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Edited Transcript of TATACHEM.NSE earnings conference call or presentation 31-Oct-19 5:00am GMT

Q2 2020 Tata Chemicals Ltd Earnings Call

Mumbai Nov 9, 2019 (Thomson StreetEvents) -- Edited Transcript of Tata Chemicals Ltd earnings conference call or presentation Thursday, October 31, 2019 at 5:00:00am 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 - MD, CEO & Executive Director

* Zarir N. Langrana

Tata Chemicals Limited - Executive Director

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Conference Call Participants

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* Abhijit R. Akella

IIFL Research - VP

* Dhavan Shah

ICICIdirect.com, Research Division - Research Analyst

* Dheeresh Pathak

Goldman Sachs Asset Management (India) Private Limited - Executive Director

* Ravi Purohit;Securities Investment Management Pvt. Ltd.

* Rohit Sinha

Emkay Global Financial Services Ltd., Research Division - Research Analyst

* Saket Kapoor;Kapoor & Co.

* Sumant Kumar

Motilal Oswal Securities Limited, Research Division - Research Analyst

* 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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Good morning, ladies and gentlemen. Welcome to the Tata Chemicals Limited Q2 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 of 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. Good day, everyone, and thank you for joining us on Tata Chemicals Q2 and H1 FY '20 Earnings Conference Call. We have with us today Mr. R. Mukundan, 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 us Mr. Mukundan to begin proceedings of the call.

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

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Thank you, Gavin, and thank you, everyone, for joining us on Q2 FY '20 Earnings Conference Call. I have with me, Mr. John Mulhall, our CFO; and Zarir Langrana, our Executive Director. And I'll begin the discussion by highlighting some key operational details, after which John will quickly run you through the financial performance.

Broadly, I would say, this is another steady quarter, wherein all the business segments and geographies continued to perform well. Starting with our Basic Chemistry Products, the revenue for the quarter on consolidated basis grew 1%. The India operations, while revenues were lower for the quarter, I would certainly just say that these are part of the, what we call as a, routine plant maintenance issues, which -- but if you look at the overall year, we are on target to delivering another steady year again. The margins were better this quarter due to higher realization and benign input cost, especially on energy.

Moving on to international business. TCNA also delivered to its performance. TCE had a lower trading of soda ash. You recall last time, we had highlighted that we would not be buying soda ash for trading purposes because it was a low-margin business, and we have exited that piece and due to which you would see a fall in the soda ash numbers there. In terms of TCML, TCML had another good quarter this year -- this quarter and continues to have improved volumes and operational efficiencies.

Moving on to the Specialty Chemistry business -- products. Firstly, starting off on Nutrition Solution. I think the performance in the quarter was stable, with revenues of INR 12 crores. This is, as you know, revenue coming off a pilot plant. Our new greenfield project is -- has come on stream more or less, we've had a good trial run. The quality of the product meets all the requisite standards. Now we'll go through the approval process post which, will be starting the commercial production shortly during the course of -- towards the end of this year. Similarly, for silica business, we are currently carrying out trial production in our Cuddalore facility and would expect commercial production to start somewhere around Q4 of FY '20. We expect both these businesses to add value to our overall growth in Specialty Products portfolio.

In terms of the biggest chunk of the Specialty Products portfolio, this is conducted through agrochemicals business in Rallis, where Rallis did deliver a steady performance. Revenues grew by 14%, and there was a strong performance on the international market, while the domestic market had its own challenges. In terms of margins, they were under pressure due to higher raw material prices. We had already highlighted in all our businesses, we're going to be moving towards higher plant utilization and higher revenues and that strategy has paid off. The company's expansion of Metribuzin capacity, part of that -- 50% of that has come onstream. We expect the balance 50% to come onstream by the end of this year.

We are also moving forward with the CapEx investment as targeted in Dahej and you would see continued progress in terms of the revenue growth of that business. In terms of the Consumer Product business, the salt business continues to perform well with higher sales volume. There was a higher marketing spend during the quarter because we are continuing to invest in the brand. Pulses and spices portfolio grew at 25% on the back of good demand, and we continue to see good traction.

A quick update on the demerger process because this is a business which is now going to be part of a larger Tata Consumer Products Limited once it gets merged with TCPL. That process is very much on track. Yesterday, at the AGM, the shareholders voted in favor of the resolution. We will now move towards the next level of demerger, wherein we file shareholder approval for NCLT for further proceedings. And we are also internally working on making sure the integration is robust, and those processes are well underway.

