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Edited Transcript of TATACHEM.NSE earnings conference call or presentation 8-Aug-19 12:30pm GMT

Q1 2020 Tata Chemicals Ltd Earnings Call

Mumbai Aug 19, 2019 (Thomson StreetEvents) -- Edited Transcript of Tata Chemicals Ltd earnings conference call or presentation Thursday, August 8, 2019 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* John Mulhall

Tata Chemicals Limited - CFO & Chief IR Officer

* Ramakrishnan Mukundan

Tata Chemicals Limited - MDr, CEO & Executive Director

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Conference Call Participants

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* Abhijit R. Akella

IIFL Research - VP

* Jayesh Gandhi

Harshad H. Gandhi Securities Pvt. Ltd - Director

* Sumant Kumar

Motilal Oswal Securities Limited, Research Division - Research Analyst

* Vihang Subramanian

AMBIT Capital Private Limited, Research Division - Associate

* Viraj Kacharia

Securities Investment Management Pvt Ltd - Senior Analyst

* Gavin Desa;Citigate Dewe Rogerson, India;Senior Partner and Account Head

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Presentation

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Operator [1]

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Ladies and gentlemen, good day, and welcome to the Tata Chemicals Limited Q1 FY '20 Earnings Conference Call. (Operator Instructions) Please note that this conference is being recorded.

I now hand the conference over to Mr. Gavin Desa from CDR India. Thank you, and over to you, sir.

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Gavin Desa;Citigate Dewe Rogerson, India;Senior Partner and Account Head, [2]

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Thank you. Thank you, everyone, for joining us on Tata Chemicals Q1 FY '20 Earnings Conference Call. We have with us today is Mr. R. Mukundan, the Managing Director; Mr. Zarir Langrana, Executive Director; and Mr. John Mulhall, Chief Financial Officer.

Before we begin, I would like to mention that some of the statements made in today's discussions may be forward-looking in nature and may involve risks and uncertainties. I now invite Mr. Mukundan to begin the proceeding of the call.

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Ramakrishnan Mukundan, Tata Chemicals Limited - MDr, CEO & Executive Director [3]

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Thank you, Gavin, and thank you, everyone, for joining us on the Q1 FY '20 earnings conference call. I have with me Mr. Zarir Langrana, Executive Director of our Board; and John Mulhall, our CFO. After my comment on some key operating and strategic highlights, John will take you through key financial elements for the period under review.

Let me sequentially go through each business. Firstly, starting with Basic Chemistry Products, our overall domestic demand remains balanced during the period. Revenue from operations was down 4% on account of lower production of soda ash in Mithapur. Margins remained steady despite the higher input costs in terms of coke and agri side which was offset by lower energy costs. Going forward, we expect market to grow around 4% to 5%, with price realization balanced to an overall market with major customer segments continuing to remain in a [mall], which will be balanced. Domestically, we had some imports from Turkey, which are being fully absorbed in the market. We expect stability over a period of next few years.

Moving on to international entity, TCNA operations was in line with expectations due to higher sales volume by the sales realization and improved operating efficiency. Performance of European operations were muted. Margins were suppressed due to higher energy costs and higher fixed costs. Kenya continues to see better traction in terms of higher volume, in coke realization. Going forward, we continue to improve operational efficiencies across

geographies.

About the industry, globally, we expect market to grow at an average of 2%, with growth rate differing from region to region. We expect no major capacity expansions taking place, except for some people making project. And this, overall, are going to keep the market balanced to tight on the overall period with a bias towards balanced. Going forward, we expect the scenario continue for a couple of quarters before it moves back to tight market conditions.

In terms of specialty business, the revenue from the Nutritional Solution business for the quarter was more or less constant as these products are from our pilot plant in (inaudible). The new plant investment is coming on stream as planned. The plant in Nellore for Nutrition Solutions is in final stage of commissioning. It will go through pilot production before it starts commercial production. Our targeted date of commercial production is in the second half of FY '20. Our silicon plant in Cuddalore, that is currently producing both food grade and rubber-grade material. Trial runs have also begun for tire-grade material, and we expect to start commercial production of the tire-grade materials soon.

On agrochemical business, value has improved on the back of improved market conditions. In international markets, the domestic crop protection was soft due to challenging market conditions. Going forward, Tata will continue towards strong and sustainable products that target the expansion and footprint in both Southeast Asia and the Americas, I would call it, between North and South America.

Going on to Consumer Product business, as everyone on the call are aware, we announced demerger of the business. Integration of demerger is now scheduled. It would take around 12 months in our estimation for this to close from the date of announcement.

On business -- Salt business continues to maintain leadership position. Market share is in excess of 21% overall salt consumption. The revenue growth from pulses and spices was 45% over previous year. We continue to invest in our brand, Tata Sampann, that can operate to create top-of-mind awareness.

With respect to -- we continue to see strong traction in all our products in the market. Our focus is being modern-minded stores and e-commerce, and we continue to move into (inaudible) trade in a calibrated market.

Overall, I would say that the demerger of Consumer business has given Tata Chemicals a focused growth in terms of Basic Chemistry Products and Specialty Products. Basic Chemistry Product continues to witness steady growth on back of consistent demand. The Mithapur expansion is on track and record the Ministry of Environment and Forests clearance. This is one of our big push, which has enabled us to maintain market leadership across categories.

