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Completed the transfer of phosphatic fertilizer business, which includes the facility at Haldia and trading business to IRC Agrochemicals, which is part of the Indorama group, which is company exit from fertilizers is complete and the major step in company stated strategy, that is to focus on leadership position in the basic chemicals while continuing and investing to grow our consumer and specialty products, is well underway
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Post the divestment of fertilizer business, based on the recommendations of audit committee, the board has approved a new segment reporting, which brings far more clarity. And the 3 segments are the basic chemistry products, which include the soda ash, bicarb and other basic chemicals, which has long form the backbone of the company.
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The second segment is consumer products, which include salt, pulses, spices and branded consumer products, which is the growth business of the company, which already has a substantial revenue and profit momentum behind it and has been sequentially growing over the past few years in a very – on the back of the strong consumer market growth in India. The third segment is specialty products, which includes the agrochemicals business and the seeds business in Rallis and Metahelix. Coupled with the new investments we’re making in nutrition solutions and advanced materials, these are products which have come out of company innovation and R&D center in Pune. This R&D and innovation center in Pune also houses company food science lab, which is where most of the new products, which enter the consumer products portfolio, are being designed and developed. So these segment reflects the current strategy and the structure of the company and also clearly defines the growth drivers for the company, which are mainly in the consumer and specialty products.
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Full Turkish capacity has now come on stream and the market still is tight on the back of a very strong global demand for soda ash and this trend is likely to continue . .
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On the back of such a strong demand pattern and the tightness in supply situation, the energy cost increase, which this business had to incur, has been fairly passed on in a manner that company has been able to hold margins in this business at a steady pace. While operating performance in India was on par, the U.S. operation, Company had a plant shutdown in this quarter, which was part of the overall plan to hook up equipment related to improving the environment performance, which was part of a long-term plan, and that has been hooked up and the plant in U.S. is back to full production. Kenya had a minor hiccup in terms of heavy rains, which caused a bit of operational difficulties, but the plant is fully recovered post that operational difficulties in Q2. These led to some minor negatives in terms of the operating performance, but that was more or less made up by excellent performance coming in from India and U.K. Overall, the market remains tight and trend remains to be that if this global situation continues, it is going to trend towards even bigger tightness going forward, and company remain extremely positive on the margin protection in this business. This business is company cash business, so company is focused on this business in generating cash for growth, and the growth businesses are the consumer products. On the consumer business side, Tata Salt continues to deliver volume and value, and company have lot of slew products, but the 3 platforms, which company have spent time maximum on, which is salt, pulses and spices, are beginning to trend in a very positive direction. The mature part of the business, salt has trended positively. In terms of the consumer metrics, the businesses, both pulses and spices, have trended very positively, delivering on a base, which was low, over 100% growth, year-on-year growth, in terms of the volume numbers. Business overall has delivered about 33% growth in terms of revenue, and it would continue to sort of trend in a strong way moving forward. During the quarter, company also launched a new set of products, which is chutneys. And also launched several other new variants in the marketplace, which were available on Amazon and other modern trade stores. Company approach to feeding the business is primarily to launch them in e -commerce platform, moving them on to modern trade before bringing them to general trade and thus that trend has continued, and it allows to sort of pick the winners out of the product when company launch and then move the winners in the general trade over a period of time. And one would continue to see every quarter new product launches and the older products maturing and grabbing market share and moving forward. In terms of specialty products’ front, Rallis and Metahelix showed healthy performance. This segment grew 25% year -on-year. Company plans for nutrition solution and HDS facilities are on schedule.
