TALKING BUSINESS Supply chain improvement will come with access to technology
Tata Chemicals, the market leader in packaged salt and a significant player in fertilizers, has a portfolio of products straddling many segments. But with an eye on the future, it recently classified its products under three categories — Living Essentials, Industry Essentials and Farm Essentials — and is altering its business mix in favour of consumer and application-driven areas. R. Mukundan, Managing Director, Tata Chemicals, speaks to Ramnath Subbu on the company’s strategy going forward. Excerpts:
The Indian economy is clearly going through a difficult period with a perceptible slowdown. How is Tata Chemicals affected, and how is it coping with the situation?
Our company has three distinct business areas. Our consumer products business with salt, pulses and water purifiers is not impacted by the slowdown, and is growing at a fine clip. There is increased conversion to packaged products and to national brands. This will continue as consumers seek better quality and value.
Second, our industrial products business is global in nature.
Soda bicarbonate continues to grow because of varied applications — pharma, animal feeds and foods — and is fairly recession-proof. In soda ash, the U.S. seems to be better off, and markets in Asia, Africa and Latin America continue to grow. Though Continental Europe is a cause for worry, we are not present there.
Our U.K. plant supplies that market and parts of Northern Europe which has been shielded to an extent from the slowdown.
The big cause for concern, though, is the farm sector. But this is unrelated to the industrial slowdown. While in urea, robust demand continues, the issue has been on the phosphatic fertilizer side, where international prices and rupee depreciation have impacted it.
If we want to maintain margins, the price to farmers will increase. So, we only had a marginal price hike but there is going to be a massive margin compression and some manufacturers are selling below margins which could lead to losses.
Also, there are worries about the delayed arrival of the monsoon. If the delay continues, we will start advising farmers on cropping pattern.
The specialty products business seems to be a new thrust area for Tata Chemicals. Is there likely to be a change in the business mix for the company going forward?
In agrochemicals, we see Rallis going from strength to strength as they plan to triple business in 6-7 years.
We also see opportunities in new areas where we are focussed. In future, the company will be a more consumer-facing, application-driven rather than a commodity-driven company. That is the transition we want to make into more higher-end chemicals.
We have plans to enter new verticals. and are looking at new areas as India grows.
First is the nutraceuticals business, where we are investing around Rs.50 crore in Chennai to make oligosaccharaides and polyols for the foods industry.
The consumer and specialty portfolio contributed Rs.2,500 crore out of our Rs.13,000-crore turnover last year (18 per cent). We would like to build it to at least 50 per cent in five years if pursued aggressively. We certainly want to move the portfolio to more consumer and application-oriented businesses.
What about the company’s mainstay — salt, soda ash and fertilizers. What is the plan for these businesses?
We will continue to debottleneck and keep growing at the pace India grows in inorganic chemicals and soda ash business. Our growth rates will be primarily driven by it. The markets we are in — India and Africa — are growing, and we have a substantial presence. In the U.S. and Europe, our focus is on maintaining market share.
If we look at a matrix like return on capital employed, fertilizer and inorganic chemicals remain the cash cows and fuel the growth of new businesses. But we constantly have a portfolio review.
We are not investing a lot in soda ash but growing in the growth markets.
Most of our businesses are not exposed to government policy, except fertilizer. If the policy regime gets difficult in fertilizer, then there will have to be a review. Hopefully, the government moves towards a positive policy review. In our view, if the pressure on the business continues, because of politics, we will be constrained in terms of what we will invest in the business.
In salt, our market share is steady at around 64 per cent. We commissioned a 1.80 lakh tonne plant and as it gets absorbed, we will expand capacity immediately.
We believe demand growth will be driven not by increased salt consumption but by people moving from loose to packaged salt and from local brands to national brands — consumer preference driving demand.
What is your view on the opening up of the multi-brand retail sector to foreign direct investment (FDI)?
We are essentially a supply-chain business. If FDI in multi-brand retail comes in, we will benefit as we can be a supplier to the retail chains. When we exited the ‘Khet Se’ business, our customers were Bharti WalMart, Reliance and Star Bazaar of Trent.
In India, supply chain improvement will come with access to technology. In the modern store format, everything is packed.
Anyway, on the consumer side, standards must be prescribed for foods and packaged foods should be encouraged. FDI in multi-brand retail must be debated keeping in mind the interests of the retailer, farmer and the consumer.