The last leg of our business, which is the Specialty Products business is the energy science business. We have received support from government of Gujarat for the greenfield manufacturing facility. A land has been allotted to us in Dholera. In addition to that, we have also got very advanced in terms of the discussions with technology partners, and we will keep you updated as we start through the -- as we progress on the developments of this business.

So overall, I think we had committed broadly in the Basic Chemistry business overall investment of INR 2,400 crores to debottleneck and expand capacity; part of which also was to expand the salt manufacturing capacity to support growth of salt from 1 million tonne to 1.4 million tonnes, soda ash from about 0.8 million tonne to about 1 million tonne. And that investment is moving on target. The investments, which we had committed in Rallis, over a period of next 5 years, of about INR 800 crores to INR 900 crores, that investment is also on target with the first phase of it having been delivered. The second part of that is getting delivered during the course of this year.

INR 250 crores of investment in Nellore facility for nutraceutical business is almost done and over. And almost 60% of the investment committed for the silica facility also has been done in terms of -- out of the INR 250 crores which we had commented. And the balance, which we had said, as an estimate, in terms of the lithium battery project, which would broadly cost about INR 800 crores for a 2-gigawatt plant, our initial thoughts are to set up what we would call a smaller scale cell manufacturing facility. We will come back to you with exact numbers, but these numbers are likely to be about 1/3 of the figure, which we had highlighted about INR 800-odd crores, 1/3 of the figure for the initial capacity to be set up for the initial demand as we see that this demand initially will be progressing at a slower pace before it picks up, matching our capacity investments to the demand, which we want to be generated.

With those few comments on the investment plan, which are also moving ahead as targeted and as planned, I now invite John to give some insights into the quarterly performance.

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

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Thanks, Mukundan. Good morning, everyone. Before we open the lines up to questions, I'd like to highlight a few points on our Q2 FY '20 results released yesterday afternoon.

In the standalone results, while the PAT from continued operations is down slightly at INR 293 crores, our operating EBITDA is actually up 5% for the quarter. The difference you'll have noticed is really in the large drop in other income. Tax expenses and income statement have reduced and we also saw a reduction in the cash on the balance sheet as well. The reduction of INR 94 crores in other income is a mixture of timing of dividend receipts, where we received INR 24 crores in quarter 1 this year from balance and we received in quarter 2 last year. Year-to-date, it's flat. We have received reduced banking compliance of INR 15 crores. And last year, we received a one-off income tax repayment interest of INR 12 crores; again, not repeated this year.

And finally, the dollar piece really was a reduction on the FX gain on translation of our bio-energy preference shares. Last year, we received INR 60 crore credit. This year, it's actually INR 28 crores, so again, the reduction is INR 32 crores over last year. These are nonoperational items that have affected the overall profitability of the business, but really are not related to the operationals in our business.

The company recognized that the tax rates change immediately in the quarter, the effect was a reduction in our deferred tax liability of INR 39 crores. And with a small credit of about INR 8 crores in the year-to-date, I expected our effective tax rate for the quarter was 18 -- just about 18.4%. And year-to-date, this is just under 25%, about 24.8%. Given the fact that we do receive some dividends that attract low tax rate, I would expect a full year tax rate to be just about 25%. Our India cash position reduced from INR 3,200 crores from Jan to June to INR 2,700 crores in September, a reduction of about INR 500 crores. This reduction is due to, sort of, one-off annual payments related to the repayment of the NCDs of INR 250 crores in July, the annual dividend of INR 380 crores in August. And also, we did spend about INR 366 crores of CapEx in the quarter.

Operationally, the India business performed better than last year, with EBITDA up about INR 12 crores over last year. And while the soda ash volumes are down slightly, as Mukundan mentioned, net sales revenue is up over last year, but the greater impact was seen in a reduction in energy costs across all our product lines: cement, bicarbonate and soda ash.

The Consumer Products business unit recorded a 12% increase in revenue over the last year across salt, pulses and spices, but the largest was the increase in salt volume, up about 14,000 tonnes over the same period last year and continuing the run rate above last year's run rate on a year-to-date basis. The net profits of the BU were down, mainly due to the allocation of corporate overheads. As part of the merger process, we are allocating office rent, IT, corporate cost, et cetera, to the Consumer Products business unit, which was not done previously.