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Already announced during the quarter the acquisition of Allied Silica to – at INR 123 Cr, where additional investments are being made to get that plant up to speed to Tata standards before company start supplying to the customers, both in food and in the rubber space
Q&A
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Kindly help to understand that intersegment transfer between basic chemistries to salt business and is there a portion of margin related to salt which is in manufacturing part itself included in basic chemical segment? What will be the proportion which has been retained in the manufacturing site ?
o Yes, The manufacturing margins are in the basic chemistry products, whereas beyond manufacturing the margins are all loaded in the consumer product, which was the right transfer pricing tool company have adopted.
o The margin structures in consumer products would reflect the margin structures which exist in most consumer products . Company have chosen margins which normal companies can earn and these are independently reviewed by auditors and 2 independent valuers to arrive at what is the appropriate and market acceptable, and this is also done in a way that tax authorities will also have resonance. So it reflects what is expected in a consumer business in a normal range.
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For how many days the US and Kenya Plant were shutdown ?
o Company had a lost tonnage of 16000 ton in Kenya Plant and 25000 tons in US plant.
o In US there was one production line down for an extended maintenance period.
o Kenya Plant was not stopped ever it was running but at a lower load because of logistic issues of shipping through flooded roads and flooded rail lines, it was more an issue. Company had to slow down its rate of evacuation.
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Why volumes were down in India Business also ?
o In Indian business company is slowly moving to the soda ash which is marginally down and also shore up the volumes up in terms of the bicarbonate, which is marginally up. And this will be minor issues of sales and evacuation and dispatch.
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Of total 5000 Cr of run rate of Consumer business how much contribution will come from organic growth and new product expansion ?
o 5,000-odd Cr turnover is built largely on 3 platforms in which company have already presence in which is salt , pulses and spices.
o In Salt there is an YOY investment of approximately 100,000 tons of additional salt being brought to market to feed what company call as opportunity markets These are the markets where company market share is not in line with national average. So there are still opportunities to grow in several parts of India where the distribution is being strengthened. So salt, the strategy is to improve the reach. So in about 4 years time, company should be reaching about 1 million tons of salt to about 1.4 million ton of salt for which the board has already approved close to INR 500 Cr of investment, which is being invested. So this is part of the growth agenda, which should account for at least 50% or more than 50% of the turnover at that point when company said it will be INR 5,000-odd Cr
o The food, which is the non-salt food categories, 2 categories account for the balance 50%, where company is investing and co-investing in various packing centers and distribution center along with our partners. This may not fully be reflected in balance sheet because there are partners who are willing to invest for company. And this is going to be a slew of products, which are built on various platform. The first platform is the protein platform, and the vegetable protein platform has pulses. It now has organic pulses, which was launched this quarter. It has first powder, which company launched was besan, but then on top of that, company have launched mixes. The first mix which launched was khichdi mix. Then company have launched nutrimixes, which are chilla mix.
o Very shortly launching other mixes where pulses are added like dhokla, idly, dosa all of these, where some element of pulse exist. They all are going to be part of the protein platform. And these are all products, which are designed in company innovation center. And the common characteristic of them is that they rely heavily on one form of dal or another form of dal as the ingredient. When it comes to spices, there is a second platform, which was part of completion of taste portfolio. In taste portfolio, company first launched the CTC, which is chili, turmeric and coriander in form of straits. Then with various mixes, company currently have a range of about 6 mix . And company is not present all India, because company have stayed very much focused on north, west and east, and stayed away from south in terms of penetrating spices because the spice mixes in South Indi a tend to be very different in terms of range than rest of the country. So first focus is to deliver on these 3 regions before company go to south. Company have actually taken a strategic wait for the southern market, but company will enter at some point. So broad numbers on this INR 5,000 odd Cr is colored out of these 3 ranges, 3 categories and 3 platforms. Any additional platform launch by company will only add to this number.
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Does the intersegment revenue that’s shown there of INR 695 Cr for the full year, that basically – does that primarily represent the sales of salt from the basic chemistry segment to the consumer product segment ?
o Yes
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After jumping in consumer products EBIT that come compare to previous quarter is up from 50 Cr to 82 Cr this quarter so Is that driven primarily by margin improvement in the non-salt product segment?
o It is primarily driven by fixed cost. They are not increasing substantially. So when that INR 100 Cr of additional revenue was throughput this quarter, lot of it actually translated to bottom line, that’s what reflected there.