Our Specialty portfolio continues to track excellent market movement. In addition to the Specialty materials business, which is the HDS Silica business; the Nutrition Solutions business, which is the FOS and GOS; and Agro-Science business which is Rallis; our new business, which is the energy business for lithium batteries, I think there is a strong support from government in terms of alternate energy and energy businesses both from EV side as well as energy storage for stationary applications. And we continue to build of that business, also from strength to strength. We have signed 3 MOUs with ISRO, CSIR-CECRI Karaikudi as well as with C-MET, Pune. In addition to that, we are in discussions with technology partners from several countries and we expect to announce and make movement on that project also soon.

With this, I now request John to give some insights to financial performance.

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

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Thanks, Mukundan. I'll be brief with my summary, then we can open up to questions. Our revenue from stand-alone operations stood at just over INR 1,000 crores or INR 1,031 crores, up 4% with a net profit of INR 254 crores after including INR 8 crores of demerger expenses.

On a stand-alone basis, we have cash in hand of INR 3,318 crores and against which we have debt maturing in the next few months of -- INR 250 crores of NCDs, which we've paid in early July. And also, the ECB repayment which we made in October. We've also paid the dividend in August 2019, after which our cash would be approximately INR 2,600 crores.

Our working capital at the end of June stood at 8 days working capital ratio. On a consolidated basis, revenue in the quarter was up 6% at INR 2,897 crores, and our consolidated EBITDA was up 21% at INR 592 crores. The consolidated PBT from continuing operations of INR 422 crores, that's 13% up on this quarter last year. Our consolidated net debt is now just INR 1,870 crores, and [have equivalent of] cash of INR 4,463 crores.

And with that, I would like to open up the floor to questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from the line of Abhijit Akella from India Infoline.

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Abhijit R. Akella, IIFL Research - VP [2]

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So first, just a little bit on the strategy side. We have Slide 10 of the presentation that talks about INR 2,000 crores of investment fee announced on the Specialty side of the business. If you could just help us understand what that comprises. And just to understand, while these new -- the capital you announced so far in Mithapur and the others come and get commissioned, what are the key drivers in terms of earnings growth over the next (inaudible) of the company?

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Ramakrishnan Mukundan, Tata Chemicals Limited - MDr, CEO & Executive Director [3]

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So I think the key drivers are the investments. I think the investments come on stream in a phased manner. I think these will continue to drive revenue. If you look at the INR 1,600 crores, this is mainly on account of the soda ash and bicarbonate, plus the medical, because the pharmaceutical-grade bicarbonate should come on stream first. Post that, we expect our soda ash and also caustic soda expansion to come on stream. And all these numbers are up to approximately INR 1,600 crores. And this we expect to get commissioned in next 24 months, and some of them will be much earlier. And that's the relative phasing of the investments.

In terms of Specialty Chemistry, this INR 2,000 crores also includes investments being made for the salt contracted with the Tata Consumer Products platform. We would be counting that under the Nutrition business because it is going for human consumption. That expansion is also happening in a phased manner, which will be bringing on capacity from current 1 million tonnes to close to 1.4 million tonnes, in 2 steps, broadly, of 200,000 and 200,000 tonnes. In terms of specific phasing, we'll also phase in the capacity output in sync with the market demand. In addition to that, we also have the INR 900 crores of investment, which has been committed by -- INR 800 crores of investment, which has been committed by Rallis of which the Metribuzin expansion should be part of it coming on stream in the next 2 months. And another metric is an expansion happening by the year-end, and further phasing of investments happening or the phase in the next 3 years. In the balanced investment, we expect our INR 2,000-odd crores, certain proportion of money is being set aside as an equity contributions towards our energy business, which may become a joint venture operations because of the technology -- some of the technology partners insisting on equity participation.

So that broadly is the phase of investment. And all these investments are in line with what has been approved by the Board, and they all have very good return profile. And they would carry good results in a phase manner in the next 2 to 3 years. The longest phasing of this actually is one of the expansion of INR 800 crores, which Rallis have committed, which will take 3 years. So the expansion would be within 24 to 30 months. That's broadly the profile.

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Abhijit R. Akella, IIFL Research - VP [4]

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Understood. That's very helpful. And just one last clarification on this. On the energy business, how long could it be before we make some firm announcements regarding how much CapEx is put into the ground and financial projections from the project?

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Ramakrishnan Mukundan, Tata Chemicals Limited - MDr, CEO & Executive Director [5]

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So we are pressing ahead with broad profile of the investment, but I can only give you profile right now. We cannot give you a specific number beyond that. Broadly, our estimation for 2-gigawatt plant is in the minimum capacity need to put in kindly close to INR 800 crores. If you take a debt equity ratio of 1:1, it's INR 400 crores of equity, and if you take a certain contribution of equity from our side, assuming we have is already controlled, I could tell you how much of the equity exposure we will have.

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Operator [6]

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The next question is from the line of (inaudible).

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Unidentified Analyst, [7]

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First, can you give the capacity for the soda expansion for which you're (inaudible)?

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Ramakrishnan Mukundan, Tata Chemicals Limited - MDr, CEO & Executive Director [8]

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I think the soda ash capacity is expected to grow up by about 200,000-odd tonnes from the current numbers. And the medical capacity is approximately, I think, 30,000, 35,000 tonnes.

