Edited Transcript of TTCH.NS earnings conference call or presentation 3-Aug-20 5:30am GMT

In terms of the overall performance, let me start with the performance material business. The soda ash business was — as you know, has exposure to various sectors. And the performance has been in line with the way the sectors have performed during this lockdown period and extreme turbulence around the world. And the sectors like detergents, the sectors like personal care, the sectors like other chemicals have done well, whereas the sector like flat glass, which goes mainly into automotive and real estate, those consuming sectors within soda ash have had a difficult quarter as far as we are concerned. But these are behind us, and these factories are opening slowly, and we hope as time passes by, the softness would start to reduce, and the demand would start to pick up coming from these sectors.

Overall, if you look at the performance of this, while U.K. and Kenya have very limited exposure to flat glass, and hence, their numbers have been more or less steady and have run to the plan. There were some disturbances with respect to logistics because of port closures. Beyond that, I think there is no customer demand issue. Because, as you know, the bulk of the sales of Magadi goes to container glass and bulk of the sales in U.K., again, they have almost 0 exposure to flat glass. The flat glass exposure is in India and U.S. In India, it’s fairly limited. To that extent, Indian demand did not — was okay. In U.S., the exposure is slightly more, and especially the exposure of — to the exports is almost 50% to flat glass and that tended to see the pressure of the activity.

Hope as countries reopen as the pressure of the pandemic reduces, these markets will open and will come back on stream, and Zarir will add more color to that.

As far as our HDS is concerned, the silica business and performance material, they resumed operations around the middle of May. And since then, they’ve had a very good traction in terms of demand and would continue to do well. We are also happy to say that the Tamil Nadu government has actually allocated additional land to us for expansion and growth of this business, and we will continue to build this business going forward.

In terms of the nutrition science, the salt did very well because of consumer demand. I think there was a stocking by everyone because of the fears of shutdown. And bicarbonate also did very well, the food-grade and the pharma grade. And the Nutraceuticals also performed well post reopening the #2 plant, which again reopened somewhere around middle of May.

In fact, both these new plants have done better than previous year in terms of turnover despite the lockdown.

British Salt in U.K., again, a salt part of the segment has done well and the bicarbonate, food-grade and pharma grade bicarb in U.K. has done well during this period and continue to post strong sales.

In agri science, our unit, Rallis, has done commendable work in terms of the sales as well as the operations despite difficulties in terms of running those operations. Which we have faced across the board with respect to labor and workforce, the mobilization, workforce safety, which were our primary concern. And have continued to perform well, and we hope that with good monsoon that would continue to move — happen and move forward.

With respect to energy science, I think our prioritization has been to calibrate our capital spend in this business, which is a new business in sync with our customers. And as you know, that the auto sector is under serious pressure. We are watching and waiting. We are not in a rush to sort of spend money. At the same time, we are also continuing our efforts to develop products, which are the next generation, which is beyond lithium. That work continues. As far as lithium battery cell is concerned, we have tapered down our investment plan in sync with our customers’ situation in the auto sector.

So to conclude, our focus during this period has been to produce as per demand, which means we’ve been watching — having a tight control on inventory, except to raw materials where it has been secured for strategic reasons. We have continued to make sure that we collect from our customers well in time so that our overdues are kept in check, which is — and we continue to focus on cash, run the — run all the units for cash. And happy to say that, that has been delivered by the team. We’ve also calibrated our fixed cost buildup, and we have also conserved wherever the customer demand as we know is going to be slightly slower to pickup, we have postponed those CapEx and accelerated the CapEx where we know the demand is going to be high, especially in the nutrition as well as in the agri segment.

As I want to conclude, I just wanted to say that our long-term strategy is intact. We will be continuing our focus to move the performance material business towards more value-added products. Even as we debottleneck some of the areas, so while we will debottleneck our Mithapur plant and those plans are afoot in the soda ash area, our investments will continue to expand the value-added products segment, both in terms of bicarbonate, which is a value-added product of soda ash as well as investments in various other solutions we give to customer in terms of speckles for detergent business.

In terms of nutrition science, we will continue to focus on our investment plan, our growth plan in terms of expanding from 1 million tonne to 1.5 million tonne of salt is on track. And the — despite the issues with respect to project execution, we don’t anticipate delays. In fact (technical difficulty) our agri science again, I think we are focused completely on executing our expansion plan to support both domestic and international market.

On energy science, as I said, we have tapered down our ambition. But at the same time, this remains one of the pillars we’ll continue to focus. So all in all, I would say the company is well positioned through these 4 verticals to deliver to market: Performance material, nutrition science, agri science and energy science. And this — we are very confident of navigating through the difficult time in terms of this pandemic. And we are very confident, as we emerge out of this sometime around the first quarter of next year — next calendar year, we would be in a much, much better shape as a company, which is reengineered itself and is reprogrammed itself to serve its customers well.

With that, I’ll hand this over to John to explain the financial numbers and then we’ll open this up for Q&A. Thank you.

——————————————————————————–

John Mulhall, Tata Chemicals Limited – CFO & Chief IR Officer [4]

——————————————————————————–

Thanks, Mukund, and good morning, everyone. I expect there’s going to be a lot of interest in the company’s view of the coming quarters. But before that, I’d just like to add some color to the financial results for the quarter, which we published on Friday night.

While the profit before tax and the stand-alone results was down INR 149 crores of this, around INR 120 crores is actually related to reduction in other income at line 1B. Within there, you have a timing of a dividend receipt. We didn’t receive any dividends from a massive drought last — this quarter. We’ve got INR 98 crores last year. The massive dividend last year of INR 72 crores, including a one-off element that we did adjust to just the cash build up in Morocco. And this year, when we get it in quarter 2, I’d expect it to be around INR 25 crores.

We all saw the Rallis dividend of INR 26 crores, we will not get to a quarter 2. And we also had reduced bank interest, mutual fund and fixed deposit income of about down INR 32 crores compared to last year. This is really a result of a sightly reduced cash balance, but also just the reduced rates we’re seeing in the marketplace today.

And that’s also the reason why you’ll see a reduction in the unallocated income in the segment analysis of the SEBI sheet in front, Page 2.

From the operations side, while revenue is down around INR 91 crores, the gross margin itself actually held up quite well. This is in TCL stand-alone. The gross margin came in about 62.6% against 63.1% last year, so 0.5% reduction compared to last year.

The revenue reduction itself was seen most in sodium — in soda ash and sodium bicarbonate volumes but this is offset by a strong salt performance. Prices did come under pressure, but mix and some variable cost savings did limit the nonsalt adverse price mix variance to around INR 10 crores to last quarter last year.

Our finance costs in India were down INR 15 crores on last year, really reflecting the payment on the ECB loan in October and NCDs in July 2019.

Our India cash position as cash mutual fund deposits and bank deposits moved to INR 1,999 crores in June compared to INR 2,162 crores in March, a reduction of INR 163 crores. Capital spending in the quarter in India was INR 105 crores against INR 175 crores last year.