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So is it right to conclude that the non-salt portfolio has turned profitable for the quarter and is this sustainable going forward ?
o No , non-salt portfolio is delivering margins, and it’s showing a disproportionate number because if you say on a INR 100 Cr additional revenue, you got INR 30 Cr bottom line broadly or maybe INR 26 Cr – INR 30 Cr bottom line and that is because the fixed costs are fixed, the entire gross margin is flowing down
o Yes , In fact there could be some movement quarters where there could be discretionary movement of INR 5 Cr to INR 6 Cr s or INR 7 Cr, which depends on advertising spends. That’s the only number where company don’t want to guide on because that company leave on teams to deliver because that’s pretty critical. So this will be approx. numbers going forward and they want to launch blitz on Diwali so it may some in Q2 or sometime in Q3.
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Did the 500 Cr CAPEX for salt in next 4 years will come off within the basic chemistry segment ?
o Yes. Company CAPEX is trending so out of total 800 Cr CAPEX 500 Cr will be spend on Salt and 300 Cr will be spend on Specialty product segment , part of it rallies may end up with 2.5 Cr and 30 Cr and CAPEX of the balance number would be in Nellore Plant. which is for the Nutraceutical and the other part will be in the Cuddalore plant for the HDS .
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What was the impact of the fall in the Turkish currency on global soda ash prices and the antidumping duty, which has been taken off in India?
o There is hardly any impact antidumping duty may not play out as a big an event as company thought and it has not played out. The market is extremely tight and prices are going to move up in rupee terms in any case because those customer s who relied on imports are really going to be paying – because rupee also has weakened so the market has a natural Hedge to the rupee-dollar movement and Turkish currency has no impact because this trade is done in dollar terms.
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On the soda ash part company has a potential loss of around 25,000 tons in U.S. but even after adjust for that volume de-growth is there so on FY!9 will there be some positive growth in volumes in US and other geographies for soda ash ?
o The annual numbers would be almost flat. Company don’t see any change in the US number because they are running flat out. Company annual number still remains the same there will be no impact on that . In UK there will be a volume fall but that is mainly the quantity which company have pulled back which was a traded quantity, which means company is manufacturing it. Company was buying from a third party and selling it to the customer and company pulled back from that because it was a 0 margin. So there is point chasing volumes which are at 0 margin so company took a call to move away from that trade.
o As far as Kenya is concerned the 18,000 ton is a onetime loss. it probably may not get recovered, but for the year, they should deliver better performance than what they did in first quarter.
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Does the current utilization level will be enough to meet the market demand or company need to have more investments in soda ash to reap the incremental demand?
o In terms of soda company want to be measured in capital investments which are focused on consumer and specialty product and consumer of course it doesn’t need that much of a capital, but company focus is to grow these segments. On soda ash, company view is to de-bottlenecking in US. In India company have put debottlenecking plant which is subject to government approval. So company don’t want to commit various approvals. Which company need for this kind of unit. There will be investments in UK but there will be more focused on value which mean within the product range where company will move to higher value product like bicarbonate and other products, but they’re not going to be spending to increase the capacity. So there will be lot of value shifting in UK and slight volume growth in US. and some volume growth in India and that what company are thinking off and this spread over about 3 years. Company CAPEX number are close to about $50 million in U.S. and about INR 1,500 Cr in India for a spread of 3-4 years
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Out of the new product launch in last 1.5 -2 year how many of those products are evolving to modern trade or general trend ?
o In online stores e-commerce which company can very quickly go where there is whole product range , which is stabilizing in the market so there is pulses, the mixes as well as the range of spices available. And that is same available in the modern trade too.
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What will be the tax rate on standalone basis ?
o Standalone basis it is 20.5 %.
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What is the reason for incremental revenue of 18 Cr in Q1 FY19 and incremental EBITDA of 23 Cr in Q1 FY19 ? What was the sales mix ?
o Last year, the facility suffered a fire and it was actually 2 instances last year, which is a constraint production and this year it is decent production . It was 1 upset through the quarter as well as we also received some insurance payment of INR 1.5 Cr .
o This year production is normal and this year run rate is a normal run rate . Last year there was some disturbances in the plant, that’s the issue.