Touching briefly on our international operations. Tata Chemicals Magadi sales volumes and prices were above last year. Production was down in the quarter due to the planned maintenance outage, but on a year-to-date basis, both the sales and production volumes are above last year. Expenses incurred last year during the heavy rains were not repeated this year, adding to improved cost control and a positive result for the business. Our Tata Chemicals North America, better than last year production and sales in the quarter and year-to-date, allied with improved pricing, which we discussed a couple of quarters ago, were offset by slightly higher maintenance costs in the surface and the mine. Overall profit for the quarter is on par with last year, although we're ahead for the year-to-date.

As far as U.K. goes, we saw similar volumes of own mix sales. We did plan to reduce the amount of volume of PFR sales and we did that in the quarter and also we saw better pricing than last year. We were challenged slightly by higher input cost of brine, energy and limestone, which offset these positives. And also last year, the business recorded an INR 11 crore insurance receipt, which is not repeated this year.

Overall, the TCE business improved performance over last year as well. Now while that is salt, volumes were down slightly, improved pricing mitigated at best to a large degree, and profits were flat to last year.

With that, I'll open the lines to any questions you may have.

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

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Operator, can we start the questions please?

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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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I have 2 broad questions. First on the soda ash business, just 2, 3 points to clarify. One is, there's been a dip in the India sales volumes this quarter, even though the production seems to have been fairly normal, so just wondering whether that's related to the demand environment in any way? And if you could also just comment on the impact of the price increase you've taken last month in North America, whether that flows through into any benefits in the coming quarter or 2? And we've seen some announcements of capacity additions by large producers globally, including Solvay and Genesis, how do you see that impacting the market over the next couple of years?

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

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Okay. Firstly, I think in terms of the -- broadly, if you look at the capacity increases, which have been announced, most of these capacities would take at least 36 months to come onstream, if at all they progress. So we do expect, by which time, the demand environment would also have reached a level of balancing because soda ash continues to grow on a global level at certain pace and the world does need additional capacities to come onstream if it were to meet the demand. So I think 3 years from now when these capacities come onstream, I think we expect the market to be fairly balanced as we saw before. We will have to keep on waiting and watching how these capacity announcements actually come to fruition and how much of that is undertaken with the speed with which the market can take up. So that's broadly on the capacity side.

The second, I think, the India-specific issue is more related to the -- our production numbers, stocks and movement of stocks, it has got nothing to do with market demand. There is no let down in the market demand. Of course, if you see the headline news in the media about automotive sector slowing down, but we had also explained auto sector constitutes hardly 15% of the total overall derived demand for this product, and hence, it is not the major one, which moves the needle. The second one, which I had highlighted in the -- in times of stress, the consumers move to downshift their products to more value products. And in detergents, especially the lower -- more value products have higher proportion of soda ash and lesser proportion of enzymes. So whenever the market comes under stress, you would certainly find that the demand through the detergent sector would start to move up at its own pace. So we don't see major shift in the market demand side in the domestic market. What was your third question, which was the second one?

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

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The North America price.

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

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Price. Okay. Part of that will keep coming. I mean it's part of the process as we see, and these become effective as the contracts get opened up. So depending on which contract gets opened up, so you'll see part of them coming through step by step.

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Abhijit R. Akella, IIFL Research - VP [6]

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Okay. And the second piece, I just wanted to clarify was on the Specialty business. We've, obviously, articulated a very aggressive roadmap of growth in that business of reaching 50% of revenues by 2025. Given that the 3 broad areas we're talking about: nutraceuticals, silica and energy, are just getting off the ground now and maybe initial demand might be a bit weak, especially for the energy segment. How do you see the capacity ramp-up happening over the next 3 to 5 years for these businesses? How quickly before you meet -- you fully use up your existing capacity? And would you say we are on track to achieve that ambitious target of 2025?

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

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Broadly speaking, if you look at the biggest chunk of that is our business in agrochemicals in Rallis. The plants are very clearly on target. So broadly that entity does do close to about INR 2,000-odd crores and would continue to track growth in such a way that we believe that revenues would double in the next 5 years. If you look at the nutrition business, broadly, we expect between the salt, which is sold to the Tata Consumer Products and then FOS, GOS, which have been sold to various other consumer food companies, that entity also would track good growth given that the numbers are fairly committed. I do agree that the FOS and GOS would be in high triple digits and would contribute. Now when you speak about the battery energy science business, as you know that we are looking at 3 pillars of growth: One is the active materials. These are actives, which are coated on to make the lithium battery itself like cobalt sulfate and lithium hydroxide and this lithium carbonate. We would be dealing in these materials, in addition to which we have already started recycling business. The first off the ground has been the recycling business, where we've already done the recycling of 500 kgs. We're looking at 500-tonne recycling capacity immediately and moving that forward.

