Tata Chemicals : Transcript TCL Q1FY24 Eanings Call Transcript

There has also been EBITDA growth driven by higher realization. There is an impact on PAT and PBT due to higher interest cost and higher tax outflow because many of our entities are net positive now and they don't have the tax shield which they had earlier, and hence impact in terms of tax calculation, especially Magadi and U.S., which are now on a higher tax rate.

I will now give an update on Soda Ash demand supply situation:

As you would all know, the China net supply increase in the market partly is driven by post-COVID slowdown and lower than expected demand in China. We expected a pretty strong recovery, which has not happened, and this slowdown has created a surplus in the market. Added to that, Inner Mongolia capacity, which came on stream maybe about five to six months sooner than expected. This was anticipated, but it came earlier, and that coupled with the lower demand created a demand supply ease in the market.

For the rest of the market, demand was as planned, and more or less stable, and India also remained stable in general, mainly driven by the sustainability demand coming off glass sector. The domestic supplies in India were largely impacted due to surging imports, which almost doubled, and accordingly Tata Chemicals had to take appropriate steps in the marketplace to ensure its supplies to customers were at the most competitive levels.

Coupled with this, in some parts of the world, there was some delay in purchase decisions which was on the expectation of management of inventory levels which had gone up due to supply chain constraints in the past, but now eased, and some postponement of purchase decisions with expectation of a lower pricing over a period of time. Our overall demand situation remains robust, which is mainly driven by the growth in the key markets, driven by energy transition, as highlighted before, and it will continue to be so.

I have talked about the near-term challenge, but in the medium and long-term, it remains still the same as per the commentary we had given last time.

Moving on to Tata Chemicals' market position:

We have our net sales in India of about 180,000 tons. This includes India production and Magadi imports into India as compared to 185,000 tons last year, which is almost 96% of last year.

This was despite the impact of 10 days on dispatches in Mithapur due to the Biparjoy Cyclone, because of which there was some slowdown in availability of rakes and trucks. For about three to four days the district administration had stopped all road and rail movements due to safety issues.

However, we did manage to get to 96% of combined Tata Chemicals sales in India as compared to last year.

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Our focus continues to ensure our customers are serviced and we maintain our position with customers through engagement with them and continue to maintain steady margins with focus on cost.

In addition to Soda Ash business in India, the rest of the other parts of the world, especially UK and U.S. performed to our plan. Magadi was partly impacted by certain supply chain issues which impacted its sales into Southeast Asia, and also there was an increased pressure of Chinese material availability in that market. That position is getting corrected as we speak.

Moving on to Rallis, it overcame a challenging period and was able to restrict the impact on its EBITDA due to better product mix, OpEx control and pricing action, and that has been visible in the results declared. Relative to the marketplace, they have performed to plan.

To conclude:

We expect the market to remain in the range bound situation with the demand supply situation easing in the short-term and over a medium-term, our overall target in terms of positive changes happening on the demand side, will lead to balanced demand supply situation, hence medium to long-term remains our base case.

With this, I would like to add that we remain committed to our expansion plan, which have already been approved by the Board of approximately 300,000 tons in India, about 250,000 tons in Kenya, and about 400,000 tons in U.S., about a million ton all worldwide capacities put together.

In addition, we are scaling up our salt capacities in India and in the UK, by the end of this year, our pharmaceutical grade salt plant will be operational. We remain focused on managing our margins and cost structures, ensuring debt repayment continues and strengthening the cash flows. We continue to de-leverage and repay our debt. This quarter we repaid about $95 million. In U.S., we repaid about $45 million, and in Singapore about $50 million.

So, we remain committed to ensuring a very balanced approach to marketplace and a very conservative approach to our balance sheet and a very robust approach to our growth plans and we remain on track as we speak.

With this, I hand over the floor to Nandakumar who will walk you through our financial performance.

N. Tirumalai: Thank you, Mukundan, and good morning to everyone.

Let me take you through the performance after which we will go to the Q&A.

