BackTata Chemicals may revive urea capacity plan on new govt policy
Firm to boost ability to make nitrogen-based soil nutrient at its Babrala plant in UP, to 2.5 mt in next three years
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Mumbai: Tata Chemicals Ltd, the world’s second biggest soda ash maker, plans to revive a $850 million (around ₹ 46,410 crore today) spending proposal to double its urea capacity after the government said it will guarantee returns on investments.
The company plans to boost its ability to make the nitrogen-based soil nutrient at its Babrala urea plant in Uttar Pradesh, to 2.5 million tonnes (mt) in the next three years, managing director R. Mukundan said in an interview.
The Mumbai-based chemicals maker was waiting for the policy to resume plans stalled since 2010, he said.
The government will assure new urea units a profit margin of 12% to 20%, food minister K.V. Thomas had said last month.
“It was on hold simply because the policy wasn’t clear," Mukundan said in his office in Mumbai. “Now that it has been clarified, we will come out with a decision shortly."
Tata Chemicals, which accounted for about 3% of Tata group’s $100 billion revenue in the year ended 31 March 2012, is counting on a supply shortage of urea in India as the government seeks to reduce dependence on imports to boost farm productivity and feed the world’s second most populous nation.
“The doubling of capacity will add $500 million to the company’s revenue when the factory turns operational," said Tarun Surana, an analyst with Mumbai-based brokerage firm Sunidhi Securities and Finance Ltd.
Shares of Tata Chemicals have rebounded 14% since the start of December and reached a 17-month high on 8 January, and ended at ₹ 371.05 on BSE on Thursday, according to data compiled by Bloomberg. The benchmark BSE Sensex index rose 1.8% in the same period.
“State incentives will encourage more manufacturers to set up plants," said Surana, who is among the 16 analysts rating the Tata Chemicals stock a buy. Three advise holding it, while one recommends selling, according to data compiled by Bloomberg.
“We see seven to eight new urea plants coming up that were all under planning," Surana said. “The final go-ahead was awaiting the policy."
Government control on the price of urea and ambiguity over natural gas feedstock costs have deterred new investments in the sector for more than 10 years, leading to an increase in imports and state subsidies. Investments of ₹ 50,000 crore could flow in as state-run enterprises and cooperatives add 10 mt of capacity, S.C. Sharma, an officer with the Planning Commission, said last month.
Aditya Birla Nuvo Ltd, the $4 billion chemicals-to-telecommunications group owned by billionaire Kumar Mangalam Birla, may consider $1 billion in spending to double its urea capacity after the new policy was approved, managing director Rakesh Jain said in an interview in November.
India imports one-third of the 28 mt of urea it needs and the supply shortages may widen to 12 mt by March 2017 unless new capacities are added, according to a 2011 Planning Commission report. Bloomberg
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