadership presence in India. A global leader in soda ash—ranked number two, behind Solvay, according to IHS Chemical capacity data—a major Indian producer of salt and sodium bicarbonate, and newly in water purification and treatment, TCL is gradually expanding. Its full-year 2014 sales grew 8% year-on-year, to 158.9 billion Indian rupees ($2.64 billion), and the business has grown at 23% over the past six years.
Tata Group, founded at Jamshedpur, India, has over 540,000 employees and sales of over $96 billion, is one of India’s largest conglomerates, with operations in automotive, aerospace, steel, beverages, retail, and chemicals. However, while chemicals is only 3% of the business, TCL hopes to grow. India hosts 63% of these sales, and chemicals account for 2% of the group’s international revenue. During TCL’s 75th anniversary celebration in January, Tata Group head Cyrus Mistry spotlighted agriculture as an expected area of growth for TCL.
“Having achieved the leadership position in inorganic chemicals—[specifically] soda ash—the company will now focus on building upon farm and consumer-facing businesses,” says R. Mukundan, managing director of TCL. “Under [the] farm business, we will increase the nonbulk portfolio, like specialty and high-yield seeds so as to enhance farm productivity. The focus with regards to the latter will be on growing the consumer products business, as the Indian consumer moves from loose to branded packaged products across all categories in the nutrition and wellness space.”
Though the company planted its roots in salt and officially took over the Okha Salt Works and its staff in August of 1939, it soon moved into soda ash—the company’s largest business, representing about 50% of sales and its sole global presence, being in Europe, Africa, and North America—expecting to grow at a rate of 1.5%/year. In 1943, TCL began producing electrolytic and allied process chemicals, including caustic soda, liquid chlorine, bleaching powder, hydrocholoric acid, and zinc chloride. The full production of soda ash started in February 1944, the company says. “The technology of soda ash production was a guarded secret of a few companies in the world,” TCL says. “Tata Chemicals developed its own technology without their help.”
Tata’s soda ash has expanded via acquisition into the United States, the United Kingdom, and Kenya. In 2006, TCL acquired the Brunner Mond group in the United Kingdom—including its Magadi, Kenya plant—now TCL’s European business. In the United States, TCL acquired General Chemicals in 2008—which has become TCL’s North American arm. The company has a global capacity of around 5.5 million m.t. /year of soda ash, of which 60% is from natural deposits at Green River, WY; and Lake Magadi, Kenya. Though the market is concentrated, it looks healthy and supply-demand balance has improved, Mukundan adds.
“The outlook for soda ash looks healthy and robust, with demand growth picking up fairly strongly in most parts of the world, especially in developing markets,” Mukundan says. “This, coupled with rationalization of manufacturing by many ash producers over the last few years, has caused a return to supply-demand balance, which augers well for both producers and consumers.”
The segment continues to be robust, Mukundan says, and the business in India and North America has performed as expected lines, the company says.
The fertilizer market has been volatile since the Belarusian Potash Co. potash cartel broke up last summer, skyrocketing prices. India is a large producer of fertilizers, and Tata is a leader in the urea and phosphate segments. However, the company also sells muriate of potash and diammonium phosphate and supplies organic materials and other specialty fertilizers, such as calcium nitrate and zinc sulphate.
The company makes urea at its fertilizer complex at Babrala, in Uttar Pradesh State, in northern India. The complex has an installed capacity of 864,000 m.t./year, which constitutes nearly 12% of the total urea produced by India’s private sector.
TCL has an established presence in the north Indian states of Uttar Pradesh, Punjab, Haryana, Bihar, and Uttaranchal, which account for 48% of the domestic demand for urea, the company says. These states account for over 85% of the company’s urea sales.
In March, however, the company announced that it, with ag business Olam International (Singapore), will not proceed with its proposed 25.1% equity in the greenfield ammonia-urea manufacturing project near Port Gentil, Gabon. Olam currently holds an 80% stake in the project, and the government of Gabon holds the remaining 20%. TCL, in April 2011, had announced that it would invest $290 million to acquire the 25.1% stake in the ammonia-urea complex. Oland and TCL signed a termination agreement on 28 March 2014. The decision to exit the project was due to TCL’s investment focus maving away from overseas fertilizer manufacturing and Olam’s intention to move to a minority and nonconsolidated position in the project, TCL says.
“As announced previously, Olam is continuing its discussions with other industry participants who have expressed their desire to partner with us in the project. This is in line with our intention to bring down our final equity stake to below 50%,” says A. Shekhar, executive director/finance and business development at Olam. “Our belief in the project’s strategic and financial value to the group still remains intact,” Shekhar says.
Since 2011, Olam and TCL have worked together to complete the project’s front-end engineering design. TCL intends to maintain its relationship with the project by providing any technical support that Olam or other equity partners may request.
“We will continue to pursue the strategy of bringing world-class products and services to the Indian farmers, with continuing investments in innovation and partnerships focused on the home market,” says P. K. Ghose, executive director and CFO of TCL says.
Salt was TCL’s first product when the company registered, in 1939. Nearly 50 years later, India’s first iodized-branded salt launched in 1983 to address iodine deficiency and as per a recommendation from the World Health Organization, TCL says. Tata makes salt by evaporating sea brine in steam-heated vacuum evaporators.
