| Tata Chemicals Limited | ||
| Rating Reaffirmed | ||
| Rating Action | ||
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| 1 crore = 10 million | ||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL A1+’ rating on the commercial paper programme of Tata Chemicals Limited (TCL). CRISIL Ratings has reduced the rated quantum of commercial paper to Rs 100 crore from Rs 600 crore based on the company’s request. The reduction in rated quantum of commercial paper is in line with CRISIL Ratings policy of withdrawal.
During fiscal 2021, TCL’s earnings before interest, tax, depreciation and amortisation (EBITDA) margin declined around 400 basis points (bps), despite revenue registering marginal de-growth of 1.5%, primarily due to lower realisation during a large part of the fiscal. In fiscal 2022, CRISIL Ratings expects revenue to grow 8-10%, driven by recovery in the glass industry (key end-user) which would support higher volumes. Prices are also expected to be higher as was visible in the fourth quarter of fiscal 2021, as further deferral of capacity expansion announced by players in domestic and global markets would keep prices firm since the supply-demand situation is expected to remain relatively tight. Majority of TCL’s sales are backed by contracts wherein prices are contracted varying from quarterly to multi-year tenor. Therefore, the benefit of improved realisation is expected to be visible with a lag. The EBITDA margin is expected to improve 150-200 bps, aided by improving realisation and better spread of cost on higher revenue base.
Among international businesses, the operations in the US were most impacted wherein EBITDA margin declined around 1,000 bps in fiscal 2021, compared to the previous fiscal, due to slow recovery in volumes (down by 15%) particularly export volumes and subdued realisations.
From a debt perspective, TCL’s standalone business continues to remain debt free, while majority of the debt resides in the international businesses. Overall, gross debt has reduced to Rs 6,933 crore as on March 31, 2021, from Rs 7,702 crore as on March 31, 2020. TCL has successfully refinanced debt worth USD 375 million in the first quarter of fiscal 2021 pertaining to its US operations. Another major refinancing is expected in fiscal 2023 when debt amounting to USD 200 million and GBP 80 million matures and will remain a key monitorable. CRISIL Ratings derives comfort from TCL’s past track record of successfully refinancing its overseas debt.
TCL’s financial flexibility continues to remain strong by virtue of being part of the Tata group. Liquidity is also cushioned by cash and cash equivalent of Rs 3,104 crore as on March 31, 2021 and quoted equity investment in other Tata group companies valued at around Rs 2,600 crore as on March 31, 2021.
The rating continues to reflect the company’s strong business risk profile, driven by its established market presence and healthy financial risk profile because of strong liquidity and financial flexibility. These strengths are partially offset by susceptibility to price volatility in the soda ash business. |
Analytical Approach For arriving at the rating, CRISIL Ratings has combined the business and financial risk profiles of TCL, Tata Chemicals Europe, Tata Chemicals North America, Tata Chemicals Magadi, and Rallis India Ltd (Rallis; ‘CRISIL AA+/Stable/CRISIL A1+’). For calculation of financial ratios, CRISIL Ratings has amortised goodwill (both arising from acquisitions as well as self-generated) over 20 years starting from fiscal 2009. A significant portion of this goodwill relates to the acquisition of General Chemical Industrial Products (GCIP), which gave TCL access to long-term trona reserves for manufacturing natural soda ash.
Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths:
Business remains diversified, with operations spread across basic chemistry products, including soda ash, sodium bi-carb and salt manufacturing (contributing around 75% to revenue in fiscal 2021) and specialty products, including agricultural solutions (around 25%).
The inorganic chemicals business is geographically diversified across North America, Europe, Africa and India. TCL is the third largest producer of soda ash in the world, with capacity of 4.1 million tonne per annum (mtpa) and natural soda ash forming nearly two-third of its capacity. TCL’s subsidiary, Rallis, too has a strong market position in the agricultural products industry. Consumer products business, now demerged to Tata Consumer Products Ltd, has resulted in increasing contribution from the soda ash business, though TCL continues to manufacture salt.
Operating efficiency is expected to remain healthy, backed by availability of low-cost natural soda ash from North America, and benefits from restructuring of operations in the United Kingdom (UK) and Kenya. The company’s soda ash plant in Mithapur, Gujarat, is one of the lowest-cost producers of synthetic soda ash, aided by proximity to limestone quarries and economies of scale. It also has an integrated cement plant, which utilises by-products from soda ash manufacturing.
Liquidity remains strong, aided by cash and cash equivalent of Rs 3,104 crore as on March 31, 2021. Easy access to low-cost financing from banks and financial markets, from being part of the Tata group, and low utilisation of working capital lines, also support liquidity. Capital structure should remain healthy, with gearing expected below 1 time.
Weakness
The domestic soda ash business remains susceptible to volatility in international prices, driven by capacity addition, currency fluctuations and competition from imports. While improved operating efficiency from large scale of operations and increased integration across geographies partially offsets impact of any price fluctuation on TCL, its soda ash business will remain exposed to price volatility. |
Liquidity: Strong Liquidity is supported by cash and cash equivalent of Rs 3,104 crore as on March 31, 2021. Easy access to low-cost financing from banks and financial markets, being part of the Tata group, and low utilisation of working capital lines also support liquidity. Cash accrual is expected to be adequate to cover the debt obligation (factoring in refinancing in full or part for debt in international operations) and capital expenditure. |
Rating Sensitivity Factors Downward factors
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About the Company Incorporated in 1939, TCL manufactures soda ash and related chemicals, including sodium bicarbonate, caustic soda and bromides. The company commenced operations in 1944, with a 30,000 TPA plant at Mithapur. Over the years, it has expanded its soda ash installed capacity to 917,700 TPA. It entered the iodised vacuum salt business in 1986. TCL also has a 440,000-TPA cement plant in Mithapur, which was set up to effectively utilise the solid waste generated during soda ash production.
TCL’s subsidiary, Rallis, is one of the leading players in the domestic crop protection sector, and manufactures pesticides, herbicides and fungicides at its factories in four locations. In March 2006, TCL completed acquisition of the Brunner Mond group for Rs 798 crore, gaining access to the soda ash business in Europe and Kenya. It acquired GCIP in North America for USD 1.01 billion in March 2008. In December 2010, it acquired British Salt Ltd, the leading manufacturer of pure-dried vacuum salt products with around 50% market share in the UK, for GBP 93 million. The company also has brine wells with a long tenure of residual life. TCL was also in the urea and phosphatic fertiliser and trading businesses, which it sold in 2018 as part of its strategy to exit highly regulated businesses. In fiscal 2020, TCL demerged its consumer product business to another Tata group entity, and also acquired the remaining 25% stake in Tata Chemicals (Soda Ash) Partners (TCSAP) for USD 195 million, thereby increasing its stake to 100%. |
Key Financial Indicators#
^Exclude profit from discontinued operations #Financials are as per company reported numbers and may differ from CRISIL adjusted numbers. |
Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
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Annexure - List of Entities Consolidated
##Merged with TCL effective June 1, 2020 and the appointed date being April 01, 2019 ^^Company has made an application to the Registrar of Companies for removal of its name from the register of companies, the said company name was struck off on March 29, 2021. #Merged with Rallis w.e.f. July 09, 2020 ^^^Merged with Rallis w.e.f. Feb 01, 2020 *Increased stake from 75% to 100% on December 19, 2019. |
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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