Looking at international operations. And as Mukund mentioned, that the steepest decline we saw was in North America. Sales volumes were 152,000 metric tonnes below last year, and nearly all of this was export related and this, no doubt, will be this (technical difficulty) questions later on in the Q&A.

Profit before tax in the U.S. operation has reduced by INR 210 crores from last year. 2/3 of that is actually volume related, but INR 140 crores is volume related. And adverse price impact of export sales is around INR 30 crores. And while good cost savings were actually offset by a deliberate reduction in mine output and surface and production output to control cost and also the limited inventory build-out. We did complete the $375 million refinance in North America in some quite challenging market conditions, and we had some additional costs as we changed the financing structure.

The new arrangements will still be cheaper this year compared to anticipated costs of the previously contemplated finance facility.

For Magadi, they did record a marginal loss before tax of INR 2 crores. And while sales were down 6,000 tonnes at 62,000 tonnes in the quarter, due to the larger impact was seen in pricing and destination mix, these adverse results were partially offset by some rail and fixed cost compression.

The underlying U.K. performance itself was actually better than last year as we had a INR 12 crore exceptional gain last year. And this year, it was actually only INR 3 crores.

For Tata Chemicals Europe, our soda ash sales were down 6,000 tonnes, 4,300 tonnes of that was actually PFR sales last year, which had minimal margin. So this mix improvement, along with lower input cost really on coke and better manufacturing efficiency, alongside good bicarbonate sales produced better contribution margins for both business units, the soda ash and the sodium bicarbonate business units.

U.K. salt operations were impacted slightly by our sales mix as a result of the pandemic restrictions, but lower input cost, mainly gas, which contributed slightly better performance than last year. And overall, our consolidated cash finished the quarter at INR 3,258 crores and net debt was INR 3,760 crores.

And with that, I’ll hand back to Gavin, and then we’ll open the lines here for questions.

================================================================================

Questions and Answers

——————————————————————————–

Operator [1]

——————————————————————————–

(Operator Instructions) We take the first question from the line of Madhav Marda from Fidelity Investments.

——————————————————————————–

Madhav Marda, Fidelity Investments – Equity Research Associate [2]

——————————————————————————–

My question is specifically on the U.S. operations. So our EBITDA per tonne in this market has been about $45 to $50 for the longest time. And obviously, this quarter because of the lower volumes, it has been impacted. But I’m just trying to reconcile why the EBITDA per tonne has come down to about $12, $13 per tonne versus $45. What’s been the reason for the decline? I mean is it like product mix or operating leverage, what impacted us there?

——————————————————————————–

John Mulhall, Tata Chemicals Limited – CFO & Chief IR Officer [3]

——————————————————————————–

Yes. Like I said, I mean, a relatively high fixed cost base in North America has a disproportionate impact when you reduce the volume. And the price reduction on our export sales as well. So 2 things: one, significant volume reduction, which does impact your overhead recovery rates. Second piece is the price reduction. The third one is we took the mine and then we curtailed production to meet demand. So we aren’t building up stock and wasting cash that way, which is — that’s really why it was driven, the reduction in EBITDA per tonne.

——————————————————————————–

Madhav Marda, Fidelity Investments – Equity Research Associate [4]

——————————————————————————–

Okay. If I — I’m not sure if I’m doing it right, but if I look at your ASP per tonne, which is just dividing the revenues by the volumes, ASP seems flat or little higher actually Y-o-Y? I’m not sure, what am I missing here.

——————————————————————————–

John Mulhall, Tata Chemicals Limited – CFO & Chief IR Officer [5]

——————————————————————————–

Yes. No, the price is down against last year.

——————————————————————————–

Madhav Marda, Fidelity Investments – Equity Research Associate [6]

——————————————————————————–

Okay. Okay. All right. Okay. I’ll just check, maybe. And maybe one other question, how soon do we think the U.S. operations, the volumes come back to more normalized levels? How many quarters do you think your anticipation is, it could take?

——————————————————————————–

Ramakrishnan Mukundan, Tata Chemicals Limited – MD, CEO & Executive Director [7]

——————————————————————————–

So I think let me comment here, and maybe Zarir can add more color to this. Broadly speaking, if you look at the U.S. operation, I think the market mix will keep changing the realization because the domestic market realizations are higher than the international market as international markets go down, the volume goes down, the pricing mix will keep changing.

But broadly, I think their contribution margin has been in line with what we usually do. And if I take a broad range, I mean, contribution margins should hover around about 55% broadly. So if you look at the compression, which the sales have gone, I think that would broadly explain the compression in the — at the EBITDA level. And if at all, it will also tell you that there is a bit of a gain which has come in because of certain fixed cost effort the team has put in play. So that’s really the way I would sort of look at it because if you look at the loss of revenue itself and you look at the loss of contribution arising out of that revenue at 55%, it’s about INR 125-odd crores broadly.

On a EBITDA of INR 189 crores, that INR 125 crore compression should have led to EBITDA which should be close to about INR 60 crores to INR 70 crores. I think the fixed cost absorption, as John has highlighted, has led to a bit of a pressure on the EBITDA a little bit more than what one would normally anticipate.

So at the contribution margin level, we don’t see any big difference. It is basically the volume pickup, which will address most of the issues there.

As far as the PBT level is concerned from EBITDA to PBT when you go, there is a $5 million additional cost, which has happened this quarter, which will not repeat, which John has highlighted, because that was a part of the refinancing net out to take out cost because we wanted to move to a different structure. And that structure actually is a Chief of Finance than the current arrangement. So overall, the company benefits, but we had to take the entire takeout cost this quarter itself rather than amortize because of the accounting standards.

So that explains away at the PBT level about INR 35-odd crores of cost. That’s approximately $5 million. John, am I right about that?

——————————————————————————–

John Mulhall, Tata Chemicals Limited – CFO & Chief IR Officer [8]

——————————————————————————–

Yes. Just under $4 million, yes, for this quarter.

——————————————————————————–

Ramakrishnan Mukundan, Tata Chemicals Limited – MD, CEO & Executive Director [9]

——————————————————————————–

Yes, yes, yes. So I think the real issue is which you raised as a question when would the volumes come back? If that question has to be answered, fundamentally, the domestic market, really, the slowdown in the domestic market was — in U.S. was not as severe. In fact, the Indian domestic market was more severe in terms of slowdown than the U.S. market. The real issue for U.S. is the export market, when will they come back?

And our own understanding is it is going to start trending up slowly. Quarter 2 would see slightly better than quarter 1. But quarter 3 would see it more. But when would it return back to normal? I think maybe by the last quarter of this year or the first quarter of the next calendar year is when we believe the thing would get to — return to a normal. If you look at 2 of their export markets, the large export markets are Southeast Asia and South America. South America is especially going through a real difficult time in terms of pandemic and Southeast Asia, hopefully, will recover earlier than South America. We expect South America also to swing back closer to the last quarter of this calendar year, which is somewhere around Jan, March or around that time.

——————————————————————————–

Madhav Marda, Fidelity Investments – Equity Research Associate [10]

——————————————————————————–

Okay. And maybe just one follow-up from my side. On the pricing side, in our key markets in U.S. and India, can we see more pricing pressure going ahead, given capacity utilizations are a bit lower in the global soda ash market? Or it could be more resilient?

