Tata Chemicals – Huge Opportunities Ahead

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Company Overview

Tata Chemicals is one of the largest manufacturers of inorganic chemistry products with plants spread across four continents – America, Europe, Africa, and Asia.

The company is the world’s third-largest Soda Ash and India’s leading vacuum evaporated iodized salt producer. Tata salt works, spread over 36,000 acres, are the largest in Asia.

The company produces soda ash using synthetic and natural mining processes. Of this, 3/4th capacity consists of natural soda ash allowing us significant cost competitiveness.

A part of the US$ 113 billion Tata Group, Tata Chemicals is a globally leading multinational company employing over 4,600 people and present in 40+ countries.

Companies eight decades of existence have helped in enjoying a strong and established position globally in inorganic and crop protection chemicals.

Business Overview – Q3FY21

Consolidated Snapshot of Revenue Q3FY21

(Source: Q3FY21 Investor Presentation)

Consolidated Cash and Cash Equivalent as of 31st December 2020 are ₹ 3,118 Cr (vs ₹ 3,660 Cr as of Mar20).

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Standalone continues to be Debt Free. Standalone Cash and Cash Equivalent as of 30th September 2020 is ₹ 1,965 Cr (vs ₹ 2,160 Cr as of Mar20). Tata Chemicals is today:

Global Impact to Raise Future Demand

  •  Several global oil and gas majors are turning their sights towards downstream chemical opportunities. This may increase the focus on petrochemicals in India and higher investment in the sector may ease feedstock challenges and boost self-sufficiency.
  •  The structure of China’s chemical industry is changing due to stricter environmental norms, tighter financing and consolidation will lead to an increase in demand.
  •  Specialty Chemicals constitute 22% of the total chemicals/ petrochemicals market in India. As of FY 2017-18, the total market size was around US$ 35 billion. The demand for Specialty Chemicals is expected to grow at 12% CAGR during FY 2019-22.
  •  Key drivers of Bicarb growth continue to be food, feed, and pharma segments. The emerging flue gas treatment segment appears to be another promising sector for Bicarb consumption. Mid-capacity power plants in India hold key to this demand. The Company won the first tender for this trial order from Government-owned power plants.
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Production Volumes (’000 tonnes) Past 3 Years

Capacity Expansion Going Forward to Cater Increasing Demand

  •  Capital spending in the 3rd quarter FY21 was Rs. 111 crore against Rs. 187 crore last year, again, mainly in Mithapur, Year-to-date CAPEX is Rs. 343 crores against Rs. 530 crore last year, and Rs. 694 crore for the full year to March 2020. Debottlenecking/capacity expansions for Soda Ash, Bicarb, Salt, Cement, Caustic, Chlorine derivatives Growing value-added products under portfolio Exploring adjacencies and forward integrate across Soda Ash value chain.
  •  Ongoing CAPEX for capacity expansion and debottlenecking at Mithapur with implementation phased to focus on the rapid expansion of essential products Environmental Impact Assessment (EIA) approval for Soda Ash expansion at Mithapur Acquired remaining 25% stake in Tata Chemicals (Soda Ash) Partners Holdings from The Andover Group Inc for US$ 195 million, thereby increasing Tata Chemicals’ ownership to 100%.

Soda Ash & Bicarbonate – Resilient Demand & Strong Cash Conversion

Growth Outlook

  • The focus is to drive sales even further from the sodium bicarbonate plants at Winnington, while Lostock will target stable soda ash performance, including a major investment in plant assets during the year.
  • The year 2021 will see the commissioning of the ground-breaking Carbon Capture and Usage (CCU) plant, as part of the TCL group’s push to enhance its industry-leading low-carbon credentials and supporting growth in the Sodium Bicarbonate business.
  • Salt is set for a decent year as increasing levels of investment over several years continue to bear fruits.
  • This includes a major boiler replacement in the summer of 2020, which will significantly improve efficiency and carbon emissions and complement investments in packing/logistics and launching investment in significant growth of the value-added salt portfolio. For TCML, soda ash competitiveness will be defined by price and quality.
  • Crushed Refined Soda growth shall be driven by animal feed, silicate, and mining sectors. Product development continues since CRS has demonstrated potential for growth in diverse areas, such as lead processing, tobacco, silicate, disinfection, compost treatment, jigger treatment, and flue gas treatment.
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Shuchi Nahar

Shuchi Nahar

Shuchi is NISM Certified Equity Research Analyst, CFA - Level 1, a student of Law and Finance, and an aspiring CS.
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