Transition of bulk fertiliser marketing arrangement from Rallis India to Tata Chemicals
Move aimed to provide focus on core competencies and improve operational efficiencies of both companies
As part of the ongoing process of consolidation and focus on core business and competencies, the boards of Tata Chemicals Limited and Rallis India Limited have agreed to a transition of the urea marketing arrangement from Rallis to Tata Chemicals with effect from April 1, 2003.
With this move, Rallis will now focus on low-volume, high-value pesticides, speciality fertilisers, fine chemicals, seeds, research-and-development-based services and farm management services, while Tata Chemicals will focus on the high-volume bulk fertilisers, soda ash and salt. This is a strategic win-win move for both companies, the benefits of which will accrue over a period of time.
Company officials explained that, given the changed market scenario, the critical success factors for the proposed Rallis portfolio is very different from those required for urea marketing. Tata Chemicals is the only urea major which does not do its own marketing. Given the supply-demand scenario, it needs to have full control of its entire value chain. Hence the disengagement from the marketing agreement for urea between the two companies.
The agreement has been in existence since 1994, a time when there was great synergy for both companies from such an arrangement. However, since 1997 the contract has been an annual one, with both companies marketing and monitoring regularly the value-add from this arrangement as market focus started changing fundamentally. Officials of the two companies will work over the next four months to ensure a smooth transaction.
Areas will also be identified where both companies can continue to draw on each other's strengths to gain maximum value in the marketplace. One such area is the Tata Kisan Kendras set up across the country. These centres reach out to farmers directly through fulfilment of their need for agro inputs, agricultural practices, credit and off-take of produce, and the two companies will continue to ensure a symbiotic relationship between these centres.
Commenting on the move, Prasad Menon, Managing Director, Tata Chemicals Limited, said, "This is definitely a win-win situation for both companies. It allows us at Tata Chemicals to have complete control on all aspects of a sizeable part of our business. "
Adds Rajeev Dubey, Managing Director, Rallis India Limited, "The changed market scenario has redefined the critical success factors for the proposed Rallis portfolio and stands in contrast to those required for urea marketing. This move allows us to focus on our chosen path and create growth opportunities."
Benefits for Rallis India and Tata Chemicals
| For Tata Chemicals |
For Rallis India |
| Complete control of the value chain — Like in its salt and cement businesses, Tata Chemicals will now have complete control of the urea business, which will bring it closer to its end-consumer, the farmer. |
Focus on core competencies — Enables the company to concentrate in its core business of speciality chemicals and research and development. |
| Operational efficiencies — Urea has traditionally been a controlled industry. However, with a change in the business environment, this move will give Tata Chemicals a platform to become a robust and competitive urea manufacturer in the future. |
Improve profitability — It will enhance the profitability ratios, even though there will be a fall in terms of revenues. However, the impact on profits is minimal as the profit margins in urea marketing are very low. |
| Enhanced profitability — The transfer of the marketing arrangement will optimise the marketing expenses, which in turn will lead to enhance profitability. |
Improve competitiveness — This will allow Rallis to compete more effectively with existing and prospective players in the global arena. |
| Fuels growth — It opens up avenues for the company to expand into related areas like phosphatics etc. |
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