——————————————————————————–

Ramakrishnan Mukundan, Tata Chemicals Limited – MD, CEO & Executive Director [11]

——————————————————————————–

See, in the quarter 1, in my view, the pricing pressure was there, but I think the pricing pressure did not translate into what I would call margin pressure because the input costs also came down in terms of energy costs. Only one place where the input cost did not come down was Magadi because they had certain oil hedges in place. And those hedges meant that they were — they could not get the profit of the low oil price during the first quarter, which they will get in the second quarter. So clearly, the rest of the units will get certain benefit coming in because of the low energy cost, which protected them in the first quarter.

Going into second quarter, I think even if there is a pricing pressure, our assessment of the pricing issue is, especially in Southeast Asia, they probably are reaching the bottom. Zarir, you may want to add exactly what is your understanding of whether they are at bottom or maybe another $1 or $2 down?

——————————————————————————–

Zarir N. Langrana, Tata Chemicals Limited – Executive Director [12]

——————————————————————————–

Sure. So just once again, just going back to pricing for our North American unit. Once again, it would be useful to break it down into domestic and export. Domestic is primarily contracted. And we are seeing customers honoring their contracts. So the pressure on pricing in North America, at least till the end of the year is likely to be minimal.

In the export markets, as Mukund mentioned, yes, there has been some contraction in pricing. Our view is that in Southeast Asia, this has possibly reached the bottom as far as Chinese pricing into that market is concerned. Most of the Chinese producers today, we believe are trying to move pricing up, given the fact that their margins and their cash contributions are really at rock bottom today. We might see a little more aggression from the Turkish player in that market. The market today is at a level of about $185 to $200 CFR.

At best, we believe it might slip down another few dollars to maybe $180, $181. But I think that should be the bottom of the market. And certainly, not with all customers, with selected spot offers into that market. But that being said, yes, the export markets will continue to be under a bit of stress, at least till the first quarter of next year or the last quarter of our financial year.

——————————————————————————–

Ramakrishnan Mukundan, Tata Chemicals Limited – MD, CEO & Executive Director [13]

——————————————————————————–

Yes. And to further add to what Zarir has said, I think you need to watch out for few sectors in this. I think watch out for the — how the sectoral demand, especially the auto sector around the world gets back in shape. As it bounces back as that — especially the passenger vehicle demand comes back, whether it is in small or large vehicle, it really does not matter. For us, the small vehicles are much better because you sell more glass per dollar value of the car. I think the market demand direction will be outlined by that very specific segment.

The issue is fundamentally going to be driven by that. And that will be driven by how well the pandemic has been controlled. So our view still is that Southeast Asia, it has been controlled better. South America is still not clear. I think they are under deeper pressure now. They will probably take another 4 to 6 months to get it underway, which is why we are saying by the fourth quarter of this year they could see better turn of light. This is under the assumption that India continues to do a good job.

If we take the turn for worse, I think we are then for a bit of a root shock.

——————————————————————————–

Operator [14]

——————————————————————————–

We take the next question from the line of Abhijit Akella from IIFL.

——————————————————————————–

Abhijit R. Akella, IIFL Research – Research Analyst [15]

——————————————————————————–

Yes. Sir, just a couple of questions from my side. One is just a follow-up on the North American market. How much of the decline in volume is — or in 1Q was because of logistics and by plant closures just because of operational or other lockdown issues in the export markets in — for North America versus how much of it was because of just weakness in end-user demand? And therefore, what kind of recovery could we possibly expect in 2Q?

And then a corollary to that, just on the EBITDA per tonne, what would be a — I know that this quarter, there were some unabsorbed fixed cost, but what would be a more normalized kind of number looking ahead from 2Q onwards?

——————————————————————————–

Ramakrishnan Mukundan, Tata Chemicals Limited – MD, CEO & Executive Director [16]

——————————————————————————–

So in terms of the U.S. exports, there were no port closures in U.S. itself. And if you really look at where there are port closures in Southeast Asia, there were some, but I think they are not the main driver of this. And so I would just simply say that as far as the U.S. market movement is concerned, it is primarily driven by the demand at the customer end, but this is not related to any port-related issue.

The port-related issues mostly were concentrated only in one of our units, which is in Kenya where Mombasa had some issues when they were trying to export, but that is also behind them. So really, these were not operational hiccups at all.

Bulk of it, and I would say 90%, 95% of this is just the sheer demand not being there. Zarir, do you want to add?

——————————————————————————–

Zarir N. Langrana, Tata Chemicals Limited – Executive Director [17]

——————————————————————————–

No, absolutely correct. I think port closures in some markets in Southeast Asia, maybe in the first half of April, but insignificant. I think most of the ports are now opened up. It’s really pipeline stocks and lack of demand from end users. And primarily in the export market that translates into lack of demand from float glass producers. The others are slowly coming back in line, but the path to recovery for the float manufacturers in the key export markets is likely to take longer. We are seeing very encouraging signs out of China in terms of both vehicle and infrastructure demand. And maybe we see some spillover of that into the Southeast Asian markets as well.

But it is a wait-and-watch situation. Q2, as Mukund mentioned, will be marginally better than Q1. Q3 might see a further uptick, but really to see any significant movement we might have to wait till Q4.

——————————————————————————–

Ramakrishnan Mukundan, Tata Chemicals Limited – MD, CEO & Executive Director [18]

——————————————————————————–

Yes. And I think just to add a color, I think if you look at the segment of container glass, flat glass and detergents and other chemicals, if you put it there, detergents (technical difficulty) chemicals, I think we continue to see steady demand. As far as container glass is concerned, there was a bit of a dip, and then it picked up, in fact, it moved up beyond the current year in most markets, except India. And I’ll come to India, why India behaved differently. Around the world, the in-house consumption of beer and liquor actually increased, which meant that people were buying more bottles. The demand for bottles did go up. Whereas in India, I think the entire liquor consumption had been shutdown. So that sector suffered only in India, container glass sector.

Container glass also feeds in into pharmaceutical glass. I think those sectors are seeing good demand strength. So that leaves us with flat glass and flat glass fundamentally is driven off in large numbers by auto sector in Southeast Asia. And in Latin America, it is driven off the housing starts and housing constructions.

And as far as our understanding is concerned, this is going to be clearly a direction which we need to get from our customers. Auto sector customers believe that personal transportation will receive a boost but that is only an expectation, we don’t know for real. So as the float glass demand comes back, you could then start to predict the soda ash demand. The good news is there is the — Southeast Asia and South America don’t have any domestic production of soda ash. It’s all international suppliers who are there. And if that demand comes back, everybody will have room to play. If the demand is slow to come back beyond, let us say, fourth quarter of this year, then I think we need to then say — look at what are the avenues to shift the marketing place.

So I think this is a medium — let’s say, short-term issue, which we are concerned with. As far as the medium-term is concerned, the Tata Chemicals is already — we are in terms of exposure to float glass — flat glass sector, our exposure is less than the industry. In India, it is less than the industry. Internationally, also, it is less than the industry. In fact, in U.K. and in Kenya, we are not exposed to flat glass. And what we’re trying to do, both in India, especially in India in the short term, is to also switch our production and product mix away from the sectors which are vulnerable.