As far as the lithium battery project itself is concerned, I think the market demand outlook will be -- we can't pin it down, nobody can. Because this is a bit like, when it takes off, it will really take off. So we need to be ready, which is why we have bought already land and space availability, which can take up to 5 to 6 gigawatts of capacity. But our first capacity is going to be under 1-gigawatt. It will be closer to somewhere 300- to 350-megawatt hour capacity, which is what we're setting up initially, but we'll be ready for ramp-up as the market picks up. So that broadly should let you know that this directional figure of reaching 50-50 in the next 5 years is something we are intent on doing. And of course, it may take -- move 1 year here or there, depending on market conditions. Those things can move, but broadly that's our plan. And we do believe we are within striking range of that plan.

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Operator [8]

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The next question is from the line of Dheeresh Pathak from Goldman Sachs.

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Dheeresh Pathak, Goldman Sachs Asset Management (India) Private Limited - Executive Director [9]

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Sir, just on this capital work-in-progress, which I see is about INR 1,100 crores in the consol books. Just to get an understanding, so you said Material Science is about INR 300 crores, of which 60% is completed.

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

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In the Materials, the approved numbers are like this. Let me just give you the Board approved numbers. Between Nutrition and Material, both are at INR 250 crores each. Exact figure, I think, [Sameer] can share it with you later. The Nutrition Science is INR 250 crores or INR 260-odd crores in fully invested. In the Material Science, which is for highly disposable silica, the number is -- the approved number is again INR 250 crore, of which close to INR 150-odd crore has been invested broadly. In terms of the approved investment plan for Mithapur is INR 2,400 crore, and that investment is apace currently ongoing. I think we would have already committed close to about 600 -- INR 1,000 crores approximately. And in terms of the Rallis is INR 900 crores. I think on the ground, they would have already invested close to INR 50-odd crores, but they have plans to put another INR 100 crores on the ground in the Dahej facility. So this is really the specific. But I think exact breakdown of this, I would let Sameer share it with all of you.

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Dheeresh Pathak, Goldman Sachs Asset Management (India) Private Limited - Executive Director [11]

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Okay. This is helpful. Just on Mithapur, when is the commissioning of the new CapEx that you're doing?

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

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The CapEx is coming onstream, so if you look at it, part of the salt expansion will come this year. Next one will come a year later, so the 400,000 tonnes we spoke about is going to come in, I think, at least, 3 steps or 4 steps. So it is not going to come -- everything is not going to -- so it's going to come in steps of 100,000, 150,000. There is a phase where it comes. Even soda ash, for example, is in 2 steps. So first it will bump up another 100 (sic) [100,000] and then finally another 100,000. So these are all ongoing investments. So -- which is why we've shown the progress and across various plants.

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Operator [13]

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The next question is from the line of Dhavan Shah from ICICI Securities.

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Dhavan Shah, ICICIdirect.com, Research Division - Research Analyst [14]

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Congrats on a good operational quarter. So I've a few questions. Firstly, about the India Basic Chemicals segment. So despite -- I mean there is a slowdown in the volume front on Y-o-Y and Q-o-Q business, we have seen some realization growth for the quarter. So is there anything -- I mean the realization per tonne, so is there anything related to the product mix like we sold more Medikarb during the quarter, which has lifted the overall realization per tonne? Or is there anything else? If you can share some more thoughts on that.

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Ramakrishnan Mukundan, Tata Chemicals Limited - MD, CEO & Executive Director [15]

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There's nothing specific on the ground. It's just maybe the -- in terms of margin, it is the cost of some of the inputs coming down. In terms of realization, I think it is mostly destinations and stuff like that. It is destination mix. It is -- it's nothing major to write home about. And also, I just wanted to say that as far as the annual numbers are concerned, it will just track what we always do. So we are performing to the targets. So don't take every quarter numbers to read too much into the numbers because the boiler shutdowns, which we take sometimes to be before monsoon, sometimes we take it after monsoon depending on when is the right time for us to take these equipment shutdown, that moves the needle by 10,000, 12,000 tonnes every quarter.

