Release Date: August 05, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Tata Chemicals Ltd (BOM:500770, Financial) reported stable demand across most end-user segments, particularly in India for detergents and solar glass.
- The company successfully commissioned 2.3 lakh tons of soda ash capacity at Mithapur, which will come onstream in the coming months.
- Sequentially, the export pricing in the US improved, and Kenya saw marginally higher volumes and prices.
- The company is on track with its CapEx plans, including the bicarbonate capacity of 70,000 tons and pharmaceutical salt in the UK.
- Tata Chemicals Ltd (BOM:500770) expects to see benefits from higher export prices in Southeast Asia in future quarters.
Negative Points
- Muted demand was observed in Europe, and the Chinese soda ash operation faced issues due to quality improvements needed in Inner Mongolia.
- The UK operations experienced a collapse in margins, partly due to a drop in earnings from the energy business.
- Higher variable costs in Kenya, mainly due to increased shipping and transportation costs, impacted margins.
- The company faced higher freight rates due to tensions in the Middle East, affecting imports into India.
- The UK business is expected to continue facing challenges, with projected losses between INR 30-45 crores per quarter.
Q & A Highlights
Q: My first question is regarding one of the US peers announcing a price increase a couple of months back. Have Tata Chemicals also taken such a price increase? And if yes, what is the expectation on the margin profile in the US going forward?
A: Yes, in the US, domestic market prices remain stable due to annual contracts. However, export prices have seen an upward movement in Southeast Asian markets, which should benefit margins in future quarters.
Q: What happened in the UK geography this quarter? There has been a collapse in the margin.
A: The UK saw a volume impact and a drop in earnings from energy business, which affected soda ash margins. We expect similar margins to continue through the year.
Q: Are you seeing any production disruptions for your salt due to heavy rainfall in Gujarat?
A: We expect to be on track for delivering planned volumes, with no significant disruptions observed so far. However, we remain cautious as the monsoon season progresses.
Q: Can you talk about the Kenya sequential margin decline?
A: The margin decline in Kenya was due to higher variable costs, mainly shipping and transportation. We expect these costs to normalize in the coming quarters.
Q: On the India business, can you provide clarity on the capacity expansion for sodium bicarbonate?
A: We have already expanded by 70,000 tons and will add another 70,000 tons by October, bringing the total capacity to 290,000 tons. We expect full utilization by the end of this financial year.
Q: What are the drivers behind the margin improvement in the India business?
A: The improvement is mainly due to lower energy and fuel costs, along with steady production maintaining efficiency and cost control.
Q: The debt numbers have increased sequentially. Is this related to the new capacity startup in India?
A: The increase in working capital debt is seasonal and should normalize through the year. Additionally, INR170 crores is due to the capitalization of a warehouse lease.
Q: Can you provide an update on the UK expansion, specifically the bicarb and pharmaceutical salt capacities?
A: The UK expansion includes 70,000 tons of pharmaceutical salt capacity. The total incremental EBITDA from all expansions, including India, is expected to be around INR400 crores.
Q: What are the main demand drivers for sodium bicarbonate?
A: Demand drivers include food, feed, and pharma sectors, as well as flue gas treatment for coal-fired plants. These applications are expected to drive demand and ensure high utilization levels.
Q: What steps are being taken to reduce losses in the UK?
A: The team is working on cost rationalization and portfolio readjustment, including the commissioning of the pharmaceutical salt unit and higher-grade bicarbonate sales. We aim to significantly reduce losses by the end of the year.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