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Unidentified Analyst, [9]

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Okay. So as you look at the domestic market, we understand that the (inaudible) factory capacity has come online. So what is the current Indian capacity looking like in [auto], with the demand environment, given that there was a slowdown in the auto sector, which is one of the key segments of glass?

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Ramakrishnan Mukundan, Tata Chemicals Limited - MDr, CEO & Executive Director [10]

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Okay. First, the auto slowdown is concerned, it is -- it will have some impact, but the auto demand, the glass demand in auto sector contributes only 15% of the overall demand of our soda ash. So it's really not the major factor to worry about. We do expect some kind of a push both from government and the industry to keep the segment growing. And now the volumes in that segment are from the mass segment. As you do a segmental analysis, I think that is the one we should focus on.

As far as the detergent segment is concerned, the larger consumption of soda ash actually happens in the value segment, which is made a lower price point. But the consumption of soda ash is actually is very less indeed in premium products. And when there is a demand for correction like this, usually, consumers shift from premium products to more value-oriented products. So we do expect that the consumer demand to hold steady because when I move my analysis from tight market conditions to balance. But I think the tightness will come back fairly quickly because even if you assume a 3% to 4% growth in (inaudible), I think the market needs additional material, and there's no new capacity coming on stream in the short term.

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Unidentified Analyst, [11]

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Okay. Now if you look at the segment performance between stand-alone and consolidated, it looks like your overseas chemical (inaudible) domestic in the Basic Chemistry Segment. So can you shed some light in terms of how the overseas markets compares to domestic performance in your Basic Chemistry segment?

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Ramakrishnan Mukundan, Tata Chemicals Limited - MDr, CEO & Executive Director [12]

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The Basic Chemistry segment this quarter, as we've said, there was -- in terms of the quarter-to-quarter comparison that you do on the domestic market side, the issue was not from the market's demand side, but more from our production we've had on line, which we have shown in the presentation. That has already caught up as we speak because the normal maintenance projects, which we run during the quarter, which we had done now before the month's come setting in, I think all those things have been taken care of.

So I don't see domestic lagging behind. Domestic is going to catch up and move forward. The issue on the domestic, while I can say that while there could be some movements on pricing, the margin is, in fact, because the cost, available cost is coming down because of the softness in the group materials. So I think that speaks solely on the domestic market. Their margins will hold, volumes will hold. And also, in our view, the opportunity for price improvement may not exist because there's a balanced market.

As far as the international market is concerned, I think, as far as U.S. is concerned, it's continuing to show strong demand. There's no issues on that. In fact, we continue to move forward as far as our sales in U.S. is concerned. Our -- Africa, which is mainly faring into Southeast Asia and in India, we see no major issues in the Southeast Asian demand situation as we speak. And finally, as far as U.K. is concerned, on the profitability side, there was a bit of an impact because of the Brexit-related costs, which we are incurring. But it's really not an operational issue. And I think the market conditions there remain okay for our soda ash market. So I think all in all, from very tight market condition, it moves to balance, and we expect it to move back to tightness over a period of time.

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Operator [13]

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The next question is from the line of Viraj Kacharia from Securities Investment Managers.

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Viraj Kacharia, Securities Investment Management Pvt Ltd - Senior Analyst [14]

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Just have 3 questions. First, if I look at the at -- all things like subsidiaries like U.S., the last similar quarter, we have seen a volume decline. Now on that low base, we are still seeing kind of a flattish kind of a volume growth. So just trying to understand, similarly in India and then -- which are [clean]. And then for other entities as well, you are seeing kind of volume being quite subdued in Europe and Africa, or there's sequentially being a drop in both those additions. So just trying to understand what is driving this and also we looking for?

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John Mulhall, Tata Chemicals Limited - CFO & Chief IR Officer [15]

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I'm not seeing where you're getting your data from. If I look at our soda ash sales globally, we're pretty much flat, same last year.

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Viraj Kacharia, Securities Investment Management Pvt Ltd - Senior Analyst [16]

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So sales volumes for...

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John Mulhall, Tata Chemicals Limited - CFO & Chief IR Officer [17]

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Yes, sales volumes are flat to last year. So...

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Viraj Kacharia, Securities Investment Management Pvt Ltd - Senior Analyst [18]

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Yes, but that is flat on the base of us seeing less growth in Q1 of last year in the U.S. So one would have expected some volume growth, some reversion to growth in the quarter. And similarly, if I look at [important] Africa margins, and U.K. -- and so sequentially, we have seen a drop. So just trying to understand where -- how should we look at this going forward?

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Ramakrishnan Mukundan, Tata Chemicals Limited - MDr, CEO & Executive Director [19]

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Now as far as U.S. is concerned, there is a -- at any movement, there's going to be a shipment of moving (inaudible) ship or not cutting the ship. I don't see any issues in terms of volume. I believe, I am not aware of it, so I don't want to say anything to speculate to the market conditions or the conditions in the operations.

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Viraj Kacharia, Securities Investment Management Pvt Ltd - Senior Analyst [20]

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Okay. So let me put it differently. Saying the U.S., we used to do something like a 570-tonne order earlier on early part of -- in FY '17 and early part of FY '18. What challenges do you see for us to build back to the same level?

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Ramakrishnan Mukundan, Tata Chemicals Limited - MDr, CEO & Executive Director [21]

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It's at 550 right now, the production as against, let's say, 560. 11,000, 12,000-tonne movement here or there quarter-to-quarter. I wouldn't give it too much of a...

