The announcement to merge Hind Lever Chemicals Ltd (HLCL) with Tata Chemicals was, no doubt, a major landmark in an otherwise lacklustre fertiliser industry. Not surprisingly then, that the Tata Chem scrip jumped nearly 10 per cent to close at Rs 66.60 at the BSE on January 22, the day of the announcement. Moreover, the move will give Tata Chemicals a borrowing power of close to Rs 400 crore. This also comes at a critical juncture of the disinvestment of National Fertilisers.

Tata Chemicals managing director Prasad R Menon in an exclusive interview to Namrata Singh and Sambit Datta, runs through the broader picture of the merger in the backdrop of uncertainties on the fertiliser policy front. Mr Menon is a chemical engineer from the Indian Institute of Technology, Kharagpur, and has extensive experience in the chemicals industry, having worked with the Nagarjuna group and ICI prior to joining Tata Chemicals in October 2000. Excerpts from the interview:

What are the various business objectives behind the proposed merger of Hind Lever Chemicals Ltd (HLCL) with Tata Chemicals Ltd (TCL)?
The proposal to merge was taken after considering various growth alternatives to arrive at a recommendation that had the highest potential to create value for all stake holders including the shareholders of both the companies. We believe that this merger will enable us to create value at a faster pace, than was previously possible as individual entities.

This transaction provides us with an opportunity of consolidating our leadership position by leveraging the natural synergies of both the companies across their respective operating areas in the chemicals and agri-inputs sector. By acquiring greater customer reach and strengthening our operating platform in focus areas, the proposed merger will result in a renewed robust organisation with enhanced product profile and a stronger financial position, thereby resulting in greater shareholder value.

In what way will this create shareholder value?
This is a win-win situation for both TCL and HLCL. The synergetic business profile provides the company with marketing dominance and high brand loyalty that is supported by cost leadership.

The company believes that this combination will provide it with a stronger sustainability and growth profile in the agri-inputs business and provide the farmer community with a more relevant range of high quality agri-nutrients.

How would TCL’s foray into phosphatic fertilisers and diversification into sodium tri-polyphosphate (STPP) enhance its stronghold in the industry?
This merger will further consolidate our geographical presence.

Tata Chemicals has an established presence in the northern states of Uttar Pradesh, Punjab, Haryana, Bihar and Uttaranchal, while HLCL has a leading presence in Bihar and West Bengal, where it has a 75 per cent share of Di-Ammonium Phosphate (DAP). It has 40 per cent market share in Single Super Phosphate (SSP) in West Bengal. There is minimal duplication in the marketing geographies of the two companies.

The merger with HLCL provides the renewed company with the opportunity to enhance and complete its portfolio of leading products in the segment and reach out to newer customers while strengthening its relationship with major detergent players. (TCL’s inorganic chemicals business is a natural fit with HLCL’s bulk chemicals business. TCL is the largest manufacturer of soda ash, which is a key raw material for the production of detergents whereas HLCL is the country’s largest manufacturer of STPP used as builders in detergents).

Thus the transaction will allow the combined entity to offer a wider range of complementary products and support services to the current base of customers and also facilitate access to new markets and customers in both the chemicals and the agri-inputs businesses.

What kind of cost benefits will the company draw
post-merger?
Keeping in view the complementary nature of operations areas in both the chemicals and agri-nutrients business, the combined organisation will provide an opportunity to create cost efficient structures by merging common resources and infrastructure and leveraging strengths to create a highly cost and marketing-led competitive organisation.

How do you plan to leverage brand 'Paras' of HLCL? Would Paras and Tata Chem’s brands co-exist?
The merger ensures a high level of brand and marketing synergies. While TCL’s agri-services initiative "Tata Kisan Kendras" (TKKs) are the first of its kind in India, HLCL markets have high brand equity, deep penetration in key markets and cater to the multiple needs of the farmer. HLCL markets its fertilisers under the "Paras" brand name that enjoys significant brand loyalty within the farmer community.

The TKKs and the Paras brand provide a mutually-complementing ‘marketing fit,’ which will be extended in key regions.

What are your future plans for the merged entity?
Since agri-business and chemicals are common core areas, we will look at various opportunities to enhance the stakeholder value.

What is the status of Tata Chem’s cement plant?
The cement plant continues to operate as an integral part of the inorganic chemicals complex at Mithapur.