Tata Chemicals to focus on high margin value added consumer products
Tata Chemicals seeks to strengthen its ‘living essentials’ consumer segment as the producer of urea and soda-ash moves away from its fertilizers business
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Mumbai: Tata Chemicals Limited is focussing on high margin value-added staples and nutritional supplements in a bid to strengthen its “living essentials” consumer segment as the producer of urea and soda-ash moves away from its fertilizers business, a top company executive said.
“We want to at least double the business (in size) every 5 years,” managing director and chief executive R. Mukundan said at a press briefing on quarterly earnings Friday, referring to the consumer business.
“We are exiting the fertilizers business, which has led to savings across the board, including in interest income,” Mukundan said.
The company has agreed to sell its urea business to Yara Fertilisers India Private Ltd, the Indian arm of Norwegian fertilizer firm Yara International ASA for Rs2,670 crore. The deal, expected to be finalized in the next 60-90 days, is awaiting approval from the National Company Law Tribunal.
“With this, we will not be in the fertilizer business in North India any longer. We will remain in the Eastern region, in certain markets, with the intent to maximize cash generation,” Mukundan said.
The company is moving its brand Tata Sampann into value added dry staples, including mixes such as an instant pakoda mix, an extension of the Sampann chickpea flour (besan) brand that is marketed as a “Low Oil Absorb” product for healthier eating.
Tata Chemicals has also been working on its nutritional and dietary supplements or neutraceuticals business to boost growth. This quarter, it launched a low calorie sweetener named Tata Nx. “Tata Nx will only be available in Godrej Nature’s Basket in physical retail, and we may enter Star Bazaar soon,” Mukundan said, adding that this segment was a high margin one in the consumer business.
The brand is currently available in two variants – “Zero Sugar” and “Lite and Sweet”, which has 50% less calories. Both products are made with stevia leaves, a common substitute for sugar.
“In the investment plans we have, half is allocated for the neutraceuticals facility,” Mukundan said.
The company said it was investing Rs565 crore in expanding its manufacturing facilities. Of this, half would be in a facility devoted to making neutraceuticals in Nellore, Andhra Pradesh.
Tata Chemicals is also looking to launch a range of spices to be sold under the Sampann brand name in south India by the end of this year, Mukundan said.
While Tata Chemicals has been talking about focusing squarely on the consumer business, it is still small, between Rs800-1,000 crore, according to Mukundan. Of the company’s annual revenue of Rs13,288.92 crore in FY16-17, this translates to 6-7.5%.
Inorganic chemicals and fertilizers continue to be the company’s largest businesses.
“The consumer business is still very small and it will take time to scale up”, an analyst with an equities brokerage firm said, requesting anonymity. “But, it is a step in the right direction and is well appreciated within the investor community.”
Tata Chemicals will see most of its growth from three areas, the analyst said – specialty silica, consumer business (including neutraceuticals), and the agri-inputs subsidiary Rallis India Limited.
Tata Chemicals posted a 31.8% rise in net profit to Rs343.02 crore for the quarter ending March 2017, partly because it discontinued operations of its urea business which will be sold to Yara Fertlizers. The discontinuation brought the company a Rs62.56 crore exceptional gain in profit after tax.
The company saw a 14.8% decline in consolidated revenue to Rs3,097.47 crore in the same period because it discontinued manufacture of urea at its Babrala plant in Uttar Pradesh, the company said in a stock exchange filing.