TATA CHEMICALS

New biz on back of cash cows

Tata Chemicals, a prestigious member of the Tata group, is an eight- decade-old commodity player which is now engaged in an exercise to reinvent itself as a speciality and consumer products company. At present, the company has a diversified portfolio of businesses which include soda ash and sodium bicarbonate fertilisers (which it is exiting from), agricultural inputs (though subsidiary Rallis India), consumer products such as branded iodised salt, pulses and spices, and a fledging speciality products business in materials like highly dispersible silica (HDS) and nano material as well as nutritional products like polyols. It has sizeable financial investments and can liquidate as per its requirements. Prospects for the company are extraordinary once it completes its reinventing exercise.

Consider:

• The company is an undisputed leader in the global market for soda ash and sodium bicarbonate. These are literally cash cows and are steadily growing at a rate of around 4 per cent every year. These cash cows are being successfully used to build growth businesses such as consumer and speciality products.
• In fact, the company is rolling in liquidity, generating massive cash of around Rs 40 billion via divestment of the regulated fertilizer business and sale of investments, coupled with steady accruals from the soda ash business. This would enable the company to move in the direction of a debt-free status very soon.
• Experts calculate that as the company scales up its growth businesses and deleverages its balance sheet, its consolidated ROCE will improve substantially, in turn driving a stock re-rating.
• Divestment of the fertilizer business and sale of Tata Global Beverages shares would result in cumulative gross cash inflows of Rs 40 billion. Internal accruals would add further to cash flows.
• The company is also focusing on working capital which has brought down the requirement by Rs 21 billion in just two years. Strong cash flows have allowed the company to reduce its debt and also enable the management to invest in manufacturing facilities for new materials like HDS and nano material, and nutritional solutions.
• Salt is growing as a leading money spinner for the company. The estimated annual consumption of salt in the country is around 6 million tonnes and demand for edible salt is growing at a rate of 1.5 per cent.

PERFORMANCE INDICATORS (Rs. in crore)