On the headline numbers first:

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For the quarter, our revenues for the quarter was at Rs.4,218 crore as against Rs.3,995 crore last year's Q1 higher by 6%. Revenue increase was driven by price increase partly impacted by lower volumes across geographies and contributions being impacted mainly in India and UK.

EBITDA for the quarter was at Rs.1,043 crore as against Rs. 1,015 crore last year, and this, in fact, is the all-time high EBITDA ever. The EBITDA margins were lower by 0.7% owing to pricing drops in India and lower volumes. PAT for the quarter was at Rs.578 crore lower by 10% compared to last year's Q1.

Moving on to each business, starting with India:

Revenue for the quarter was Rs.1,135 crore. Soda Ash volumes were down by 8%. The prices were lower owing to the price drops taken during the quarter. Salt business continue to perform well and good volumes came there. Bicarb volumes were a bit down compared to last year's Q1.

Moving to U.S.:

It delivered yet another very good quarter with revenues and profitability registering healthy growth over last year's Q1. The business continues to benefit from better prices following the newer contracts entered during the beginning of the calendar year.

UK business performed well with revenues up by 22% as compared to last year's Q1. EBITDA was 17% for the quarter.

As far as Kenya is concerned, both volumes and prices saw softening, which in turn impacted margins and profits for the quarter.

As far as Silica and Nutra is concerned, both the businesses have growth map in front of them. With time and investment, we expect both the segments to clock in good numbers going forward.

Moving on to Rallis:

Q1 was one of the most challenging periods for the agrochemical industry. Crop care business has been affected by high market inventories, steep price drops and the late monsoon. Although revenues for Q1 were lower compared to Q1 of last year, margins were largely maintained, through better product mix and good pricing.

The company's long-term strategy remains unchanged, focused on increasing manufacturing capacities and product portfolio expansion and widening market reach.

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Our cash at a consolidated level was Rs. 1,544 crore at the end of June '23. capex for the quarter was Rs.423 crore and net debt was Rs.4,329 crore.

With that, I close my comments and hand over back to Moderator to open for the Q&A session.

Moderator: Thank you very much. We will now begin the question-and-answer session. Our first question is from the line of Saurabh Jain from HSBC.

Saurabh Jain: My question is that we have seen a decline in volumes on Soda Ash for all the geographies. While India you alluded to there was an impact of the cyclone, but the rest of the geographies, is the impact more because of softness in demand as such in industry or is it more because of any loss to market share to the new capacities that have been coming online? And then, what is your outlook on the volume recovery from here on?

R. Mukundan: So, let me address this broadly. In India, it is a combination of the cyclone and because of precautionary operational measures taken by us at the plant due to cyclone. Up to April and May, we were pretty much on track. It was towards the end of June where we saw a bigger dip in the numbers.

As far as Kenya is concerned, our biggest shift has come in two markets. One in Thailand, the other one in South Africa. In Thailand there is a pressure felt from the Chinese imports and large quantities landing up there. So, while we had to continue to serve our contracted customers, we also ensured that we got into fresh contracts, so that going forward we had volumes which we could push in that market and engage with customers.

In South Africa, there was a large amount of consignment which had landed in the market and hence delayed some of our customer orders. So, it is more a temporary phenomenon as far as Magadi is concerned, which should catch up over a period of time.

As far as the U.S. is concerned, there were no market issues. It was more related to some pressures we did feel at the beginning of the year, which was a spillover of the last quarter where there were supply chain issues with respect to the railroad movement and that has now more or less corrected.

In fact, there has been a change in the leadership and management, and they have assured they will fix the railroad issues, and we are seeing improvement in the situation. It is not fully resolved, but it is pretty much on way to getting resolved as far as the rail movement is concerned.

So, broadly, in Quarter 1, we would not attribute it largely to the market. Our commentary on the market is going forward, and when I said short term, I think that period could range between 9 to 12 months on one hand to stretching as much as 15 to 18 months. We have to see how China demand improves. The overhang of

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