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Viraj Kacharia, Securities Investment Management Pvt Ltd - Senior Analyst [22]

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Okay. Okay. I thought it's 536 for the presentation but it is. My second question is on the Consumer business. We've seen some margin drop sequentially...

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Ramakrishnan Mukundan, Tata Chemicals Limited - MDr, CEO & Executive Director [23]

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Yes, I think the number that I spoke is about the production. I think the sales may have been lower. It's just the shipment issue, but I think it's a...

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Viraj Kacharia, Securities Investment Management Pvt Ltd - Senior Analyst [24]

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Yes. Second question is on the consumer side. If you can provide some clarity? We've seen some margin compression both year-on-year and sequentially.

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Ramakrishnan Mukundan, Tata Chemicals Limited - MDr, CEO & Executive Director [25]

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So I think there are some one-offs as these numbers and the consumers buy it. I think there's an exceptional item of INR 8 crores, which has been reported in the previous results. That has seen a contract in the Consumer segment. These are expenses, onetime expenses we incurred on the support services needed for demerger process. So I think that is one element. Then we'll have to incur an additional expenditure of INR 2 crores on plastic-waste management process, which we have to put in place because of the new packaging rules that have come in.

And then there are certain market-related expenses. These are onetime expenditures, which have been done approximately of INR 5 crores. So I think that broadly explains the main impact on the deviation in terms of the -- one is approximately INR 8 crores on onetime demerger-related expense, INR 2 crores on plastics-waste management and about INR 5-odd crores on market-related activities.

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Viraj Kacharia, Securities Investment Management Pvt Ltd - Senior Analyst [26]

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Okay. And just last question was on the energy storage trend. You talked about us potentially looking at a JV partner to cater to this opportunity. Typically, when we are looking for a JV partner, what kind of parameters you are looking at both from a financial, technology perspective? So if you can just say average, what are the things we are internally looking at costs to go through this too?

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Ramakrishnan Mukundan, Tata Chemicals Limited - MDr, CEO & Executive Director [27]

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So we are looking at the world -- among the world leaders, most of the people are looking at how to operate plants in excess of 20 gigawatts of capacity in their respective countries. As you know, the most mature market are electric, which is fundamentally in China and the other technology suppliers are in Korea and Japan. So our partnership discussions are centered around these countries.

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Viraj Kacharia, Securities Investment Management Pvt Ltd - Senior Analyst [28]

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Okay. And would it be a completely integrated plant in the sense that you'll also be engaged in production ourselves?

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Ramakrishnan Mukundan, Tata Chemicals Limited - MDr, CEO & Executive Director [29]

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So we will be starting with the activities. This is basically in the areas which are going to batteries. And we are getting into cell manufacturing. So this is when I mentioned those investment numbers, it includes both the active ingredients and cell manufacturing.

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Viraj Kacharia, Securities Investment Management Pvt Ltd - Senior Analyst [30]

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Okay. And by then, do we expect any formal closure on this?

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Ramakrishnan Mukundan, Tata Chemicals Limited - MDr, CEO & Executive Director [31]

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You would -- first year of pilot plant, announcement of 100-megawatt shortly. After that is -- much later than that we will have a full production plant announcement so we can kind of go in sequence.

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Viraj Kacharia, Securities Investment Management Pvt Ltd - Senior Analyst [32]

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No. I mentioned a selection of JV partner.

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Ramakrishnan Mukundan, Tata Chemicals Limited - MDr, CEO & Executive Director [33]

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That would happen after we announced the first pilot plant because we will do a lot of testing in the pilot facility. It's going to be the first one to get out of the shelf.

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Viraj Kacharia, Securities Investment Management Pvt Ltd - Senior Analyst [34]

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Okay. And the JV partner...

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Operator [35]

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Mr. Kacharia, maybe you could please rejoin the queue? Next question is from the line of Sumant Kumar from Motilal Oswal.

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

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So my question is regarding Europe business. So we have seen a muted performance and the energy cost was a key reason earlier. So how is the scenario of energy cost for the business?

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Ramakrishnan Mukundan, Tata Chemicals Limited - MDr, CEO & Executive Director [37]

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That's right. So with energy there, that I think you picked the right one. That is the only business which is being muted, and John will address that.

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

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There were a number of -- production performance was actually on par with last year. We reduced the sales substantially over last year by not buying third-party product for resale. Now our overall revenue dropped by about GBP 2 million. The margin effect was less than GBP 80,000. So whilst last top line is very minimal effect on the EBITDA and PBT. What we have seen, though, is increase in energy costs, both coke and gas, and also some lime-related costs as well. And that's really pulled back the performance of the soda ash facility by about GBP 3 million over this period last year on a contribution basis.

We are continuing to work. We're looking at how we can last, we're trying to source coke on our most effective position. We're hampered by -- basically to the extent of uncertainty both from our suppliers and also from exchange rates in buying coke from either Poland or Vietnam or places like that. So it's something we'll keep an eye on. Operations are consistent. Production is consistent, but we have to make sure we keep control of our input costs.

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

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Okay. At the top view of the U.S. business, we have seen a capacity of utilizing of the U.S. business during FY '18, a revenue of 95% to 99%. Currently, we have seen the utilizing for 4 to 5 quarter was 88% to 90%. So can we expect the capacity utilization to improve at the FY '18 level of 95%, 99% going forward?