The company has mostly focused its salt business locally. Today, TCL has a 65% market share in India’s branded salt segment, selling an average of 50,000 m.t./month, the company says. The company also exports salt to the Mideast, into Dubai, and has plans to move on to Abu Dhabi and Sharjah, United Arab Emirates. In 2010, the company extended its salt brand to pulses—a lentil-based staple food in India.
Food additives, including salt and sdoium bicarbonate, are a major growth area for the company as the Indian population grows—and the need for mass food production expands.
“The food additives business continues to grow at a strong and healthy rate and provides many opportunities for innovative growth and product offerings to consumers, especially on the platform of nutrition and wellness,” Mukundan says. “We do plan on continuing to move downstream into innovative offerings in bicarbonate and the foods business that bring us closer to our end consumers with a range of products that deliver nutrition and goodness to a growing demand for these.”
The company has since expanded into the sodium bicarbonate space. Baking soda, initially a domestic source of growth, has expanded to North America thanks to Natronx, a partnership with FMC and Church & Dwight, strong US sodium bicarbonate and sodium alkali producers. Natronx provides innovative, dry sorbent injection solutions and products that efficiently reduce air pollution in coal-fired power plants, waste incinerators, industrial boilers, and other industries while reducing the significant capital investment required by environmental regulations, the company says.
“The Natronx venture does not limit our ability to grow in the sodium bicarbonate business—a space we continue to view with interest and have ambitions to grow [in],” Mukundan says. “We remain very positive regarding the future of Natronx, since this venture was predicated on the basis of a strong market demand based on an increasing customer need to comply and even better emerging environmental regulations around emissions—a solution that Natronx is ideally positioned to deliver.”
More recently, TCL in 2009 launched the Tata Swach water purifier, which the company aims to grow commercially in India, recently launching its Tata Swach Silver reverse osmosis variant in Kolkata. The company says it is well received in the market and is being phased to other parts of India. “It has been designed to tackle one of India’s biggest social and technological challenges—the need for safe drinking water at affordable cost,” TCL says.
In India, death by waterborne diseases is more than 1.5 times the deaths caused by AIDS and twice as many as caused by road accidents, TCL says. Nearly 400,000 children below the age of five die annually on account of diarrhea. In India, 85% of people in small towns and villages do not drink purified water, and almost 70% use the same water for drinking, bathing, washing clothes, and bathing cattle.
Tata Swach uses an advanced purification technology that uses rice husk ash, a widely available natural waste, as the base, with nano-silver particles bound onto it. A mechanism adjusts the flow’s direction and rate and modulates the surface area of contact and the actual contact time to purify water. The company says the purifer does not require electricity; boiled water is not necessary; running water is not necessary; and no chemicals like chlorine, bromine, and iodine are used. The $18 purifier is available throughout India.
TCL has made several acquisitions over the past decade. The company acquired Hindustan Lever Chemicals’ Haldia, India, plant of phosphatic fertilizers in 2004. In 2005, TCL acquired an equal partnership in Indo Maroc Phosphore (Jorf Lasfar, Morocco), a phosphoric acid producer. In 2009, Rallis, a producer of agricultural insecticides, fungicides, and herbicides in India, became a subsidiary of TCL, and acquired a majority stake in Metahelix Life Sciences (Bengaluru, India), an agricultural biotechnology company, the following year. Also in 2010, TCL acquired 100% stake in British Salt (Middlewich, UK), a leading vacuum salt producer. The company has also entered into a joint venture with Singapore’s Temasek Life Sciences Laboratory (Joil) to develop jatropha seedlings to enable biofuels capability.
“Over the past decade, a series of expansions, identifying new areas of growth, and strategic acquisitions have helped us multiply our revenues over five times,” Ghose says. “We have also transformed ourselves from a commodities and inorganic chemicals manufacturer to a provider of holistic solutions to the Indian consumer. Today, we have a gamut of products through which we focus on nursing commodity chemicals, fertilizers, and health offerings. Additionally, we also actively drive strong growth in consumer and agro-focused branded and specialty businesses.”
The company reports a net loss of Rs12.3 billion in its fiscal fourth quarter, ended 31 March, compared with a net loss of Rs1.88 billion in the year-ago quarter. Fourth-quarter sales increased 11%, however, to Rs37.0 billion. For the full fiscal year, TCL reports a net loss of Rs10.3 billion compared with a net profit of Rs4.00 billion previously.
“We have successfully implemented the process of restructuring the company’s UK operations in the full-year 2014, with closure of the Winnington soda ash plant. We expect to see the positive impact of the restructuring once the steam turbine project, which is being implemented, is operational,” Mukundan says. The company has proposed mothballing its premium ash plant operations to reduce its energy cost to continue manufacturing at Magadi. “This decision follows a comprehensive review of alternatives over the last few years to improve plant performance, operating effectiveness, and efficiencies, including injection of additional investment and expertise.”
Moving forward, Ghose says “the growth drivers will be in the Indian retail and the farm sector. We are building significant capabilities by leveraging our consumer and farmer reach besides focusing on innovation-led products.”