Rating Rationale
May 27, 2020 | Mumbai
Tata Chemicals Limited
  Rating reaffirmed
 
Rating Action
Rs.600 Crore Commercial Paper CRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its 'CRISIL A1+' rating on the commercial paper of Tata Chemicals Ltd (TCL).
 
CRISIL has noted the completion of demerger of the Consumer Product Business, which included sourcing, packaging, marketing, distribution & sales of edible common salt, spices, pulses, protein foods, snacks, natural sweeteners and detergents, to Tata Consumer Products Ltd (TCPL; erstwhile Tata Global Beverages Ltd) after receiving approvals from various stakeholders; the deal was concluded through a share swap transaction. The demerger is effective from February 07, 2020, with the appointed date being April 01, 2019. TCL continues to manufacture salt, backed by a 25-year supply contract with TCPL having take-or-pay arrangements for current capacity as well as planned expansion and also the right of first offer beyond that.
 
In fiscal 2019, the Consumer Products segment accounted for 16% of consolidated revenue and 17.5% of consolidated profit before interest and tax (PBIT). Nonetheless, the overall credit profile will remain strong, aided by healthy cash accrual from basic chemistry and specialty products, low gearing and strong liquidity.
 
On December 19, 2020 TCL, through its wholly-owned subsidiary, Valley Holdings, Inc acquired the remaining 25% partnership interest in Tata Chemicals (Soda Ash) Partners Holdings from The Andover Group, Inc. for USD 195 million, thereby increasing its stake to 100%. The deal was primarily funded through external borrowing of USD 175 million. This deal provides TCL full ownership and control of the North American business; however, the same has resulted in increase in borrowing on books at the consolidated level by around Rs 1,240 crore. Overall debt stood at Rs 7,702 crore as of March 31, 2020 vis-a-vis Rs 6,143 crore as on March 31, 2019. Overall gearing remains comfortable below 1 time.
 
Following the Covid-19 outbreak, TCL's consolidated revenue for fiscal 2021, may decline, mainly because of production facilities operating at lower capacity coupled with supply chain disruptions across the globe. However, lower energy cost would restrict any sharp decline in profitability. TCL benefits from adequate exposure to non-discretionary end-user products (detergent, soaps, pharma chemicals, container glass etc.), which will support steady demand for soda ash besides a usual demand for edible salt. TCL's access to natural trona deposit for about 2/3rd of manufacturing capacity, helps maintain cost competitiveness at the same time.
 
On a standalone level, TCL became long-term debt-free as on March 31, 2020, while debt at consolidated levels has increased, due to the leveraged acquisition done in North America, and revaluation of foreign currency borrowing in overseas operations. TCL's North America business has substantial upcoming debt maturity in August 2020 to the tune of around USD 225 million of term debt and USD 25 million of revolving facility; refinancing of debt remains a monitorable. Further, TCL has ample liquidity of around Rs 3,660 crore as on March 2020, largely in the standalone books.
 
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 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 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:
* Strong business risk profile, driven by established market presence
Business remains diversified, with operations spread across basic chemistry products, including soda ash, sodium bi-carb & salt manufacturing (contributing around 77% to revenue in fiscal 2020) and specialty products including agri solutions (23%).
 
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 around 4.3 million tonne per annum (TPA), and natural soda ash forming nearly 2/3rd of its capacity. TCL's subsidiary, Rallis, too has a strong market position in the agricultural products industry. Consumer products business now demerged to TCPL, has resulted in increasing contribution from the soda ash business, though TCL continues to manufacture salt.
 
* Healthy operating efficiency in the natural soda ash business
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.
 
* Strong financial risk profile, underpinned by strong liquidity, high financial flexibility, and healthy capital structure
Liquidity remains strong, aided by cash and cash equivalent of Rs 3,660 crore as on March 31, 2020. Easy access to low-cost financing from banks/financial markets being part of the Tata group, and low utilisation of working capital lines, also support liquidity. Gearing rose slightly to 0.56 time as on March 31, 2020, from 0.40 time, a year before, due to the debt-funded acquisition of additional stake in the North American subsidiary. Capital structure should remain healthy, with gearing expected below 1 time, despite the consumer products business moving out of TCL, and the scheduled capital expenditure.
 
Weakness:
* Susceptibility to price volatility in the soda ash business
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 strong with cash and cash equivalent of Rs 3,660 crore as on March 31, 2020. Easy access to low-cost financing from banks/financial markets, being part of the Tata group, and low utilisation of working capital lines also support liquidity. Cash accrual should remain adequate to cover the debt obligations (factoring in likely refinancing of North America debt in August 2020) and capital expenditure plans.

Rating sensitivity factors
Downward Factors
* Increase in debt or moderation in profitability, leading to consolidated gross debt to EBITDA over 4 times on sustained basis.
* Lower-than-expected cash accrual
* Significant depletion in cash position (including liquid investments)

About the Company

TCL was incorporated in 1939, to manufacture 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 gross soda ash 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, there increasing stake to 100%.

