Hind Lever Chemicals Limited (HLCL) has merged with Tata Chemicals Limited (TCL).

HLCL is primarily in the fertilisers and chemicals business. Its integrated manufacturing complex produces bulk chemicals: sulphuric acid, phosphoric acid and phosphatic fertilisers like sodium tripoly phosphate (STPP), di-ammonium phosphate (DAP), NPK complexes and single super phosphate (SSP) fertiliser.

The phosphatic fertiliser complex in Haldia is currently the only manufacturing unit for DAP/NPK complexes in West Bengal. HLCL's fertilisers, sold under the brand name 'Paras', lead the market in West Bengal, Bihar and Jharkhand. (Haldia is an industrial port city that is 125 km from Kolkata. Haldia port, the fourth largest in India, handles over 28 million tonnes of cargo every year.)

Haldia was conceived as part of a backward integration plan for Hindustan Lever's detergents business for the manufacture of STPP, which is used as a 'builder' in the formulation of detergents. Plant operations commenced in 1979 and have, over time, expanded following the addition of phosphatic fertiliser capacities. The Haldia facility now has production volumes exceeding 1.2 million tonnes per annum.

Merger magic
TCL and HLCL possess natural synergies across their key operating activities in the chemicals and the agricultural-inputs sector.

The boards of TCL and HLCL approved the merger proposal of the two companies on January 24, 2004, with the merger ratio being fixed at 2.5:1 (2.5 shares of TCL for every 1 share of HLCL). The merger, when approved, will be effective from April 1, 2002.

The proposal to merge was arrived at after considering various options and intensively evaluating alternatives that provide the best opportunity to integrate the two operations. The goal was to create value for all stakeholders in the two companies. The transaction provides a compelling case of businesses with natural operating synergies being able to together create value at a faster pace than would have been possible if they were individual entities.

Leading position in the soda ash and STPP businesses
TCL is the largest soda ash producer in India and it is a leading player in related chemical categories such as cement, salt and sodium bicarbonate. Soda ash is a key raw material for the detergent and glass sector. HLCL is India's largest producer of STPP, which is a builder in detergents. STPP competes favourably with the only other product available in the segment — zeolite — in terms of cost as well as performance. STPP is a more effective binder and needs to be used in smaller volumes as compared to zeolite.

The merger provides the unified company with the opportunity to enhance and complete its portfolio of leading products in the segment and reach out to newer customers, besides strengthening its relationship with major detergent players in the country.

Presence in complementary fertiliser categories
TCL has a capacity of 7,42,000 tonnes per annum (TPA) for manufacturing urea and has one of the most energy efficient plants in the country, comparable to the best in the world. It is regarded as a model industrial complex in terms of technology, energy conservation, productivity and safety. TCL has an established presence in the states of Uttar Pradesh, Punjab, Haryana, Bihar and Uttaranachal, which account for 48 per cent of the total domestic demand for urea. These states account for over 85 per cent of TCL's urea sales.

HLCL is a leading player in fertilisers such as DAP, SSP and NPK, and it enjoys high customer loyalty. The company can manufacture 7,00,000 TPA of DAP and 1,70,000 TPA of SSP. It had sales of 1,25,000 tonnes of NPK and 1,00,000 tonnes of MOP in fiscal 2001.

Nitrogen, phosphorous and potassium are the key agro-nutrients for crops. The ideal usage ratio for N: P: K is 4:2:1, but in India the usage is highly skewed towards nitrogen due to the subsidy regime. The usage patterns are expected to re-balance as the government aligns its subsidies on a more realistic basis.

While TCL already manufactures urea (N-based); DAP (N and P based), NPK complexes (N, P and K based) and SSP (P-based) are complementary to the existing product range. With a likelihood of subsidy correction going forward, the demand for P and K based fertilisers is expected to improve further.

High level of brand and marketing synergies
TCL's agri-services initiative, the Tata Kisan Sansars (TKS), the first of its kind in India, has achieved outstanding success as a platform for long-term brand building with the farming community. The TKSs have high brand equity, deep penetration in key markets, and they cater to the multiple needs of farmers. HLCL is a pioneer in branding fertilisers in India and enjoys significant brand loyalty in the farmer community. The TKSs and Paras provide a natural marketing fit.

A win-win situation for the companies and their customers
The synergetic business profile provides the company with marketing dominance and high brand loyalty that is supported by cost leadership. The company believes 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 agro-nutrients.

The new entity is likely to strengthen the company's competitive position in its operating categories and growth markets.