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John Mulhall, Tata Chemicals Limited - CFO & Chief IR Officer [40]

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What's your base on 99% of? What were you using as your base number?

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Sumant Kumar, Motilal Oswal Securities Limited, Research Division - Research Analyst [41]

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Yes. So when we see the utilization in FY '18 was 95% to 99% for 3, 4 quarters. But currently, we have seen 4 to 5 quarters, we have seen a utilization at the rate of 88% to 90%. So that...

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John Mulhall, Tata Chemicals Limited - CFO & Chief IR Officer [42]

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Yes, I understand your question. But what's your divisor? What number are you using as your base?

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Sumant Kumar, Motilal Oswal Securities Limited, Research Division - Research Analyst [43]

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Is it likely to improve to 95% level going forward?

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John Mulhall, Tata Chemicals Limited - CFO & Chief IR Officer [44]

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No, the question I've got is what number are you using as your base number? What are you dividing by?

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Ramakrishnan Mukundan, Tata Chemicals Limited - MDr, CEO & Executive Director [45]

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At what full capacity? Full capacity?

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

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Yes. The full capacity you have of the distributing in the fourth quarter and then dividing it with the production.

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Ramakrishnan Mukundan, Tata Chemicals Limited - MDr, CEO & Executive Director [47]

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I think you -- please, we will -- we need to check the number you're using on this, on the design. Unless you tell us, we can't tell you whether your numbers are right. What the capacity was.

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John Mulhall, Tata Chemicals Limited - CFO & Chief IR Officer [48]

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So I think they need to send in the number, I will look at it.

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Sumant Kumar, Motilal Oswal Securities Limited, Research Division - Research Analyst [49]

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Okay. And then talking about the U.S. business. As we know that the soda ash prices has been contracted on annual basis. And as you think the raw material prices is declining, the glass prices declined, coal prices also declined. So going forward, can we expect the margin expense on the U.S. business?

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Ramakrishnan Mukundan, Tata Chemicals Limited - MDr, CEO & Executive Director [50]

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Cautiously optimistic but...

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

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We will say yes, but cautious.

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Sumant Kumar, Motilal Oswal Securities Limited, Research Division - Research Analyst [52]

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Is there any -- because we also hit the energy cost. So we do have any gain and loss in that side?

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John Mulhall, Tata Chemicals Limited - CFO & Chief IR Officer [53]

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We do hedge energy costs. In fact, what drives our gas cost is hedged. And coal is subject to a long-term contract which has to do with local labor and services. We apply hedge accounting to that. So you'll not see the movement through the P&L immediately. It goes through reserves then we release some back to P&L as we consume the gas. That's what contracts are for.

And with gas, we were looking at contracts out until 2021 to take advantage of quite a low gas forward prices today. So the gas we're buying today is significantly lower than it was probably 2.5, 3 years ago. And so we're trying to put ourselves in a position where we can work in our variable costs at a number which is preventative and focus on efficient manufacturing and increasing output as fast as possible.

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Operator [54]

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The next question is from the line of [Devan] from ICICI Securities.

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Unidentified Analyst, [55]

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I have 2 questions. Firstly, about the Magadi plant. So we have seen some decline in volumes from Magadi around 20% as of Q-on-Q basis. But still, the realization are up around 9 percentage in Q-o-Q for Magadi. So just wanted to understand, if the soda ash prices are under pressure, so how we have seen the realization and improvement in the Magadi plant?

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John Mulhall, Tata Chemicals Limited - CFO & Chief IR Officer [56]

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Again, it's like I said about North America, you have to -- instead of looking at sales in terms of the production because occasionally, we'll have a -- we might miss a boat at the quarter end. But if we're looking over the last year, probably 30% of our last year's production, and on the last quarter, we're flat for last quarter. So production is fine. Actually, last year was -- we we're affected somewhat by the flooding and the big rains, and we didn't have it this year.

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Ramakrishnan Mukundan, Tata Chemicals Limited - MDr, CEO & Executive Director [57]

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Yes, I think that's right. What John has highlighted, there was a big rain and different additional maintenance costs, which we incurred last year, which we're not incurring this year. And also the energy cost (inaudible) that inflects on margin portion of the business.

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Unidentified Analyst, [58]

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No, no, I'm talking about the realization per tonne. The realization per tonne for Magadi has been improved on Q-o-Q basis. I mean if you look at the Q4 FY '19...

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Ramakrishnan Mukundan, Tata Chemicals Limited - MDr, CEO & Executive Director [59]

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That's true. If the Magadi prices have gone up, I will have some interest, just we're seeing to.

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Unidentified Analyst, [60]

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So I mean this realization are sustainable for this fiscal?

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Ramakrishnan Mukundan, Tata Chemicals Limited - MDr, CEO & Executive Director [61]

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Yes. Absolutely, yes.

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Unidentified Analyst, [62]

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Okay. And what's your the estimated numbers of EBITDA per tonne, the tenders, Europe and Magadi. I mean the EBITDA per tonne for those 2 geographies are declining. If you look at the second half for Magadi of last fiscal, the EBITDA per tonne was good, I mean, which is not the case for Q1. But do we expect that this will be a ramp-up in the remaining part of the year?

