Mumbai: Tata International Ltd (TIL), the world’s fifth largest trading company, has tweaked its business strategy by adding a new agricultural unit in a bid to strengthen its global presence in commodities trading.

The Tata group firm now has five verticals—leather and leather products, automotive distribution, metals trading, minerals trading, and agricultural trading—each running as a decentralized business unit, according to reports published in TIL’s in-house magazine Tata Review and on the website of Tata group.

“I believe our goal can be to become, by 2025, globally significant in each of our chosen businesses," Noel N. Tata, managing director at Tata International, was quoted saying in Tata Review.

“What being globally significant means in the context of each vertical will be different for every one of them and we could, perhaps, in two of them—leather and auto distribution—be in the global top 10 by 2025. For the other three, getting into the top 25 in the same time frame could be an aspiration," he added.

It has also identified new regions for expansion in South America, the Middle East, South-East Asia and China, besides India.

Set up in 1962, the $1.2 billion company was Tata Group’s export arm and engaged in trading leather products, automotive parts and coal. The leather business contributes around $188 million (nearly 1,171 crore) in revenue, and brands and distributes its own products. The company has also tied up with international brands such as US leather manufacturer Wolverine World Wide Inc. to expand overseas.

“The two heritage operations are leather and leather products and auto distribution, the two we are back into are the minerals and steel trading business, and the new vertical will be agricultural trading (that said, we traded in agricultural products some 30 years back)," Tata said.

Analysts believe the global reach and presence of conglomerates such as the Tata Group will help them succeed in global commodity trading.

“Trading does not have any challenges, since you do not own the commodities as an investment. Globally, four to five companies are leading in this segment—like Cargill and ADM Co. It is a very good business for companies who have strong logistical reach. Companies with a strong global reach will do good in this vertical," said Kishore Narne, head of commodity and currency at Motilal Oswal Securities Ltd.

TIL is expected to continue to help Tata group companies procure raw materials. It also sees synergies with both Tata Power Ltd and Tata Steel Ltd jointly approaching suppliers for raw materials.

“Our mandate, in terms of investment, is not to go out and buy coal mine; our mandate is to trade in coal. Consequently, the only investment we will make is when it is required to increase the profit on a particular trade," Tata said.

The company is also open to making an investment for an allocation of minerals, in addition to investments in a warehouse, a coal handling yard at a port, showrooms in port locations and service centres.

Tata International, which concluded a S$50 million (around 248 crore today) bond sale in April, currently has no plans to raise money, Tata said.

“Singapore was an exercise to get long-term money and part of the S$50 million is being used to pay some of the shorter-term debts that we had in bits and pieces all over. Needless to say, as we grow, we will continuously need to strengthen our balance sheet," Tata said.

The company is also converting most of its rupee debt to foreign currency debt to hedge against fluctuations in exchange rates. “We have tried to dollarize the balance sheet so that we…to a large extent are insulated from dollar-rupee fluctuation," said Ajay Ponkshe, chief financial officer and company secretary at Tata International, in an interview to Tata Review.

B. Muthuraman, chairman of Tata International, told Tata Review that he has plans to engage more with other Tata group companies.

“The share of Tata group businesses in Tata International’s top line is currently about 20-25%, most of which comes from Tata Motors. This will grow; we plan to engage with more Tata companies and demonstrate that we can bring value to them," he said.

Not everyone subscribes to the bullish view.

In July, credit rating agency ICRA Ltd, assigned an issuer rating of “IrA+ (Stable)" to Tata International, indicating the company has an adequate credit quality. However, the ratings agency expressed concerns over the company’s increased debt.

“The rating remains constrained by the weak performance of the stand-alone business, large increase in debt levels on account of inorganic acquisitions, investment in capital-intensive projects in Africa, increase in working capital requirements to support growing operations in a weak profitability scenario and 100% consolidation of DIESL (Drive India Enterprise Solutions Ltd, Tata’s logistics solution company)," ICRA said in a note.

Weak demand for leather products in Europe and the US, coupled with increasing raw material costs, have had an impact on TIL’s stand-alone business, the ratings agency said. Turning around the company’s international trading business will be a challenge for Tata International, it added.

pr.sanjai@livemint.com

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