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Did it can assume that there is higher sales of salt this quarter for margin expansion ?
o In UK it is majorly B2B sales where company sell to brands. In U.K. salt demand is pretty flat, because there that is very mature market.
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Did the shutdown of the UK plant was because of thin margin ?
o No U.K. was also used to supply to last year there was supplying what was product meant for trade, which was about 23,000 tons, which was material bought from other manufacturer and supplied to customer in U.K., which they have stopped. The traded volume have stopped not the manufacturer volume.
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In salt business quarter-on-quarter sequentially, the revenues and the volume seems to be almost similar, but the profitability in consumer product had improved significantly So is it fair to assume that large part of this is led by improvement in the margins in this are to business are is there anyone off?
o It’s improvement both in margin in all the 3 categories. Spice, pulses and salt.
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How company will intend to compete with players like MDH which are already present in Spices at Amazon ?
o Company have 3 categories which is healthy for you, good for you and fun for you category and right now company focus is on Healthy for you . In Spices company focus is to deliver spices with higher amount of essential oils. Whole issue for company is around retention of these active ingredients. So turmeric for example, has got a higher proportion. So these are scientifically done in company lab. And it is supported by claims and in packing there are 5 packs within 1 big pack of cartoon. And it retains the freshness over a longer period of time. So the teams have worked out what i s a unique selling proposition for each one of category and which is why these products are found resonance and they will continue to gain market share and also drive growth in the market.
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Is the whole increase in revenue and margin is driven by salt only ?
o It is related to all 3 categories in which salt has the highest share of revenue.
o There is some margin improvement in n pulses and spices and also in volume picks so margin also picks.
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What was company missing from last 5 years that led to profit in this quarter in consumer segment and does consumer business excluding salt could be profitable?
o Firstly the last 5 years is a missed number. Spices have obviously second year of operation in 3. Last year it was a very small number This year is slightly better number in terms of margin. But in pulses last year company have to reconfigure entire supply chain based on the learning from market where there are controls in terms of movement of prices. So that supply chain has been reconfigured and has worked very well in terms of high levels of fluctuation, delivering steady margin So company had done that bit which is the part of learning process. And some amount of element of deep talking, some amount of slowness in the market, which came through disturbances, which were, let’s a policy lead, those have not been even this year.
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What are the likely margins for our foreign operations that is U.S., U.K. and Africa?
o U.S. operation is very profitable and U.K. and the planet, margins are what company have guided was EBITDA of INR 25 Cr and $10 million for Magadi. And about $100 million for U.S. and that will remain steady . Now the impact of energy cost has been fully being factored in now and it’s translated into market price and the margin has been more or less protected.
o In terms of EBITDA margins , it is broadly between, let’s say, 15% to 19% or 29%, 18% to 19% or 20% in U.S. And EBITDA margins will be closer to 8%, 9% or 10%, in US , UK and Kenya would also tend to be in the same range and U.K. tends to be slightly different in terms of its PBT margin because it’s highly that’s there is a debt in this company.
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If the 3 segments that is basically consumer, specialty and the number get some up there is a difference of about INR 675-odd million between the So it seems like there was exceptional feel of INR 64.3 Cr in TCNA or is that basically built in basic chemistry division here?
o No, there is no exception in U.S… In FY18 it was there
o There was 2 things happen in the U.S. last year. One was, the change in federal tax legislation and also there was a share ramp where company changed the medical benefits. There were books disclosed in the December '16 results.
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Does the EBIT include the 64.3.Cr of one off exceptional gain ?
o Yes
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On the pulses and spices business, How the ramp has been happen on quarter-quarter basis. Because company has highlighted last year first quarter was probably a low base. So the revenue has been moving sequentially here?
o Yes, sequentially it is a growth of approximately 20%. In pulses and spices it is 250 %.