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John Mulhall, Tata Chemicals Limited - CFO & Chief IR Officer [63]

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Again, we need to look at what number you're looking at. But with the price increase coming through and reduced fixed costs, our EBITDA per tonne is better this quarter than it was same quarter last year. Last year, we talked about how we made a small loss. This year, we made a profit in quarter. So performance improvement has been there. We've seen that performance improvement from the -- towards the end of the second quarter last year, when volume became more sustainable and fixed cost because of we weren't having these one-off expenditures to do it, the flooding and the maintenance expense. The profitability per quarter did improve over the last couple of quarters. So Magadi is improved over this period last year and over the last quarter.

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Operator [64]

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The next question is from the line of [Saket Kapoor from Kapoor & Co].

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Unidentified Analyst, [65]

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2 questions. So we find that there are large difference when the operations, Indian operations and the foreign operations, are compared. So what is our strategy behind continuing with the Europe and American operations, where -- wherein they're only adding to our turnover, but not in the way adding to the margins? Their NT margin, dilutive, if we take the control number. So what the thought process behind this where -- because in one of quarter or the other, there is some bit of problem with any of the geographies, and the reported numbers are lower than what expected. So going forward, what is the thought process, with all the 3, Magadi, Europe and America, how are the operational efficiencies going to kick in and by themselves?

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Ramakrishnan Mukundan, Tata Chemicals Limited - MDr, CEO & Executive Director [66]

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Okay. I think let me address them differently. As far as the U.K. is concerned, there is no capacity being added. It's just our capacity as it is. But we're going to move up the value chain by investing or moving the product portfolio to more and more bicarbonate. So we already saw the announcement which we have made. So far, that INR 1,600 crore investment in basic industry is about GBP 40 million of investment, which is happening in U.K., partly funded by U.K. government, partly funded by the pension fund trustees and partly funded by the company. So it is a 3-way partnership and that is going to make the company extremely stable. It also removes the overhand of pension fund liabilities, which have been a balance sheet issue, which you're not seeing when you speak about profitability. So one end is profitability, but also it is a strengthening of the book. As far as U.K. is concerned, it will move from a lower-margin business to higher-margin business while holding the volume constant. And the announcement of that investment has already been made and the investment is underway. So it will be operational in about 18 to 24 months, and we should see that impacting the U.K. operations positively.

The second, as far as India is concerned, we are investing in capacity here in India. Magadi and the U.S. are a natural soda ash (inaudible) for us which have low-cost of production. Our effort is to run them in a consistent way, produce them in a consistent way. They, in fact, are our most competitive sites. Even though you're seeing that the numbers don't add up, the numbers, they do reflect a much better competitiveness, they're also the sites in terms of cost of gas.

So strategy in India to invest, to the extent we just put the investment in. The strategy in U.K. is to move up the value chain to a higher value margin product. And in U.S. and Magadi, to produce consistently and produce in a very efficient way because their variable cost structure already is amongst the lowest in the world.

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Unidentified Analyst, [67]

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Coming to your last point about the new technology business, about the lithium, the key part and all. So we are holding in our treasury around a crone-plus shares in Titan Industries. And the promoter stake also in the -- or the percentage at that, a rate at 30%, 30.6%. And we are going to invest in new technology, again, harnessing new geographies where new areas -- where we have not being any specialized. So why are we not contemplating to reduce our -- redeem our investment in Titan Industries or improving capital and then investing that money into the new lithium battery part and not taking the cash available from the main Basic Chemistry business into somewhat unrelated segment today?

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Ramakrishnan Mukundan, Tata Chemicals Limited - MDr, CEO & Executive Director [68]

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I don't know what you're thinking about, but broadly, let me tell you, I think that's far as group's consulting is concerned. There's a structured move in terms of group consolidating, timing of which we cannot comment. But this move has been on for the last 5 years. And if you go back and check our balance sheet 5 years ago to today, I think those gross holdings have come down substantially. Secondly, I think -- and that move will continue. I think there is a measured pace of doing that, and we will continue to do that.

As far as the company's investments are concerned, I just say that we are generating enough cash to make our investments. We're not going to be either leading on current shareholders nor on any substantial amount of back to fund our growth. I think the businesses are generating enough cash flow to continue to investment. And so I don't think we have anything in our financial planning with sales that we need some fresh infusion of capital into our business. If at all, I think we will continue to be conservative in holding cash. And if it does warrant that the shareholders are to be rewarded, we will do so, subject to Board agreeing to move forward in that direction.

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Unidentified Analyst, [69]

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What price corrections we have taken into soda ash currently because of the -- any price corrections we have taken there? Specifically...

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Ramakrishnan Mukundan, Tata Chemicals Limited - MDr, CEO & Executive Director [70]

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Not in quarter 1. There's been no movement in quarter 1.

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Unidentified Analyst, [71]

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Currently, in the month of July and August?

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Ramakrishnan Mukundan, Tata Chemicals Limited - MDr, CEO & Executive Director [72]

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July and August, there were some related market structures done, but that has been more to pass on the benefit of low energy costs to the customers. And effectively, the margin is continuing to be protected where it is as before.

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Unidentified Analyst, [73]

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Very well. So there's no area as far as the domestic operations is...

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Operator [74]

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The next question is from the line of Vihang Subramanian from AMBIT Capital.

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Vihang Subramanian, AMBIT Capital Private Limited, Research Division - Associate [75]

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So my first question is on the U.S. business. I think margins are meaningfully improved this time, like 22%. And earlier to this business, you stood at like 25%, 23%. I mean you just saw a few slow quarters. So if you could just give some sense on what really drove this margin improvement, and probably, what is like a sustainable level?