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Dhavan Shah, ICICIdirect.com, Research Division - Research Analyst [16]

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Correct. And the second one is about the international market, I mean the basic chem segment. So we have seen, I mean, good EBITDA per tonne for Magadi as well as Europe. So is this sustainable going forward, the EBITDA per tonne number for these 2 geographies?

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Ramakrishnan Mukundan, Tata Chemicals Limited - MD, CEO & Executive Director [17]

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See let me just say this, we are saying that broadly, the demand pattern and supply pattern is remaining to be balanced. We are not seeing major dislocations happen. But all I want to say is that also new capacity -- most of the new capacities have been absorbed. The first capacity coming into the market is going to take at least some time in future. So only headline news you need to watch for is if there is a major dislocation in the international economy itself. I mean if that were to happen, then we will have a consequent knock-on impact. And the headline numbers I'm seeing, Fed has again reduced the interest rate. There could be thawing of this trade war between China and U.S., so these will all be positive. So we need to continue to watch that, but that's a bit of a long shot. In the short run, it's not going to impact us. But in the medium term, it can come to bite if many of these things intensify. So -- but then, that will impact every sector. It's not just going to impact soda ash, so I just want to leave it there. As we see it, if things on the overall economic front remain as normal as predicted, there is going to be a balanced market. We are not seeing any sharpness in terms of tightness or looseness across.

The second point, which I just wanted to highlight is the energy situation is becoming more benign. It was a tough issue a year ago. We actually were facing huge headwinds on energy costs having gone up. So many of the improvement in margin, which you're seeing, is coming on the back of the energy market easing. We do believe the energy markets are now also in a very stable zone. They have eased to the level where it is comfortable for all.

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Dhavan Shah, ICICIdirect.com, Research Division - Research Analyst [18]

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Right. And the last one is about the other expenditure. So in standalone accounts, there has been increase by around INR 15-odd crores. So is this entirely related to the consumer business, the marketing expenditures? Or is there anything else? Because the consumer margin comes around 14.3% EBITDA margin, so what's our take on that? If you can shed some more highlight on that?

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

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There is certainly one-off costs, which we have taken accrued for the transaction itself of about INR 8 crores. We expect by the time the transaction finishes, we will have a INR 15 crore impact this year for the demerger process because that's part of the contract we've signed between TGBL and TCL that we will just book the cost which we incur on the transaction within TCL books and they will book their cost. And it's about INR 8 crores what we may have booked year-to-date, and we expect another INR 7 crores to come by the time the transaction is complete. Other than that, I don't see major movement in fixed costs.

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Operator [20]

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The next question is from the line of Sumant Kumar from Motilal Oswal Securities.

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Sumant Kumar, Motilal Oswal Securities Limited, Research Division - Research Analyst [21]

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Sir, why other financial liability almost doubled from INR 1454 crore to INR 2,943 crore?

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

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I'll let John answer that one.

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John Mulhall, Tata Chemicals Limited - CFO & Chief IR Officer [23]

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Carry on, give me a second to look in that one there.

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Ramakrishnan Mukundan, Tata Chemicals Limited - MD, CEO & Executive Director [24]

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Do you have any other questions, while John looks for the response?

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Sumant Kumar, Motilal Oswal Securities Limited, Research Division - Research Analyst [25]

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Yes. Then the Africa business, we have seen relatively the realization is -- realization growth is higher. So what was the key reason for that?

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Zarir N. Langrana, Tata Chemicals Limited - Executive Director [26]

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Well, I think it really shapes essentially by market conditions in the main markets for Africa supply, which is primarily Southeast Asia and the Indian subcontinent. Compared to last year, obviously, this year has seen better pricing as last year's contracts wound down and the new contracts came into play. But as Mukundan mentioned earlier, I think rather than seeing quarter-to-quarter numbers, we should track the annual numbers where we should be delivering as per expectations.

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

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So broadly, what Zarir has highlighted is some of the contracts are unbound and as new contracts came into effect, the price increases from Southeast Asian market has actually moved into the accounts of the Magadi numbers.

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

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Yes, on your question on the liabilities, that's really a big plus of our North America borrowing, which is due to be repaid in August next year, that's less than second 1 year (inaudible) long-term liabilities. Overall, there's no change.

