Rating Rationale
October 30, 2018 | Mumbai
Tata Chemicals Limited
 Rating reaffirmed
 
Rating Action
Rs.600 Crore Commercial Paper* CRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
* Earlier short-term debt programme (including commercial paper)
Detailed Rationale

CRISIL has reaffirmed its 'CRISIL A1+' rating on the commercial paper of Tata Chemicals Limited (TCL). The rating continues to reflect the company's strong business risk profile driven by diverse revenue streams, and its healthy financial risk profile because of robust liquidity and financial flexibility, post the sale of its fertiliser business. These strengths are partially offset by susceptibility to price volatility in the soda ash business.
 
CRISIL has noted the completion of sale of TCL's urea business to Yara Fertilisers India Pvt Ltd for Rs 2682 crore (subject to post-completion adjustments) in January 2018 and slump sale of its phosphatic fertiliser and trading business to IRC Agrochemicals Pvt Ltd for Rs 872 crore (subject to post-completion adjustments) in June 2018. CRISIL will continue to monitor the utilisation of the sale proceeds.

Analytical Approach

For arriving at the rating, CRISIL has combined the business and financial risk profiles of TCL, Tata Chemicals Europe, Tata Chemicals North America, Tata Chemicals Magadi, and Rallis India Ltd (Rallis; 'CRISIL AA+/Stable/CRISIL A1+'). For calculation of financial ratios, CRISIL has amortised goodwill, arising from acquisitions and self-generated, over 20 years starting from fiscal 2009. A significant portion of this goodwill relates to the acquisition of General Chemical Industrial Products (GCIP), which gave TCL access to long-term trona reserves for manufacturing natural soda ash.

Key Rating Drivers & Detailed Description
Strengths
* Strong business risk profile, backed by diverse revenue streams
Business is diversified, with operations spread across Basic Chemistry Products, including soda ash (contributing around 70% to revenue in fiscal 2018), Consumer Products, including salt (14%), and Specialty Products, including agri solutions (16%). The inorganic chemicals business is geographically diversified across North America, Europe, Africa, and India. TCL is the third largest producer of soda ash in the world, with capacity of around 4.3 million tonne per annum (tpa), nearly 70% of which is natural soda ash. TCL remains the leader in the branded edible salt business in India, and has an overall market share of 25.5% in powdered salt segment in fiscal 2018. Established brands and a strong distribution network should help maintain leadership position in the business. For its consumer-oriented business, the company launched in fiscal 2016 an umbrella brand, Tata Sampann, which includes pulses, spices, and besan. Since then, it has launched various products under this segment. TCL's subsidiary, Rallis, too has a strong market position in the agricultural products industry.

* Healthy operating efficiency in the natural soda ash business
Operating efficiency is expected to remain healthy, backed by availability of low-cost natural soda ash from North America, and benefits from the restructuring of the United Kingdom (UK) and Kenyan soda ash operations. The company's soda ash plant in Mithapur, Gujarat, is one of the lowest-cost producers of synthetic soda ash due to proximity to limestone quarries and economies of scale. It also has an integrated cement plant, which utilises by-products from soda ash manufacturing.
 
* Strong financial risk profile, underpinned by robust liquidity, high financial flexibility, and healthy capital structure
Liquidity and capital structure have improved, post sale of TCL's urea and complex fertiliser businesses in January 2018 and June 2018, respectively. Liquidity was robust with cash and cash equivalent of Rs 4559 crore as on March 31, 2018. Easy access to low-cost financing from banks/financial markets, as part of the Tata group, and low utilisation of working capital lines also support liquidity. Gearing improved to 0.44 time as on March 31, 2018, from 0.67 time a year earlier, due to reduction in debt to Rs 6108 crore from Rs 7072 crore, and healthy accretion to reserves. Capital structure should remain healthy with gearing expected below 1 time, despite scheduled capital expenditure.
 
Weakness
* Susceptibility to price volatility in the soda ash business
The domestic soda ash business is susceptible to volatility in international prices, driven by capacity addition, currency fluctuations, and competition from imports. While improved operating efficiency from large scale of operations and increased integration across geographies partially offsets impact of any price fluctuation on TCL, its soda ash business will remain exposed to price volatility.
About the Company

TCL was incorporated in 1939 to manufacture soda ash and related chemicals, including sodium bicarbonate, caustic soda, and bromides. The company commenced operations in 1944 with a 30,000 tpa plant at Mithapur. Over the years, it has expanded its gross soda ash capacity to 917,700 tpa. It entered the iodised vacuum salt business in 1986. Tata Salt is the leading iodised edible salt brand in India. TCL also has a 440,000-tpa cement plant in Mithapur, which was set up to effectively utilise the solid waste generated during soda ash production.
 
TCL's subsidiary, Rallis, is a leading player in the domestic agrochemicals market, and is present in all agrochemical segments (pesticides, herbicides, and fungicides). In March 2006, TCL completed acquisition of the Brunner Mond group for Rs 798 crore, gaining access to the soda ash business in Europe and Kenya. It acquired GCIP in North America for USD 1.01 billion in March 2008. In December 2010, it acquired British Salt Ltd, the leading manufacturer of pure-dried vacuum salt products with around 50% market share in the UK, for GBP 93 million. The company also has brine wells with a long tenure of residual life. TCL was also in the urea and phosphatic fertiliser and trading businesses, which it sold in 2018 as part of its strategy to exit highly regulated businesses.

Key Financial Indicators
Particulars Unit 2018 2017
Revenue Rs crore 10,345 10,681
Profit after tax Rs crore 2,702 1,234
PAT margin % 26.1 11.6
Adjusted debt/adjusted networth Times 0.44 0.67
Interest coverage Times 6.73 7.04
# Financials are as per company reported nos. and may differ from CRISIL adjusted numbers.

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments.
Annexure - Details of Instrument(s)
ISIN Name of instrument Date of allotment Coupon rate (%) Maturity date Issue size (Rs cr) Rating assigned with outlook
NA Commercial paper * NA NA 7-365 days 600 CRISIL A1+
* Earlier short-term debt programme (including commercial paper)
Annexure - Rating History for last 3 Years
  Current 2018 (History) 2017  2016  2015  Start of 2015
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Commercial Paper  ST  600.00  CRISIL A1+    --    --    --    --  -- 
Short Term Debt  ST    --    --    --  02-09-16  Withdrawal  05-08-15  CRISIL A1+  CRISIL A1+ 
                12-08-16  CRISIL A1+       
                09-08-16  CRISIL A1+       
Short Term Debt (Including Commercial Paper)  ST          31-10-17  CRISIL A1+  03-10-16  CRISIL A1+    --  -- 
                02-09-16  CRISIL A1+       
All amounts are in Rs.Cr.
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
Rating Criteria for Chemical Industry
Rating Criteria for Fertiliser Industry
CRISILs Criteria for Consolidation
CRISILs Criteria for rating short term debt

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