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Ramakrishnan Mukundan, Tata Chemicals Limited - MDr, CEO & Executive Director [76]

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I think the U.S. growth [is too little]. The inconsistent production at consistent pace, as we're part of, think if you continue to produce at a consistent rate and it's been happening in the last few (inaudible), I think we should be fine. And we'll see continuing margin being delivered by the business.

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Vihang Subramanian, AMBIT Capital Private Limited, Research Division - Associate [77]

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Okay. So whatever issues we face with like replacing like some old equipment and some one-off maintenance expenses of the previous quarter, so all of that is behind us now, right?

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Ramakrishnan Mukundan, Tata Chemicals Limited - MDr, CEO & Executive Director [78]

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Mostly behind us. Yes. I think there's no major stoppages due to environment-related equipment. But there's minor improvements which we'll take from time to time, but nothing major to report.

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Vihang Subramanian, AMBIT Capital Private Limited, Research Division - Associate [79]

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Probably, in soda ash fundamentals, I think in the last quarter call, you had mentioned that Chinese capacity has increased by 3 million tonnes. So don't you see like any impact on domestic pricing from this increase in Chinese supply?

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Ramakrishnan Mukundan, Tata Chemicals Limited - MDr, CEO & Executive Director [80]

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No, I think capacity didn't grow by any level. What I said was the Turkish capacity has come on stream full year, and it has been absorbed by the market, okay?

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Vihang Subramanian, AMBIT Capital Private Limited, Research Division - Associate [81]

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No, I think in the previous quarter call, you had once mentioned that the Chinese capacity has restarted. Like some of it which was shut down earlier.

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Ramakrishnan Mukundan, Tata Chemicals Limited - MDr, CEO & Executive Director [82]

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We can't -- I know, I think -- let me go back and check if I did make statement of Chinese. But some of the -- whatever capacity restart development would not upset the market balance.

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Vihang Subramanian, AMBIT Capital Private Limited, Research Division - Associate [83]

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Okay. Okay. And just one last quick accounting question. Is there any impact on, like our EBITDA growth of 21% on a consolidated basis, is there any impact of India's 116 on it?

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Ramakrishnan Mukundan, Tata Chemicals Limited - MDr, CEO & Executive Director [84]

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We have 116...

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John Mulhall, Tata Chemicals Limited - CFO & Chief IR Officer [85]

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Yes, we've filed in the 116 from the first quarter. Overall, the movement has been a reduction on a consolidated basis of INR 21 crores on EBITDA.

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Vihang Subramanian, AMBIT Capital Private Limited, Research Division - Associate [86]

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Okay, INR 21 crores on EBITDA.

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John Mulhall, Tata Chemicals Limited - CFO & Chief IR Officer [87]

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The INR 21 crores reduction in EBITDA, INR 18 crores increase in depreciation, INR 3 crores increasing interest, so the net PBT impact is INR 0.25-odd crores.

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Vihang Subramanian, AMBIT Capital Private Limited, Research Division - Associate [88]

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Is it INR 21 crores reduction, right, in EBITDA because of India's?

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John Mulhall, Tata Chemicals Limited - CFO & Chief IR Officer [89]

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No, no. Rent reduction. So EBITDA has improved by INR 21 crores.

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Vihang Subramanian, AMBIT Capital Private Limited, Research Division - Associate [90]

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Okay. Okay. INR 21 crores.

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John Mulhall, Tata Chemicals Limited - CFO & Chief IR Officer [91]

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Depreciation increased by INR 19 crores. Interest increased by INR 3 crores. And there's no PBT net.

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Operator [92]

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The next question is from the line of [Rama Krishna] from Zen Wealth Management.

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Unidentified Analyst, [93]

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(inaudible)

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Operator [94]

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This is the operator. [Krishna], we are not able to hear you clearly. (Operator Instructions)

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Unidentified Analyst, [95]

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Hear now? Hello?

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Operator [96]

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Yes.

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Unidentified Analyst, [97]

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Yes. So I have a couple of questions. First thing is can you help us understand in terms of your overall capacities on soda ash and bicarb. What are they now? And what will be they once your capacity expansion is done? That is one question.

And the second question is in terms of the demand outlook. Even in your annual report, you have mentioned that you're not looking at more than 2% to 3% kind of a growth for demand outlook for the next 2 to 3 years. So how this impact capacity expansion on these 2 products have to be looked at? And finally, is there anything of just applications of products in your energy business?

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Ramakrishnan Mukundan, Tata Chemicals Limited - MDr, CEO & Executive Director [98]

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The last question, I just want to say that the soda ash is one of the main ingredients to make lithium carbonate. So -- and as lithium market expands when the energy retail market expands and produce bicarbonate and lithium hydroxide, the key ingredient for lithium batteries. So the soda ash sector will continue to grow.

3%, 2% growth rate on our 60 million-tonne capacity is about 1 million tonnes of additional capacity or demand getting generated in a year. So that's a substantial number. So I think this is why we believe the market will be balanced or tight, and that continues to be the case on the global demand growth. I don't know -- what is your first question?

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Unidentified Analyst, [99]

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In terms of your capacity as of now on soda ash and bicarb and what will be they once the entire CapEx is over?