Key Financial Indicators#
Particulars Unit 2020 2019
Revenue Rs crore 10,357 10,337
Profit after tax^ Rs crore 7,228 1,387
PAT margin % 69.8 13.4
Adjusted debt/adjusted networth Times 0.56 0.40
Interest coverage Times 5.70 5.03
^includes profit from discontinued operations after tax (Rs 6200 crore in fiscal 2020 and Rs 224 crore in fiscal 2019)
# Financials are as per company reported nos. 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)
ISIN Name of instrument Date of allotment Coupon rate (%) Maturity date Issue size (Rs.Cr) Rating assigned with outlook
NA Commercial Paper NA NA 7-365 days 600 CRISIL A1+
 
Annexure - List of entities consolidated
Names of Entities Consolidated Extent of Consolidation Rationale for Consolidation
Bio Energy Venture - I (Mauritius) Pvt. Ltd. Full Consolidation Significant operational and financial linkages
Rallis India Limitcd Full Consolidation Significant operational and financial linkages
Ncourage Social Enterprise Foundation Full Consolidation Significant operational and financial linkages
Tata Chemicals lrternational Pte. Limitcd Full Consolidation Significant operational and financial linkages
Homefield Pvt. UK Lirnited Full Consolidation Significant operational and financial linkages
TCE Group Limited (formerly known as Homefield 2 UK Limired) Full Consolidation Significant operational and financial linkages
Natrium Holdings Limired (formerly know as Tata Chemicals Europe Holdings Limited) Full Consolidation Significant operational and financial linkages
Brunner Mond Group Limited Full Consolidation Significant operational and financial linkages
Tata Chemicals Europe Limited Full Consolidation Significant operational and financial linkages
Nonhwich Resource Management Limited Full Consolidation Significant operational and financial linkages
Winnington CHP Limited Full Consolidation Significant operational and financial linkages
Cheshire Salt Holdings Limited Full Consolidation Significant operational and financial linkages
Cheshire Salt Limited Full Consolidation Significant operational and financial linkages
British Salt Limitcd Full Consolidation Significant operational and financial linkages
Brinefield Srorage Limited Full Consolidation Significant operational and financial linkages
Cheshire Cavity Storage 2 Limited Full Consolidation Significant operational and financial linkages
Cheshire Compressor Limited Full Consolidation Significant operational and financial linkages
Irish Feeds Limited Full Consolidation Significant operational and financial linkages
New Cheshire Salt Works Limited Full Consolidation Significant operational and financial linkages
Tata Chemicals Africa Holdings Limited Full Consolidation Significant operational and financial linkages
Tata Chemicals Sourh Africa (Proprietary) Limited Full Consolidation Significant operational and financial linkages
Tata Chemicals Magadi Limired Full Consolidation Significant operational and financial linkages
Magadi Railway Company Limited Full Consolidation Significant operational and financial linkages
Gusiutc Holdings (UK) Ltd. Full Consolidation Significant operational and financial linkages
Valley Holdings lnc Full Consolidation Significant operational and financial linkages
Tata Chemicals North America Inc. Full Consolidation Significant operational and financial linkages
TCNA (UK) Limited Full Consolidation Significant operational and financial linkages
General Chemical lntemational Inc. Full Consolidation Significant operational and financial linkages
NHO Canada Holdings lnc. Full Consolidation Significant operational and financial linkages
TCSAP LLC Full Consolidation Significant operational and financial linkages
Tata Chemicals (Soda Ash) Partners Holdings Full Consolidation Significant operational and financial linkages
Tata Chemicals (Soda Ash) Panners (TCSAP) Full Consolidation Significant operational and financial linkages
Alcad Full Consolidation Significant operational and financial linkages
Metahelix Life Sciences Lrd Full Consolidation Significant operational and financial linkages
PT. Metahelix Lifesciences lndonesia Full Consolidation Significant operational and financial linkages
Zero Waste Agro Organics Limited Full Consolidation Significant operational and financial linkages
Rallis Chemistry Expons Limited Full Consolidation Significant operational and financial linkages
The Block Salt Company Limited Equity Method Proportionate Consolidation
Natronx Technologies LLC (upto 5 December 2018) Equity Method Proportionate Consolidation
Indo Maroc Phosphore S.A. Equity Method Proportionate Consolidation
Joil (S) Pte Ltd Equity Method Proportionate Consolidation
Tata Industries Limited (with effect from 27 March 2019) Equity Method Proportionate Consolidation
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Commercial Paper  ST  600.00  CRISIL A1+      21-05-19  CRISIL A1+  30-10-18  CRISIL A1+    --  -- 
Short Term Debt (Including Commercial Paper)  ST                  31-10-17  CRISIL A1+  CRISIL A1+ 
All amounts are in Rs.Cr.
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
Rating Criteria for Chemical Industry
Rating Criteria for Fertiliser Industry
CRISILs Criteria for Consolidation
CRISILs Criteria for rating short term debt

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