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

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And this Africa market is majorly in a spot market, right?

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Ramakrishnan Mukundan, Tata Chemicals Limited - MD, CEO & Executive Director [30]

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No. I think Southeast Asia, it is contract. What we sell in Indian market is, I would say, a 3-month to 6-month contract. So about 1/3 of this production comes to India, 1/3 goes to Southeast Asia and balance 1/3 is scattered across various markets in Africa. So that's really the way to look at it. The 1/3 of their numbers are pretty much contracted markets in Southeast Asia, which is where the price increases come through.

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

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Okay. And 1/3 is a spot market?

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Ramakrishnan Mukundan, Tata Chemicals Limited - MD, CEO & Executive Director [32]

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1/3, I would not call it spot, it is 3 to 6 months contract. So it is...

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Sumant Kumar, Motilal Oswal Securities Limited, Research Division - Research Analyst [33]

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So other 1/3, rest 1/3 is in the spot market?

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Ramakrishnan Mukundan, Tata Chemicals Limited - MD, CEO & Executive Director [34]

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The 1/3 could be more or less on spot on the changes, yes, you're right.

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Sumant Kumar, Motilal Oswal Securities Limited, Research Division - Research Analyst [35]

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Okay. And talking about the U.S. business, we have seen now a Y-o-Y realization growth is there in dollar term -- sorry, in INR term, when we see the USD term, we have seen a Y-o-Y and Q-o-Q 1% to 2% decline in realization in soda ash.

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Ramakrishnan Mukundan, Tata Chemicals Limited - MD, CEO & Executive Director [36]

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But those are minor ones. I mean they are not major things you should take into account because it could be destination, it could be the mix of the cargo. I think we should just leave it there. It's nothing to do -- there's no major movement in pricing.

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Sumant Kumar, Motilal Oswal Securities Limited, Research Division - Research Analyst [37]

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Okay. So there-- but there, the soda ash is majorly contracted price. The spot market is in what percentage?

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Ramakrishnan Mukundan, Tata Chemicals Limited - MD, CEO & Executive Director [38]

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It's mostly contracted and it comes up for review in the month of December. So you will see that new numbers coming in the last quarter of the year, Jan to March time.

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

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Some amount -- some quantity we are selling in the Europe market also, so is it because of that the realization has gone down?

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

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No, there's no major issue. I think it is just some destinations in some markets because there could be minor variation in mix of the destinations.

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Operator [41]

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

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Viraj Kacharia, Securities Investment Management Pvt Ltd - Senior Analyst [42]

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I just had 3 questions. First is on the soda ash...

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Operator [43]

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Sorry to interrupt, Mr. Kacharia. Sir, can you speak a bit louder? We're not able to hear you.

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Viraj Kacharia, Securities Investment Management Pvt Ltd - Senior Analyst [44]

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Yes. Just 1 second. Am I audible now?

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

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Yes. Go ahead.

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John Mulhall, Tata Chemicals Limited - CFO & Chief IR Officer [46]

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Yes. Go ahead.

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Viraj Kacharia, Securities Investment Management Pvt Ltd - Senior Analyst [47]

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Yes. So basically, I have 3 questions. First one is on the soda ash. I understand that we should not look at quarterly and we should look at the annual trends in terms of realization and EBITDA, but considering the fact that we have seen a softness in Indian market, where key competitors are talking about another 4% to 5% price cuts, we're talking about some price moderation globally. How should one -- and also considering the fact that we're seeing a benign energy cost environment, how should one look at realizations and EBITDA per tonne in U.S. and India in soda ash? So that is one.

Second is, on the U.S. part, if I look at Q2 of last year, we had seen almost a 10% decline in volume. Now on that low base, you've seen kind of a flattish volume for us. And for last more than 6 quarters, we've been in that 540,000 to 570,000 tonnes quarterly volume run rate. So where is the bottleneck? I mean if you can just provide some color on what will drive growth for that particular business in U.S.? And third is on the Nutra and HDS business, what are the typical asset turns one sees on a mature steady state in this businesses? And what is the time frame we can -- we are looking to achieve that?