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Ramakrishnan Mukundan, Tata Chemicals Limited - MDr, CEO & Executive Director [100]

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I think the Indian capacity is close to 0.875 or 0.9 until go about 1 million, 1.1 million tonnes broadly. That's the only place where the expansion is happening, that is to the place that the capacity is going to be flat. As far as bicarb is concerned, the medical project would increase the capacity from -- in India from 100,000 to 150,000 tonnes probably overall. I think about 40,000 tonnes. 10,000 in the normal grade and about 30,000, 35,000 tonnes in the pharma grade.

And in U.K., we will be adding capacity of bicarb again, which will be the conversion of soda ash into bicarb. And the overall soda ash production will remain constant but part of the soda ash will be converted to bicarb.

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Unidentified Analyst, [101]

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Is the strategy for plant at capacity expansion will be completely debottlenecking or reflects new capacities of greenfield expansion?

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Ramakrishnan Mukundan, Tata Chemicals Limited - MDr, CEO & Executive Director [102]

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So it's on the debottlenecking. And it's not a fresh line being added, it is a couple of equipments setting up top to bring additional stream.

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Unidentified Analyst, [103]

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I have one last question, can I? So on Rallis India, I just wanted to understand when you mentioned that's going through some kind of a tougher operating in your [own quarter]. What is the medium-term growth drivers in Rallis India? And INR 800 crores CapEx, how will it -- will Rallis come from a growth perspective on 2 years...

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Ramakrishnan Mukundan, Tata Chemicals Limited - MDr, CEO & Executive Director [104]

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I think you know this. We are putting capital in place. We are putting that in place, looking at next quarter or next 2 quarters, it's being put in place with the next 3 to 4 years view because the CapEx is going to happen over 3 years. And if you look at the Indian market, we still believe that Indian agriculture market will continue to demand greater consumption of ag chem products. And also international market, the substitution of the products going out of India to substitute the demand of supply vacation by Chinese as well as some of the brand owners to move from branded to whatever, say, from the technology product to generic products will continue to drive our growth portfolio. So it's still a major growth industry, and we will continue to invest just in looking at this view for the numbers.

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Operator [105]

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We'll take the last question from the line of Jayesh Gandhi from Harshad Gandhi Securities.

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Jayesh Gandhi, Harshad H. Gandhi Securities Pvt. Ltd - Director [106]

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In the Slide #19, consolidated revenue. I think comprises of Basic Chemicals as well as Specialty Chemicals. If you see the profit before tax and the profit after tax in current year, the percentage of tax seems to be like 49.5%. In the previous year, it was 42 point-something-half percent. And if you look at the March presentation also, the numbers don't -- I mean, they are not consistent. How do we read what is the tax percent? What is either tax percent that is being levied on our consolidated books?

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John Mulhall, Tata Chemicals Limited - CFO & Chief IR Officer [107]

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I wouldn't look at trying to forecast a simple consolidated tax number. In India, we run average 28%, 29% as a rough take. We're not there, and that's fair. Internationally, we will -- we're not paying tax in the U.K. or can't just now. And U.S. tax runs about provision 14%, 15%. So that's kind of range you want to look at. Occasional there are one-offs that will come through. Last quarter, we had about INR 100 crores of revenue in North America that wasn't tax locked because as a release of a revision. In India, last quarter, we had some truing up of provisioning through the quarter, through the year, so resulted in quite a low tax rate. And this quarter, in India, is probably the more appropriate tax rate of about 29%. So don't try and forecast an average number for the group because it's not going to work. But on a national basis, the numbers I gave you are probably appropriate.

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Jayesh Gandhi, Harshad H. Gandhi Securities Pvt. Ltd - Director [108]

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So on a consolidated basis, will it be always like greater than 40% or something like that?

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John Mulhall, Tata Chemicals Limited - CFO & Chief IR Officer [109]

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No, it can never be greater than 40%.

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Ramakrishnan Mukundan, Tata Chemicals Limited - MDr, CEO & Executive Director [110]

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I think you're looking this after the deduction of noncontrolling interest. So if you take the word profitability of the entity, which is INR 281 crores, if you look at the noncontrolling interest, that has gone up because that is -- and the TCNA had higher profits. So there are -- there are other shareholders sitting in these two. So our share of profit comes down. That's probably the way to look at this whole of this.

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Operator [111]

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With this, I now hand the conference over to the management for their closing comments. Over to you, sir.

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Ramakrishnan Mukundan, Tata Chemicals Limited - MDr, CEO & Executive Director [112]

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Thank you. I think we had broadly quarters which has been delivered to what our expectations were. And I think we're looking forward to continuing this trend going forward and also report back to you on the strategy in terms of implementation of the growth and investments in both Basic and Specialty Chemistry products. And if we're building our science-based chemistry company here and you will see the transformation being delivered in the next 24 to 36 months.

With this, we think we are in a very attractive part which a broad portfolio of products, which go to a large overall space of consuming industries, basic industry products going into automotive, construction and consumer products. In terms of the Specialty products, agrochemical and agriculture markets. You got nutrition side, specifically supplied for food. And the material scientists that goes into the broad portfolio for consuming industries. And the energy side, which is a new emerging business, which offers attractive market conditions. We hope that we continue on this path and continue to (inaudible). Thanks a lot.

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Operator [113]

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Thank you, members of the management. Ladies and gentlemen, on behalf of Tata Chemicals Limited, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.