Better network, volumes to drive Tata Chemicals growth

Company pegs growth at 6-7% while rest of the soda ash industry sees nearly flat growth

Tata Chemicals is set to outsmart the soda ash industry in terms of growth, using its industry leadership position and efficient production system. Industry experts see better network and volumes as driving Tata Chemicals through these troubled times.

For most soda ash players, there seems no respite as the industry fears production growth during the current financial year to drop to two-three per cent, the lowest since 2009-10, from an average six per cent in each of the past five years. Strained margins due to high input costs and companies’ inability to pass on the increased cost to the consumers seem to be taking a toll on profitability.

Input costs have gone up by close to 30-35 per cent over the past one year, while companies have not been able to match the rise with the prices of soda ash.

Soda ash prices quoted at Rs 900-950 per 50 kg in the New Delhi market recently. In January, prices hovered in the range of Rs 965-980 per 50 kg. The prices had hit a high of Rs 1,350 last April.

The detergent and glass industries are major buyers of the commodity and are perturbed by the rupee depreciation and volatility in prices of imported material. An industry observer said, “A number of glass manufacturers have started moving to domestic producers rather than importing, and Tata Chemicals is better placed to supply them with efficient pricing.”

Tata Chemicals has a 32 per cent share in soda ash production and is considered more fuel-efficient compared to its peers. “This incremental demand shift from imports to the domestic market will help the company grab a higher market share,” said industry sources.

Measures such as use of Lupa bulkers, especially designed to transport unpackaged bulk cargo, not only saves on the cost of plastic bags and labour charges, but also increases efficiency in loading and unloading of soda ash. Each bulker has an approximate capacity of 25 tonnes and can replace three million plastic bags each year.

“The company plans to incorporate 10 more bulkers in 2012–13. In the near term, we are targeting 150,000 metric tonnes (mt) of movement of soda ash by bulkers. We are also planning other alternate and innovative modes for long distance bulk movement,” said Zarir Langrana, COO, chemicals business (India), Tata Chemicals.

"Tata Chemicals is no exception to other industry players, which are facing pressured margins. But large volumes and vast presence in the market gives them edge over other peers," said an official at the Alkali Manufacturers’ Association of India.

Tata Chemicals currently is the world’s second-largest producer of the commodity with installed capacity of 100 million tonnes per annum. “Significant impact (of slowdown in domestic market) is not expected and we currently estimate growth to stabilise at six-seven per cent," Langrana said in an emailed reply last week. This will be much better compared to industry average.

“The scenario in sectors like building and construction and automobile will decide the future trend of soda ash demand in the country. The capacity utilisation will also be under pressure amid weak demand,” said an industry source.

Others in the industry are not that enthused.

“Margins have been flat for the past one year and there is increasing pressure from the cost side. On the other hand, prices have remained almost static for the past one quarter. The first quarter of this fiscal has not seen growth in demand,” said R S Jalan, MD, GHCL Ltd, one of the leading soda ash makers in the country.