Press releases


Tata Chemicals' rating upgraded by Crisil

Tata Chemicals Limited

Rs 0.6 billion non-convertible debenture programme AA+ / Stable (upgraded from AA / Positive)
Rs 0.13 billion non-convertible debenture programme AA+ / Stable (upgraded from AA / Positive)
Rs 0.68 billion non-convertible debenture programme AA+ / Stable (upgraded from AA / Positive)
Rs 0.5 billion non-convertible debenture programme AA+ / Stable (upgraded from AA / Positive)
Rs 3 billion short-term debt programme P1+ (reaffirmed)

Hind Lever Chemicals Limited

Rs 1 billion short-term debt programme P1+ (reaffirmed)

The upgrade in Tata Chemicals Limited's (Tata Chemicals) non convertible debenture ratings is based on benefits expected to arise from Tata Chemicals' acquisition of Hind Lever Chemicals Limited (HLCL) under a share swap agreement and the improvement in Tata Chemicals' financial profile with reduction in debt levels and interest costs.

The merger with HLCL will strengthen Tata Chemicals' business profile by imparting greater diversity to its revenue stream. HLCL's sodium triopolyphosphate (STPP) and complex fertiliser businesses complement Tata Chemicals' soda ash, branded salt and urea operations. The merged company will enjoy a strong-to-leading position in all these businesses. In addition, it will have superior operating efficiencies because of its large-scale capacities and highly integrated operations. The benefits of diverse revenue streams have been demonstrated in the current fiscal, when the merged entity's overall profitability has been protected in spite of the reduction in the complex fertiliser business' profitability. The company has already received the Mumbai High Court's approval for the merger, and the Punjab and Haryana High Court's approval is expected within a few months. The merger will be effective from April 1, 2002.

The rating upgrade also reflects the improvement in Tata Chemicals' financial profile with the reduction in its debt levels and interest costs in 2003-04. The company is expected to have about Rs 5 billion in debt as on March 31, 2004, as against Rs 7.9 billion as on March 31, 2003. This reduction and the refinancing of debt at lower interest rates have helped Tata Chemicals to reduce its interest costs. Its gross interest outgo fell to Rs 388.9 million in the first nine months of 2003-04 from Rs 767.8 million in the corresponding period last year. Tata Chemicals enjoys high profit margins and comfortable interest coverages with a proft after tax (PAT) margin of 14.95 per cent and profit before depreciation, interest and tax (PBDIT) cover of 10.8x in the first nine months of 2003-04.

Post-merger, Tata Chemicals's comfortable financial profile will continue to be supported by its large networth of over Rs 20 billion and low gearing of 0.38x (estimates for the merged entity as on March 31, 2004). The merged entity also enjoys high financial flexibility with a strong liquidity position (estimated mutual fund investments of Rs 3.5 billion as on March 31, 2004) and its association with the Tata Group. Although the merged entity's operating profit margins will decline because of HLCL's relatively less-profitable complex fertiliser business (which will account for around one-third of its total sales), its net margins will still be high at around 8 per cent.

Tata Chemicals is an established player in the urea segment in Uttar Pradesh, Punjab and Haryana, while HLCL enjoys more than a 60 per cent share of the complex fertiliser market in West Bengal and Bihar. The two have among the best efficiency norms for urea and complex fertiliser plants in the industry. Crisil believes that the merged company's presence in urea and complex fertilisers, its highly efficient plants, and established brands and distribution network will hold it in good stead in the decontrolled scenario.

In the chemicals business, Tata Chemicals is the largest domestic producer of soda ash (current market share of 34 per cent) apart from being the largest player in the branded salt segment (with a 39 per cent share). Since soda ash is used in the detergent and glass industries, this business will be complemented by HLCL's STPP one (STPP is a major ingredient in detergents). HLCL enjoys a dominant position in this segment because of its status as the sole supplier to Hindustan Lever Limited (HLL). HLL has assured the company that it will procure 90 per cent of its STPP requirements from the company for the next three years.

These rating strengths are, however, tempered by the fact that the company's fertiliser business continues to be dependent on government policies while its chemicals business remains susceptible to imports and international price fluctuations.

The current ratings do not factor in any large capital expenditure or investments apart from those included in the current business plan. Tata Chemicals has expressed an interest in acquiring a part of the government's stake in fertiliser companies that are being divested, and in brownfield expansions to enhance its capacities. Crisil will factor in the impact of any future acquisitions or expansions on the ratings as and when they take place, depending on the size of the investments required and the funding mix for the same.

Given the synergies between their businesses, Crisil expects the merger with HLCL to bring cost benefits to Tata Chemicals. Crisil also expects Tata Chemicals to sustain the improvement in its financial profile with its reduced debt levels and interest charges.

About the company
Tata Chemicals, which is a part of the Tata Group, manufactures urea, soda ash and other inorganic chemicals and cement. It reported a PAT of Rs 1.88 billion on net sales of Rs 12.58 billion in the first 9 months of 2003-04 as against a PAT of Rs 1.37 billion and net sales of Rs 11.81 billion in the first nine months of 2002-03. The company reported a PAT of Rs 1.97 billion on an operating income of Rs 15.35 billion in 2002-03.

HLCL manufactures complex fertilisers and speciality chemicals (detergent builders). Its complex fertiliser range includes di-ammonium phosphate (DAP), NPK (10:26:26, 12:23:16 and 28:28:0), single super phosphate (SSP) and muriate of potash (MoP). It enjoys a dominant position in the STPP segment. For the nine months ended December 2003, HLCL reported net sales of Rs 7.5 billion and a PAT of Rs 28.0 million as against net sales of Rs 8.4 billion and a PAT of Rs 272.0 million in the corresponding period last year. HLCL earned a net profit of Rs 300.3 million on an operating income of Rs 9.73 billion for the year ended March 31, 2003.

On a proforma basis, complex fertilisers and the chemicals business (comprising soda ash, branded salt and cement) accounted for around 33 per cent each of the merged company's sales in the first nine months of 2003-04 followed by urea at 29 per cent and STPP at 5 per cent. The chemicals business contributed around 48 per cent of the merged entity's profit before interest and tax (PBIT) while the urea business contributed 46 per cent, and STPP, business 7 per cent. There was a small loss (2 per cent of PBIT) in the complex fertiliser business.