In U.S., it will take a bit longer time, but there, again, the plans are afoot to sort of make sure that market mix which changes over a period of time. So our mean term attempt is going to be fundamentally switch the product mix to the more resilient sectors and continue to focus on them. There’s hardly any realization difference between all the sectors. So it’s really who is serving which sector and that creates an impact on the P&L and bottom line.

——————————————————————————–

Abhijit R. Akella, IIFL Research – Research Analyst [19]

——————————————————————————–

That’s really helpful. And then my second question was just with regard to the CapEx plans for this year. You talked about dialing down your investments in sectors that are not seeing very clear demand going forward. So on a consolidated basis, what kind of CapEx should we expect for fiscal ’21? And then in case, I mean, it yields any surplus cash, would you prefer to use that cash to pay down debt? Or are there any other plans in mind?

——————————————————————————–

Ramakrishnan Mukundan, Tata Chemicals Limited – MD, CEO & Executive Director [20]

——————————————————————————–

So in terms of — clearly, if you look at the one which we have dialed down, even as we speak, and I think it’s part of the strategy is the storage battery business because we think the demand — we will see demand robustness, not from the mobility solution in the short term, at least when I say 12 to 18 to 24 months because the vehicle companies will be under serious stress in terms of putting out new — what I call new vehicles in the market because they will tend to depend on what is already on the drawing board not to do something new.

And I think the government support in terms of electrification also will be under pressure because they will be — there’d be financial pressures in terms of giving fiscal benefits for boosting the domestic EV shift in the short term.

In the long term, that still is a vertical which we must play in. Also in the short term, I think the solutions will — for energy science will switch to stationary solutions. And for that, we don’t need to actually invest in a factory, we have — there is enough surplus capacity around the world. We can assemble and give solutions to our customers.

So we are engaging with customers, but that necessarily need not mean a factory build-out because there are solutions available, which are available from the current manufacturers around the world, which we can assemble and ship to our — any orders which may have. And so we have dialed down completely the energy science business that is a fact, which I also highlighted in my opening remarks.

As far as the agro science is concerned, there is no change in our plan. In fact, we are accelerating some of the startups. We are taking additional capital spend there to push the production of both our formulation and our technical products. And this is happening in Dahej as well as in Ankleshwar, both plants are being pushed up to give the solution.

Also, if you look at our Nutraceutical and our silica plant, I mentioned as far as the Nutraceutical is concerned, our factory can expand 4x the current number, current size. And we are seeing a very good customer demand. So we hope to come back and continue to report strong numbers there. And hopefully, by the year-end, we’ll have — you would see then the growth in that sector is happening.

As far as the silica is concerned, our solutions to tire industry was constrained by the current capacity and also the land which was available for expansion, which Tamil Nadu government has allocated — allotted additional land to us only, I think, last month, even during the pandemic. So we are going to go ahead with investing in that.

As far as the salt is concerned in Mithapur itself as well as in U.K., the investment shift to bicarb and salt in U.K. continues as planned. As far as India is concerned, the expansion of salt from 1 million tonne to 1.5 million tonne, in fact, is getting accelerated. There is a slowing down in terms of some of the investments we were making, especially in terms of the capital spends in U.S. as well as in India, especially with respect to some of the commoditized chemicals. But that slowdown also is not very dramatic to write about, but it’s just extension of the phase.

So I think in terms of CapEx spend, it is not going to be such a sharp dip, but it’s going to be a slight dip. John, do you want to add some number to this?

At least in the first quarter, you’ve seen a dip, whether — I think that shift will continue even during the next couple of quarters. The big issue, let me just highlight, is not coming from our intent to grow, it is actually coming from constraints in terms of project execution. We are not able to get the equipments on time. We are not able to get the workforce on time, which is leading to delay, which is leading to prioritization of what we put up so in the order of priority, anything which goes to nutrition and agriculture sector will get faster attention from us, the rest of the sectors will be reprioritized. And the constraint is not cash. The constraint is not the strategic intent because the — our strategy is very well crafted in terms of delivery to market. But our issue is more coming from the workforce and availability of project teams to execute these.

So that’s where the prioritization is happening. So we could see a shortfall by INR 150 crores to INR 100-odd crores from our normal spend. But I don’t see a dramatic dip below that. John, over to you.

——————————————————————————–

John Mulhall, Tata Chemicals Limited – CFO & Chief IR Officer [21]

——————————————————————————–

Thanks, Mukund. Yes, I’d agree with that. We probably could end up being about 2%, 5% and 10% down on last year’s spending. But what you — to what’s happening, where they have some important strategic investments like in Rallis, where they do some development expansion work or in the U.K. where we’re building out the carbon capturing facility and spending some more money on developing bicarb facility. We will continue spending money in these areas because these are margin-accretive strategic investments. But where the return could potentially be uncertain or we’re just not sure what’s going to happen in the next 1 or 2 years, then we will dial back. At this stage today, I would probably say we’re 2%, 5% and 10% down on last year. But that might change a little bit.

——————————————————————————–

Ramakrishnan Mukundan, Tata Chemicals Limited – MD, CEO & Executive Director [22]

——————————————————————————–

Yes. Also, when your question about debt reduction, I think allow us time till the second quarter to come back to you. There is definitely work going on. And I think we do think it’s one of the things we must do going forward. So we will get there also as a plan and present back to you. Right now, I don’t want to comment where the work is going to review exactly how we need to move in that direction, but we are clearly focused to take even these on the international debt out so it — we become as prudent in terms of debt overhang in the company even internationally. Even though domestic business is in good shape, but we are also trying to move that also out in the same direction.

——————————————————————————–

Operator [23]

——————————————————————————–

We take the next question from the line of Tarang Agrawal from Old Bridge Capital.

——————————————————————————–

Tarang Agrawal, Old Bridge Capital Management Private Limited – Investment Analyst [24]

——————————————————————————–

My question is with respect to your international soda ash business. In a medium-term basis, what is the return on capital employed that the management envisages to achieve on its international soda ash routes, that is U.S., U.K. and Magadi? One. And the second is what are the levers in the current business to move it to those levels?

——————————————————————————–

Ramakrishnan Mukundan, Tata Chemicals Limited – MD, CEO & Executive Director [25]

——————————————————————————–

See, I think if you look at ROC typical calculations, I think it’s — in terms of U.K. and Magadi, it really has — the capital there, broadly, if you look at the books, it will — it’s hardly minor capital, it’s been mostly written down. So any profits we make there is going to yield good returns, can be in upwards of 12% to 15% return. I think John can share the more accurate figures with you.

As far as the U.S. is concerned, there, the return on capital employed in the dollar terms is between 6% to 7% broadly. And I think as we move the product mix to value-added products, we want to take it at least to certain decent double-digit figures. I think that’s the plan.

Right now, we don’t want to make any comment on exactly where we land the U.S. business with the value-added product move, which we want to make. So we will come back to you with specifics as and when those plans are cleared. But clearly, the — our approach to U.S. is to move that entire business to more value-added products.

