| Tata Chemicals Limited | ||
| Rating Reaffirmed | ||
| Rating Action | ||
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| 1 crore = 10 million | ||
| Refer to annexure for Details of Instruments & Bank Facilities |
| Detailed Rationale |
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CRISIL has reaffirmed its 'CRISIL A1+' rating on the short-term debt programme (including commercial paper) of Tata Chemicals Ltd (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. These strengths are partially offset by exposure to risks related to price volatility and cyclicality in the soda ash business, and the highly-regulated nature of the domestic fertiliser industry. |
| Analytical Approach |
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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/Positive/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 |
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Strengths * Strong business risk profile, backed by diverse revenue streams Business is diversified, with operations spread across inorganic chemicals (including soda ash, cement, and salt; contributing 65% to revenue in fiscal 2017); complex fertilisers (17%); and agricultural inputs and others (18%). 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 43 lakh tonne per annum (tpa), nearly 70% of which is natural soda ash. TCL remains the leader in the branded edible salt business in India, with a market share of around 65% in fiscal 2017. Established brands and 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. TCL's subsidiary, Rallis, too has a strong market position in the agricultural products industry. Rallis' crop protection portfolio compliments TCL's crop nutrition portfolio, thus helping TCL provide integrated solutions to Indian farmers. * Healthy operating efficiency in the natural soda ash business Operating efficiency will remain healthy, backed by availability of low-cost natural soda ash from North America, and restructuring of the European 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 economies of scale. * Strong financial risk profile, underpinned by robust liquidity, high financial flexibility, and healthy capital structure Financial risk profile is underpinned by robust liquidity and financial flexibility. Surplus liquidity in the form of cash and cash equivalents stood at around Rs 1870 crore as on March 31, 2017. Easy access to low-cost financing from banks/financial markets, as part of the Tata group, and low utilisation of working capital line (fund-based limit of around Rs 1000 crore was utilised at an average of around 15% over the 12 months through June 2017) support liquidity. Recent cash inflow from sale of equity stake in TGBL, sale announcement of the urea business, and proposed sale of the phosphatic fertilizer business will enhance financial flexibility. Gearing improved to 0.93 times as on March 31, 2017, from 1.31 times a year earlier, primarily due to reduction in debt to Rs 7072 crore from Rs 9090 crore, and healthy accretion to reserves in fiscal 2017. Capital structure should remain healthy despite scheduled capital expenditure. Weakness * Susceptibility to price volatility and cyclicality in the soda ash business The domestic soda ash business is vulnerable to international price movements, as domestic soda ash producers face intense competition from cheaper imports, which has compelled them to align domestic delivered prices with landed cost of soda ash. Amid rising input cost and aggressive competition, profitability of most domestic players is under pressure. While TCL offsets the pressure through improved operating efficiency from large scale of operations and increased integration across geographies, its soda ash business will remain exposed to risks inherent in the industry. * Highly regulated nature of the fertiliser industry in India Given the Indian government's thrust on self-sufficiency in food grain production, the fertiliser industry is strategic but highly controlled. Of late, the government has focused on reducing subsidy without increasing prices, by urging companies to adopt more efficient methods of urea production. In line with these measures, it tightens energy consumption norms periodically, impacting profits of urea players unless they improve energy efficiency. Additionally, delays in disbursement of subsidy for both urea and phosphatic players result in large working capital borrowing, leading to high interest cost. However, due to highly regulated nature of this business, TCL intends to exit the business. Sale announcement of the urea business in fiscal 2017 and proposed sale of the phosphatic fertilizer business are steps in that direction. CRISIL will continue to monitor development. |
| About the Company |
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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. |
| Key Financial Indicators | ||||||||||||||||||||||||
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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) | ||||||||||||||
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Table reflects instances where rating is changed or freshly assigned. 'No Rating Change' implies that there was no rating change under the release. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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