Falling market share and plunging profits have compelled Tata Chemicals to transform itself from being just another manufacturing company to a market-driven, customer-oriented organisation focused on slashing costs. The company’s performance last year was impacted by a major fire at its Mithapur inorganic chemicals complex; but operations have stabilised from the last quarter of FY 2002. The company hopes to improve its profitability by continuing cost reductions, ensuring that all company activities are market-driven and ramping up exports to regional markets.

Prasad Menon, managing director, Tata Chemicals spoke to Kripa Mahalingam on how the company is managing it all.

With falling import duties and new capacities being put up by rival Nirma in soda ash — which is your mainstay — how do you plan to protect market share and margins?

Yes, Nirma will take away some market share from all existing players. But we are looking to bring down our production costs. In fact, over the next two years, we want to be the lowest cost- producer in the world — we’re working on reducing the per tonne cost by Rs 1,000 in that time.

We have begun exports to Thailand, Indonesia and the Middle East as an initial step towards becoming an international player in this market. This year, we have set ourselves an export target of 75,000-1,00,000 tonnes , compared with 30,000 tonnes achieved last year.

What will be the impact of the new pricing policy on your company’s profitability, considering that there has always been a downward revision in every pricing period?

Well, we have to wait for the prices to be fixed for us to determine the negative impact. None of the companies can work out the details. The worst-case scenario for us would be that the net effect is zero.

Your cement plant has been up for sale for quite sometime now. Why hasn’t it been sold yet?

We haven’t been able to get the right price for the plant. We are still open to the idea and once we get the price we are looking for, we’ll go ahead with the sale. Till then, we will run the plant at close to 90 per cent capacity. This year, the focus will be on bringing the cement business back to profit.

Are you considering terminating your marketing alliance with Rallis India? If yes, then how do you plan to market your products in the future?

This is an issue that keeps coming up with us. We renew our marketing tie-up with Rallis India every year. The decision we have to consider is whether we should market the products on our own, or whether we should continue with Rallis India. We will decide on the issue in the next couple of months. We are not likely to disturb the arrangement just now, as the season has just begun.

You’re not a company with in-house marketing strength. What’s triggered this move towards setting up your own marketing network? What are the benefits?

When you sell through your dealers, you have to share margins with them. In a business where the margins have been shrinking because of intense competition, sharing margins made little economic sense.

So, we decided to set up our own marketing network. Having your own network has other benefits also: you have a better understanding of your customer’s needs and therefore it helps improve response speed.

You have brought down your debt levels last fiscal, but isn’t it still very high at Rs 1146 crore? What’s your comfort level?

We are constantly trying to bring down our high-cost debt. Various initiatives undertaken already include restructuring of debt and tapping the low-cost commercial paper market, which has helped reduce our interest costs by 32 per cent to Rs 110 crore last fiscal. We have managed to bring down our average cost of debt to 13.5 per cent through our initiatives.

But in a softening interest rate scenario, we realise even this cost of debt is still on the higher side and we will be looking to bring it down further this year. We continue to look at various options available to us. For instance, we could further pre-pay some of our loans, for which we are in talks with financial institutions.

Last year, your company made an annual cost saving of
Rs 15 crore through operational efficiencies. Do you expect to better that performance this year?

We are looking to save up to 3-4 times the amount we did last year. We have launched "Manthan", an efficiency-led programme in consultation with management consultancy McKinsey. We’re looking to achieve higher efficiencies through continuing cost reductions, which will augment the long-term sustainability of our operations.

What kind of growth are you targeting for the current year?

We don’t expect any dramatic growth in our topline — about 10 per cent next year, but our immediate goal is to become globally competitive in all our core businesses.

We also want to maximise on the export opportunities in our salt and soda ash businesses. We want to consolidate our top position in the branded salt segment with the launch of our new brand 'Samundar', and increase market share in the business.

Your company has expressed an interest in acquiring the government’s stake in National Fertiliser Limited (NFL). Have you decided on the price you are willing to offer?

Yes, we have expressed an interest in acquiring NFL and have done the due diligence at our end.

We will wait for the fertiliser policy to be announced before we decide on the bid price. The seventh and eighth pricing period should be finalised by July. After that, the fertiliser policy will be announced and that will decide the future fortunes of the industry.