——————————————————————————–

Operator [26]

——————————————————————————–

We take the next question from the line of Sumant Kumar from Motilal Oswal.

——————————————————————————–

Sumant Kumar, Motilal Oswal Securities Limited, Research Division – Research Analyst [27]

——————————————————————————–

My question is regarding U.S. business. So we have seen the trend of quarterly total expenditure of INR 650 crore to INR 700 crore. So can you quantify what is the fixed and variable mix of total — the net of INR 650 crore to INR 700 crore per quarter?

——————————————————————————–

John Mulhall, Tata Chemicals Limited – CFO & Chief IR Officer [28]

——————————————————————————–

So what’s this INR 650 crores, INR 700 crores?

——————————————————————————–

Sumant Kumar, Motilal Oswal Securities Limited, Research Division – Research Analyst [29]

——————————————————————————–

So when we see the total expenditure quarterly for our Tata Chemicals U.S. business, so you give EBITDA. So when we subtract sales minus EBITDA, that is the total expenditure. So run rate, what we have seen INR 650 crore to INR 700 crore per quarter, so the — can you tell us what is the mix of fixed and variable cost for the total expenditure annually or quarterly for the Tata Chemicals U.S. business?

——————————————————————————–

John Mulhall, Tata Chemicals Limited – CFO & Chief IR Officer [30]

——————————————————————————–

Quarterly, no. We don’t — we won’t give that out. But what I said in my — at the start is that it’s a fairly high fixed cost business for simple reasons, we — it’s an extracted process where we basically buy the rights to mine the area. And then there’s no real input cost other than the ash and coal, yes? So the rest of the cost is going to be fairly fixed sort of labor if you like, depreciation, some of the production consumables, maintenance expenditure. That’s the thing that’s generally open to be fixed.

If I had to put it down, I’d probably say that it’s variable, but that could change.

——————————————————————————–

Sumant Kumar, Motilal Oswal Securities Limited, Research Division – Research Analyst [31]

——————————————————————————–

Any broader range of fixed and variable cost mix, in broader range?

——————————————————————————–

John Mulhall, Tata Chemicals Limited – CFO & Chief IR Officer [32]

——————————————————————————–

No. I mean, you see some more information at our (technical difficulty) as best we can, so which will be found on the website whatever you’re trying to get to, okay, we’ll talk — send me an e-mail off-line and I’ll see if…

——————————————————————————–

Ramakrishnan Mukundan, Tata Chemicals Limited – MD, CEO & Executive Director [33]

——————————————————————————–

John, let me intervene. I think I’d already indicated in the — when the first question came, that it — broadly, it should be around 55% contribution business, broadly, give or take 1 percentage here or there. And I think the reason I’m saying broadly is, the quarter 1, any pressure on price was taken out by the reduction in the energy cost and other cost, variable cost, which held that percentage up.

So if you take 55% broadly, I think that would give you an indicator of what the contribution number is, then post that is all fixed. So that should help you with — between EBITDA and contribution, you would find more or less it say the semi-variable or fixed.

So I — we can’t add color beyond this because quarter-on-quarter, this 55% may be moved because of product mix. If there’s a higher export business then this may shrink. If there’s a higher domestic percentage, this may increase. And it also moves broadly in sync with the issues related to how the energy prices and gas price have moved. So — but I think if you want a thumb rule, I think that should give you a good fix in terms of the U.S. number.

——————————————————————————–

Sumant Kumar, Motilal Oswal Securities Limited, Research Division – Research Analyst [34]

——————————————————————————–

And you said the contribution margin for U.S. is same compared to previous year. So then why gross margin has declined in Q1 FY ’21 at consol level? Which subsidiary is dragging gross margin?

——————————————————————————–

Ramakrishnan Mukundan, Tata Chemicals Limited – MD, CEO & Executive Director [35]

——————————————————————————–

I think broadly that — the margin levels in U.S. we have given you on the Slide 15, if you go to Slide 15, which we have shared with you.

——————————————————————————–

Sumant Kumar, Motilal Oswal Securities Limited, Research Division – Research Analyst [36]

——————————————————————————–

Okay.

——————————————————————————–

Ramakrishnan Mukundan, Tata Chemicals Limited – MD, CEO & Executive Director [37]

——————————————————————————–

Please work off that. And in terms of the other ones, we can get specific about each item. And John has already highlighted the margin levels in India are being stable. I don’t think any place has had a margin issues in terms of contribution margin. The issue fundamentally is that more or less every one of these units has held well as far as the contribution margin is concerned. John, has there been any sharp erosion in any of the other units? Because I did not see that, it’s basically volume effect, right?

——————————————————————————–

John Mulhall, Tata Chemicals Limited – CFO & Chief IR Officer [38]

——————————————————————————–

That’s right. It’s volume mix effect. So the higher contribution of the North America, and their sharp reduction is going to have a higher level on the consolidated basis. But there’s no — I mean we talked about the reduction in India and North America, what else can I add?

——————————————————————————–

Sumant Kumar, Motilal Oswal Securities Limited, Research Division – Research Analyst [39]

——————————————————————————–

This is all because of Rallis India, gross margin contraction at console level, no (foreign Language?

——————————————————————————–

Ramakrishnan Mukundan, Tata Chemicals Limited – MD, CEO & Executive Director [40]

——————————————————————————–

Sorry?

——————————————————————————–

John Mulhall, Tata Chemicals Limited – CFO & Chief IR Officer [41]

——————————————————————————–

What we’re saying here is this the previous…

——————————————————————————–

Sumant Kumar, Motilal Oswal Securities Limited, Research Division – Research Analyst [42]

——————————————————————————–

Yes. I’m talking about the consol level gross margin decline is because of Rallis India, if further subsidiaries has done well on — at gross margin level?

——————————————————————————–

Ramakrishnan Mukundan, Tata Chemicals Limited – MD, CEO & Executive Director [43]

——————————————————————————–

I don’t know, to be clear (inaudible) with you on Slide 15, entity level numbers. And I’ve also highlighted to you the gross margin in U.S., I think this should give you a very clear picture.

——————————————————————————–

Sumant Kumar, Motilal Oswal Securities Limited, Research Division – Research Analyst [44]

——————————————————————————–

Okay. Okay.

——————————————————————————–

Ramakrishnan Mukundan, Tata Chemicals Limited – MD, CEO & Executive Director [45]

——————————————————————————–

Just give me just a second.

——————————————————————————–

Sumant Kumar, Motilal Oswal Securities Limited, Research Division – Research Analyst [46]

——————————————————————————–

Yes. And talking about…

——————————————————————————–

John Mulhall, Tata Chemicals Limited – CFO & Chief IR Officer [47]

——————————————————————————–

No, you’re missing the disproportionate size of the U.S. operation, and its reduction has a bigger impact on the consolidated gross margin, okay? If I look at the gross margins across the piece, each of the entities, they’re down slightly. In U.K., it’s up a little bit, but they’re down. But the bigger element is the size of the U.S. operation and its reduction on the consolidated piece, yes? So some mix element of the U.S. compared to the rest of the businesses.

