Tata Chemicals sells urea business to focus on other fertilisers

MUMBAI (Reuters) - Tata Chemicals, the Tata group's flagship chemical and fertilisers company, is selling its urea business to Norway's Yara International to focus on other fertilisers and consumer products like pulses and spices.

Tata said it had agreed the sale of its urea business, which is in the northern state of Uttar Pradesh, to Yara, one of the world's largest fertiliser producers, for 26.7 billion rupees ($400 million).

The Uttar Pradesh business contributed 13 percent of Tata Chemicals' total sales revenue last fiscal year. The company will now focus on fertilisers such as soda ash and expand its consumer-related business that includes salt, spices and pulses.

"In many of these businesses if you don't have scale, it becomes unsustainable in the long run. We are trying to scale the consumer business and that is the company's broad strategy," Tata Chemicals' Managing Director Ramakrishnan Mukundan told a press conference on Wednesday.

About eight companies produce urea in India but analysts say the sector is hampered by regulated returns and delayed subsidy disbursements from the government, which has led to consolidation in the sector.

The operations being acquired by Yara produce 0.7 million tonnes of ammonia and 1.2 million tonnes of urea annually and had revenues of $350 million and operating profit of $35 million for the fiscal year through March 2016, Yara said in a statement earlier in the day.

The deal also includes Tata Chemicals' distribution network in Uttar Pradesh.

Indian merchant bankers Kotak Investment Banking and JM Financial advised Tata Chemicals on the deal.

($1 = 66.6900 Indian rupees)

(Reporting by Promit Mukherjee; Editing by Susan Fenton)