We dont expect dramatic
Falling market share and plunging profits have compelled Tata
Chemicals to transform itself from being just another manufacturing
company to a market-driven, customer-oriented organisation
focused on slashing costs. The companys performance
last year was impacted by a major fire at its Mithapur inorganic
chemicals complex; but operations have stabilised from the
last quarter of FY 2002. The company hopes to improve its
profitability by continuing cost reductions, ensuring that
all company activities are market-driven and ramping up exports
to regional markets.
Business Standard June 24,
Prasad Menon, managing director, Tata Chemicals spoke to
Kripa Mahalingam on how the company is managing it all.
With falling import duties and new capacities being put
up by rival Nirma in soda ash which is your mainstay
how do you plan to protect market share and margins?
Yes, Nirma will take away some market share from all existing
players. But we are looking to bring down our production costs.
In fact, over the next two years, we want to be the lowest
cost- producer in the world were working on reducing
the per tonne cost by Rs 1,000 in that time.
We have begun exports to Thailand, Indonesia and the Middle
East as an initial step towards becoming an international
player in this market. This year, we have set ourselves an
export target of 75,000-1,00,000 tonnes , compared with 30,000
tonnes achieved last year.
What will be the impact of the new pricing policy on your
companys profitability, considering that there has always
been a downward revision in every pricing period?
Well, we have to wait for the prices to be fixed for us to
determine the negative impact. None of the companies can work
out the details. The worst-case scenario for us would be that
the net effect is zero.
Your cement plant has been up for sale for quite sometime
now. Why hasnt it been sold yet?
We havent been able to get the right price for the
plant. We are still open to the idea and once we get the price
we are looking for, well go ahead with the sale. Till
then, we will run the plant at close to 90 per cent capacity.
This year, the focus will be on bringing the cement business
back to profit.
Are you considering terminating your marketing alliance
with Rallis India? If yes, then how do you plan to market
your products in the future?
This is an issue that keeps coming up with us. We renew our
marketing tie-up with Rallis India every year. The decision
we have to consider is whether we should market the products
on our own, or whether we should continue with Rallis India.
We will decide on the issue in the next couple of months.
We are not likely to disturb the arrangement just now, as
the season has just begun.
Youre not a company with in-house marketing strength.
Whats triggered this move towards setting up your own
marketing network? What are the benefits?
When you sell through your dealers, you have to share margins
with them. In a business where the margins have been shrinking
because of intense competition, sharing margins made little
So, we decided to set up our own marketing network. Having
your own network has other benefits also: you have a better
understanding of your customers needs and therefore
it helps improve response speed.
You have brought down your debt levels last fiscal, but
isnt it still very high at Rs 1146 crore? Whats
your comfort level?
We are constantly trying to bring down our high-cost debt.
Various initiatives undertaken already include restructuring
of debt and tapping the low-cost commercial paper market,
which has helped reduce our interest costs by 32 per cent
to Rs 110 crore last fiscal. We have managed to bring down
our average cost of debt to 13.5 per cent through our initiatives.
But in a softening interest rate scenario, we realise even
this cost of debt is still on the higher side and we will
be looking to bring it down further this year. We continue
to look at various options available to us. For instance,
we could further pre-pay some of our loans, for which we are
in talks with financial institutions.
Last year, your company made an annual cost saving of
Rs 15 crore through operational efficiencies. Do you expect
to better that performance this year?
We are looking to save up to 3-4 times the amount we did
last year. We have launched "Manthan", an efficiency-led
programme in consultation with management consultancy McKinsey.
Were looking to achieve higher efficiencies through
continuing cost reductions, which will augment the long-term
sustainability of our operations.
What kind of growth are you targeting for the current
We dont expect any dramatic growth in our topline
about 10 per cent next year, but our immediate goal is to
become globally competitive in all our core businesses.
We also want to maximise on the export opportunities in our
salt and soda ash businesses. We want to consolidate our top
position in the branded salt segment with the launch of our
new brand 'Samundar', and increase market share in the business.
Your company has expressed an interest in acquiring the
governments stake in National Fertiliser Limited (NFL).
Have you decided on the price you are willing to offer?
Yes, we have expressed an interest in acquiring NFL and have
done the due diligence at our end.
We will wait for the fertiliser policy to be announced before
we decide on the bid price. The seventh and eighth pricing
period should be finalised by July. After that, the fertiliser
policy will be announced and that will decide the future fortunes
of the industry.