——————————————————————————–

Sumant Kumar, Motilal Oswal Securities Limited, Research Division – Research Analyst [48]

——————————————————————————–

Okay. And talking about the export and domestic mix, what we have seen in Q1 ’21, it is — export is 45% of total business. So I think the annual level, it is lower, right?

——————————————————————————–

Ramakrishnan Mukundan, Tata Chemicals Limited – MD, CEO & Executive Director [49]

——————————————————————————–

I didn’t get your question. What was it, again?

——————————————————————————–

Sumant Kumar, Motilal Oswal Securities Limited, Research Division – Research Analyst [50]

——————————————————————————–

The export and domestic mix of U.S. business in Q1 FY ’20, as per the PPT is 55%, 45%, right? So at annual level, it is, I think, far lower, the mix, the export is lower?

——————————————————————————–

John Mulhall, Tata Chemicals Limited – CFO & Chief IR Officer [51]

——————————————————————————–

Export being the 45%.

——————————————————————————–

Ramakrishnan Mukundan, Tata Chemicals Limited – MD, CEO & Executive Director [52]

——————————————————————————–

Zarir, do you want to address this?

——————————————————————————–

Zarir N. Langrana, Tata Chemicals Limited – Executive Director [53]

——————————————————————————–

No. No, it’s about the same actually, if you add it up. Export volumes hover between 45%, 48% for North America.

——————————————————————————–

Sumant Kumar, Motilal Oswal Securities Limited, Research Division – Research Analyst [54]

——————————————————————————–

Annual basis?

——————————————————————————–

Zarir N. Langrana, Tata Chemicals Limited – Executive Director [55]

——————————————————————————–

That’s right.

——————————————————————————–

Operator [56]

——————————————————————————–

We take the next question from the line of Dheeresh Pathak from Goldman Sachs.

——————————————————————————–

Dheeresh Pathak, Goldman Sachs Asset Management (India) Private Limited – Executive Director [57]

——————————————————————————–

Just one basic understanding, the stand-alone segmental data where you mentioned the specialty products revenue, the underlying business in that is Nutraceuticals and the silica business or that is part of consol and this — can you just help me understand what is the underlying business in the stand-alone specialty products of INR 15.89 crores for the quarter?

——————————————————————————–

Ramakrishnan Mukundan, Tata Chemicals Limited – MD, CEO & Executive Director [58]

——————————————————————————–

Yes. I think that this is a bit of a — so the underlying specialty is basically the FOS, the Nutraceutical and the silica business. And clearly, I think these segments are not the way I explained it. I think we will move to that the way the businesses are structured.

——————————————————————————–

Dheeresh Pathak, Goldman Sachs Asset Management (India) Private Limited – Executive Director [59]

——————————————————————————–

Okay. So in the stand-alone segment assets, I see specialty at INR 578 crores that probably represents the CapEx that you did in the silica and the Nutraceuticals business, right, that INR 600 crores, INR 300 crores is…

——————————————————————————–

Ramakrishnan Mukundan, Tata Chemicals Limited – MD, CEO & Executive Director [60]

——————————————————————————–

It would also include about INR 75-odd crores we’ve invested in land in energy science in buying land. It has not been put to use. So I think that probably also is added there.

——————————————————————————–

Dheeresh Pathak, Goldman Sachs Asset Management (India) Private Limited – Executive Director [61]

——————————————————————————–

Okay. Okay. And there used to be an underfunded pension liability at, I think, the U.K. operations, has that materially changed anything there? If you can just mention.

——————————————————————————–

John Mulhall, Tata Chemicals Limited – CFO & Chief IR Officer [62]

——————————————————————————–

Yes. We have underfunded liabilities — unfunded liabilities rather, in the U.S. and the U.K. and they…

——————————————————————————–

Dheeresh Pathak, Goldman Sachs Asset Management (India) Private Limited – Executive Director [63]

——————————————————————————–

There’ve been sharp massive movements, if there is any number you can just quantify? Is that improved or deteriorated?

——————————————————————————–

John Mulhall, Tata Chemicals Limited – CFO & Chief IR Officer [64]

——————————————————————————–

It will have deteriorated since March because the discount rates have fallen off in in both areas since March?

——————————————————————————–

Dheeresh Pathak, Goldman Sachs Asset Management (India) Private Limited – Executive Director [65]

——————————————————————————–

Sorry, you were not very audible there, do you mind if can you, please, repeat again?

——————————————————————————–

John Mulhall, Tata Chemicals Limited – CFO & Chief IR Officer [66]

——————————————————————————–

Yes. It will have depreciated — it’ll have deteriorated since March because the discount rates have come off about 0.4% to 0.5% since March.

——————————————————————————–

Dheeresh Pathak, Goldman Sachs Asset Management (India) Private Limited – Executive Director [67]

——————————————————————————–

Okay. And just one last question, sir. The — earlier, my understanding was that India soda ash expansion is going to spend some INR 1,600 crores to expand the — at the Mithapur site. So of that INR 1,600 crores, how much has been spent so far?

——————————————————————————–

Ramakrishnan Mukundan, Tata Chemicals Limited – MD, CEO & Executive Director [68]

——————————————————————————–

No, INR 1,600 crores is not for soda ash. You see the number we have spoken about Mithapur is broadly — is split between the salt and soda ash (technical difficulty) there is a combined utilities which are there. In terms of CapEx spend, I think we would have covered about INR 600-odd crores already on the ground. And balance, I think, about it — overall number was INR 2,400 crores, and I think INR 600 crores may have gone in and about INR 1,800 crores is still to go. John, you’ve got more accurate figures?

——————————————————————————–

John Mulhall, Tata Chemicals Limited – CFO & Chief IR Officer [69]

——————————————————————————–

Yes. I wouldn’t get too much further than that. I think that that’s reasonable.

——————————————————————————–

Dheeresh Pathak, Goldman Sachs Asset Management (India) Private Limited – Executive Director [70]

——————————————————————————–

So of the INR 2,400 crores, the balance INR 1,800 crores would be spent in the next what, how many months?

——————————————————————————–

John Mulhall, Tata Chemicals Limited – CFO & Chief IR Officer [71]

——————————————————————————–

Well, we have that on the…

——————————————————————————–

Ramakrishnan Mukundan, Tata Chemicals Limited – MD, CEO & Executive Director [72]

——————————————————————————–

I think it would take about 2.5 years broadly it can — could take us right into ’22 and ’23 somewhere in the middle I think.

——————————————————————————–

John Mulhall, Tata Chemicals Limited – CFO & Chief IR Officer [73]

——————————————————————————–

Slide 6. Slide 6 of the presentation, that shows you a little bit theoretical.

——————————————————————————–

Dheeresh Pathak, Goldman Sachs Asset Management (India) Private Limited – Executive Director [74]

——————————————————————————–

It is there on the presentation. Okay, I’ll take that.

——————————————————————————–

Operator [75]

——————————————————————————–

We take the next question from the line of Ramesh L. from Nirmal Bang.

——————————————————————————–

Ramesh L., [76]

——————————————————————————–

The first question I have is, in terms of the global soda ash industry, do you see any capacity closures that we can see, given that the capacity utilization is already at 80%? What is the cash margin you see at which the capacity closure will happen?

——————————————————————————–

Ramakrishnan Mukundan, Tata Chemicals Limited – MD, CEO & Executive Director [77]

——————————————————————————–

I don’t think we will see capacity closures, except maybe in China and in U.S. — U.K., sorry. I think — sorry, in Europe, these are the 2 places. In China, I think the way they are dealing with it is they are taking extended maintenance shutdown and whether they will come back on stream after they — after this extended maintenance shutdown happens, is open to interpretation. So one has to constantly keep watching.

So I think our assessment is some capacity will go out, but more accurately to see this, we need to watch this, how — whether they go for completely extended maintenance closure, which runs into 9, 12 months or so, then I think the units will move towards decommissioning completely.

As of now, they are taking up pretty much a rolling maintenance closures during this period.

Zarir, do you want to add anything specific beyond this?

——————————————————————————–

Zarir N. Langrana, Tata Chemicals Limited – Executive Director [78]

——————————————————————————–

No, I think you’re right, Mukund. I think there is some risk of capacity closures in China on a permanent basis. Currently, many of those plants have taken extended shutdowns. We’ve seen in the past in China when somebody takes an extended shutdown of, let’s say, more than 12 months. Typically that capacity goes off-line permanently. That number could be anywhere between 2 million tonnes to 5 million tonnes, 5 millions tonnes on the upper end, 2 million tonnes on the lower end.

I think the other thing that’s happening certainly is that planned capacity expansions, primarily in North America and China are likely to be delayed by at least 15 to 24 months.

——————————————————————————–

Ramesh L., [79]

——————————————————————————–

Okay. And if you look at the current share of the end-use market pie for soda ash, what is the share of the flat glass market globally and in the U.S.?

——————————————————————————–

Zarir N. Langrana, Tata Chemicals Limited – Executive Director [80]

——————————————————————————–

So flat glass, I think last year, if you look at the number, it was close to about 32%, yes? Given the contraction in the market in 2020, we expect that to probably drop to about 28%.

——————————————————————————–

Ramesh L., [81]

——————————————————————————–

This is for the U.S. market or global market?

——————————————————————————–

Zarir N. Langrana, Tata Chemicals Limited – Executive Director [82]

——————————————————————————–

No. This is global. This is global.

——————————————————————————–

Ramesh L., [83]

——————————————————————————–

Okay. Just — sir, and just one last one. So if you look at the losses in U.S. and U.K. for the quarter and supposing, assume that this kind of pressure on volumes persist, how are you placed in terms of cash flows to finance your working capital and your CapEx?

——————————————————————————–

Ramakrishnan Mukundan, Tata Chemicals Limited – MD, CEO & Executive Director [84]

——————————————————————————–

So I think as far as we are concerned, we have no issues in terms of financial figures at all in terms of — the first half and first quarter when you look at it, the losses were actually accelerated at the PAT level by almost INR 35 crores, INR 40-odd crores, which was a one off, it is not going to repeat itself again. So if you take a PAT figure of about INR 110 crores and INR 120-odd crores, we are looking at about INR 80 crore clawback, which we need to do. And I think on a cash profit basis, these units should be fine from the second quarter onwards.

It’s just that we will move for our capital spend is in tune with the cash profits, which we are earning, especially in U.S. So we don’t anticipate any major issues as far as our ability to service any of our costs are concerned. In fact, as I mentioned, we believe that we could use some of our cash to repay the debt, which we have internationally, which we’ll work and come back to you by second quarter results are done.

——————————————————————————–

Operator [85]

——————————————————————————–

Next question is from the line of Saket Kapoor from Kapoor & Company.

——————————————————————————–

Saket Kapoor, [86]

——————————————————————————–

Sir, firstly, you spoke about this value addition part in U.S.A., sir, if you could dwell more, what are — what will be the product line for which you are harpening on to and when we will see — yes, yes.

——————————————————————————–

Ramakrishnan Mukundan, Tata Chemicals Limited – MD, CEO & Executive Director [87]

——————————————————————————–

We are examining 2, 3 options there. Let us come back to you. And that will certainly cut back the pressure on volume, which is going in the export market, but we will come back to you. I think during the course of the year, we’ll have more details and more color to add. But we will certainly — we have done this in U.K., for example, we moved from being a pure soda ash company now almost we are saying that we will have a large proportion of the business as bicarbonate. We have done this in India also. We’ve continued to add bicarb capacity and also adding multiple product lines within Mithapur to make that more robust.

So we think there is an opportunity to do a similar job in Magadi and in U.S., but we’ll come back to you specifically during the course.

Our teams are working on it. It’s essentially our plan. Our plan is not to add substantial volumes in soda ash, but to value in soda ash. That’s really the way we are going. And to add volumes in the specialty businesses because that’s where the value creation will happen.

——————————————————————————–

Saket Kapoor, [88]

——————————————————————————–

Right, sir. And in terms of U.K., sir, is the transition period over? And now the results will start yielding because, sir, our — the EBITDA — there the EBITDA has moved up from INR 18 crore to INR 28 crore, but the PBT and PAT has remained negative by INR 15 crore. So if you could explain that?

——————————————————————————–

Ramakrishnan Mukundan, Tata Chemicals Limited – MD, CEO & Executive Director [89]

——————————————————————————–

John, do you want to explain that?

——————————————————————————–

John Mulhall, Tata Chemicals Limited – CFO & Chief IR Officer [90]

——————————————————————————–

Sorry, I missed that question. What was it?

——————————————————————————–

Saket Kapoor, [91]

——————————————————————————–

Yes, sir, I will…

——————————————————————————–

Ramakrishnan Mukundan, Tata Chemicals Limited – MD, CEO & Executive Director [92]

——————————————————————————–

Yes, go ahead.

——————————————————————————–

Saket Kapoor, [93]

——————————————————————————–

Yes, sir, I was trying — I was seeking the reply for U.K. operations, sir. The transition, which we were speaking earlier about energy efficiency and the flue gas experiment — patent is it over, and the results have started yielding? And secondly, sir, we find that for this quarter, the EBITDA is higher by INR 10 crore, but the PBT and the PAT are negative to the same tune of INR 15 crore. So what — how do you explain this? And what is the trajectory going forward?

——————————————————————————–

John Mulhall, Tata Chemicals Limited – CFO & Chief IR Officer [94]

——————————————————————————–

So the the first part on the carbon capture (inaudible) [PCA] facility, we’re hoping to get that really in — towards the end of this fiscal year, is where we’d expect to see that starting to produce. So that’s one piece.

In the U.K., you have a couple of other things going on in there. There is also the of course SPV debt within the U.K. operations, $75 million, so there’s an interest line to that. And then we also have about GBP 100 million of bank debt in there. So you do see a big drop in EBITDA and PBT coming from that. Our target going forward is also, as Mukund said, is to move up the margin change, which is concentrated more on bicarbonate and the soda ash and the soda use ash is the feed for our sales of bicarbonate, generate more cash and use that then to as far as satisfying the debt items we have in the U.K.

——————————————————————————–

Saket Kapoor, [95]

——————————————————————————–

So sir, this EBITDA — this PAT loss and PBT loss was attributed to — for what?

——————————————————————————–

John Mulhall, Tata Chemicals Limited – CFO & Chief IR Officer [96]

——————————————————————————–

There’s only 2 things for overall EBITDA, and that’s it, bank interest and depreciation.

——————————————————————————–

Saket Kapoor, [97]

——————————————————————————–

Bank interest and the depreciation part, sir?

——————————————————————————–

John Mulhall, Tata Chemicals Limited – CFO & Chief IR Officer [98]

——————————————————————————–

Yes. That’s right.

——————————————————————————–

Saket Kapoor, [99]

——————————————————————————–

Right, sir. And sir, one very small understanding, sir, when we present our — the segment, there is a bit of confusion as earlier also a speaker has told about this the specialty product part, if we could come with more granular split between — since it has not reached the critical mass, but still said that the Nutraceutical, silica and getting differentiated with the agro one would give a clear picture then being jumbled up inward? So that would give more clarity, sir.

——————————————————————————–

John Mulhall, Tata Chemicals Limited – CFO & Chief IR Officer [100]

——————————————————————————–

No. Yes, we can certainly do that. But the thing to bear in mind here is just now the agro is purely Rallis, and you can see those Rallis results separately, yes? Stand-alone specialty is only FOS and silica. But we’ll look — we’ll take your point and we’ll look at it.

——————————————————————————–

Saket Kapoor, [101]

——————————————————————————–

Right, sir. And the very small point about this INR 38 crores, sir, which you explained about the refinancing cost part, could you dwell more? And sir, where it is clubbed in the line item?

——————————————————————————–

John Mulhall, Tata Chemicals Limited – CFO & Chief IR Officer [102]

——————————————————————————–

It’s in finance expenses and consolidation.

——————————————————————————–

Saket Kapoor, [103]

——————————————————————————–

In the?

——————————————————————————–

John Mulhall, Tata Chemicals Limited – CFO & Chief IR Officer [104]

——————————————————————————–

Finance expense and consolidation.

——————————————————————————–

Saket Kapoor, [105]

——————————————————————————–

Finance expense and consolidation. And what is this translated this refinancing cost to? What has led to this INR 38 crore cost?

——————————————————————————–

John Mulhall, Tata Chemicals Limited – CFO & Chief IR Officer [106]

——————————————————————————–

See, we had a $225 million facility in North America as a Term B, and that was due to mature in August 2020. And December ’19, we took out a further $175 million bridge loan, which basically funded the acquisition up to 25% in TCSAP from [109]. And at the time we were considering another Term B refinance of $400 million. I mean then we were considering to do that. And we’re pretty close. But the market, as you can imagine, in March and April was not conducive to a Term B transaction. So we switched away from that into a Term A transaction. And there were a set amount of cost fees, legal fees, things like that, that we ought to have relating to the Term B transaction, that’s all.

——————————————————————————–

Operator [107]

——————————————————————————–

We take the last question from the line of Rohit Nagraj from Sunidhi Securities.

——————————————————————————–

Rohit R. Nagraj, Sunidhi Securities & Finance Ltd., Research Division – Senior Research Analyst [108]

——————————————————————————–

Sir, in terms of inventory, what is the current situation of soda ash inventories both in Indian market and globally?

——————————————————————————–

Ramakrishnan Mukundan, Tata Chemicals Limited – MD, CEO & Executive Director [109]

——————————————————————————–

Zarir?

——————————————————————————–

Zarir N. Langrana, Tata Chemicals Limited – Executive Director [110]

——————————————————————————–

Yes. So our estimate of inventory in India, if you look at what’s sitting with producers is probably about today in the region of 150,000 tonnes to 200,000 tonnes. Global is a tough number for me to give you, but I would estimate that if you take China, Europe, Turkey, North America and, of course, the Indian numbers all put together, that could be somewhere in the region maybe of 900,000 million tonnes to 1 million tonnes at best. But that’s a number that’s constantly winding down as producers take — dial back on production, take extended maintenance shutdowns.

——————————————————————————–

Rohit R. Nagraj, Sunidhi Securities & Finance Ltd., Research Division – Senior Research Analyst [111]

——————————————————————————–

Right. Sir, and last question. In terms of soda ash pricing, are the benefit of all the input cost in terms of, say, raw material or energy cost are currently priced in? And if so, when the capacity utilization is going down, what will be the level at which producers will be able to increase the prices because the fixed cost absorption will be untenable?

——————————————————————————–

Zarir N. Langrana, Tata Chemicals Limited – Executive Director [112]

——————————————————————————–

So I think as far as soda ash pricing is concerned, it’s probably more a function of supply/demand dynamics than it is at costs. And that’s really what we are seeing in the market presently in most of the markets where we operate.

——————————————————————————–

Rohit R. Nagraj, Sunidhi Securities & Finance Ltd., Research Division – Senior Research Analyst [113]

——————————————————————————–

All right. So all the input cost benefits are currently being factored in and incrementally, we don’t foresee any kind of reduction in input cost as far as the raw materials or energy costs are concerned, right?

——————————————————————————–

Zarir N. Langrana, Tata Chemicals Limited – Executive Director [114]

——————————————————————————–

I believe.

——————————————————————————–

Operator [115]

——————————————————————————–

Well, ladies and gentlemen, that was the last question for today. I would now like to hand the conference back to the management for their closing comments.

——————————————————————————–

Ramakrishnan Mukundan, Tata Chemicals Limited – MD, CEO & Executive Director [116]

——————————————————————————–

Thank you, and thank you, everyone. I think this has been a tough quarter for all our units, and they have performed to the extent the market demand has permitted them to move the material in as aggressively as they could. The good news is some of the demand held up, especially the nutrition as well as the agri products. The softness we saw in the Performance Materials has been primarily driven out of the flat glass demand, which we hope that the markets would begin to stabilize maybe by the fourth quarter of this fiscal year, that is the first quarter of the calendar year next. And this has primarily driven off the softness we have seen in Southeast Asia and in South America. We believe that the Southeast Asian demand would be first one to get off the block and South America would follow soon thereafter. Those are the indicative numbers we can give you in terms of the way we see the color of the market. In parallel, I think our strategy is intact. We are going to value-add in the performance material, growth the nutrition science, grow the agri science and wait and watch the situation with our customers in the energy science business. And the company will continue to explore as we move forward. Also to look at what we can do with respect to the debt position of the company, especially overseas debt, and we’ll address these questions as we move forward in the coming quarters as we interact with you. Very thankful that all of you have been able to engage with the company and our employees have been able to stay safe through this period. Thank you all and look forward to seeing and meeting you in the next call. We’ll come with more details on the plans forward. Thank you.

——————————————————————————–

Operator [117]

——————————————————————————–

Thank you. On behalf of Tata Chemicals Limited, we conclude today’s conference. Thank you all for joining. You may now disconnect your lines.