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Ramakrishnan Mukundan, Tata Chemicals Limited - MD, CEO & Executive Director [48]

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So broadly, the last one is usually, this business you should look at anything between 1.7 to 2.0 as the asset turn broadly coming out of the units. So I will -- as far as the soda ash market is concerned, as I said, again, it is fairly flattish. I mean if there are minor movements in pricing, I think the business can afford to take that today because of the cost structure, which is more benign. So I would just say that the margin should hold up. In terms of the overall international pricing, I think that there will be always a talk, from around the time of negotiation by the buyer community, of market being long and prices coming under pressure and the seller is saying that this market is tight, and I see the market more or less balanced. And I would leave it there, and I would not read too much into the whole story of slowdown in Indian market. I think the issue really is, these are dislocations, which have happened, which will correct themselves. And we do believe that a 6-month blip in automotive sale is not something we should -- 6- to 8-month blip in automotive sale is not something we should take too much cognizance about. But let's say the automotive sales continue to slide for next 2, 3 years, then we have a cause for alarm, but I'm sure many more people will be alarmed by that and they would take action much before it reaches that kind of a level. So I will leave it there. So I don't see. But the good news is, as I mentioned, within -- in the Indian market, the countervailing force for us always is the detergent sector where consumers move to more value if there is a stress in the market, and that has a higher percentage of soda ash.

Secondly, I think commercial real estate is doing well. The demand from commercial real estate for glass, which is a bigger demand than even the automotive, is continuing to be robust. So I would continue to state that we are not overtly worried about the market situation. I think this is -- because in my view, taking a 1-year, 2-year view of soda ash market also is very shortsighted. This is a business for really long cycles, and I see this market continuing to be balanced and needing more material going forward.

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Viraj Kacharia, Securities Investment Management Pvt Ltd - Senior Analyst [49]

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On the U.S. part?

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

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Sorry, on the U.S. part, again, I think if you take the annual number, we issued with the steady number, which we have spoken about. I think the operations are doing well. We hope that our winterization plan is as good as we have committed. And we will deliver better numbers, unlike the past when actually our blip used to happen in the winter months. And the unit is doing as well as it can and we hope to see the good numbers coming through.

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Operator [51]

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The next question is from the line of [S. Ramesh] from Nirmal Bang.

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Unidentified Analyst, [52]

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On the CapEx schedule and the capacities you're planning, if you see the presentation, you're talking about soda ash and sodium bicarbonate going up over the next 2 years. So can you give us some sense in terms of how much capacity you'll add in soda ash and sodium bicarbonate, say, in FY '20 and '21?

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Ramakrishnan Mukundan, Tata Chemicals Limited - MD, CEO & Executive Director [53]

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I think it has been very detailed mapped out. I think where the bars end is where the additional capacities are coming in. So effectively, March '22 is what has been committed as the full 200,000 tonnes coming in, and part of which should come a year before. That's it.

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Unidentified Analyst, [54]

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Okay. So you're saying by March '21, you will see half of the soda ash and the sodium bicarbonate by and large?

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Ramakrishnan Mukundan, Tata Chemicals Limited - MD, CEO & Executive Director [55]

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Yes. We'll give you a specific date. It would be close to half and next part would be another half year.

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Unidentified Analyst, [56]

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So in terms of the progress on the CapEx, what is the amount of capitalization of assets you would expect, say, in FY '20 and '21?

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

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I would say that it is almost running at a steady even pace. I think the additional capitalization, maybe about INR 1,400 crores in the first year and about INR 1,000 crores in the second year.

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Unidentified Analyst, [58]

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So that is over '21 and '22?

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

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That's right.

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Unidentified Analyst, [60]

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Okay. So in terms of the soda ash market, if I may just dwell on that. See, Rohit Surfactants, a very big detergent manufacturer, has commissioned a very large facility. And I think if you understand the numbers the Indian market seems to be currently balanced in terms of capacity and demand. So in terms of your own reading of the market, how much is that impacting the sales of companies that sell soda ash because they are backward integrating and they were customers for companies like you? So to what extend is it hurting the growth in demand for soda ash companies like you?

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

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I think -- I don't know, I think you should read what we've always said. If you look at the overall market, it's about 4 million tonnes and market growth is about 4% to 5% growth. So market needs 1 million tonnes every 4 to 5 years. So India is a net importer. India does not have enough soda ash even if 3 more Rohit Surfactants type facilities come. So I think we are -- so I'll leave it there because I don't want to say anything beyond that having said that the market is balanced. And I think it is -- it's only fair that investments happen and supply balances out the demand growth. Otherwise, our customers are going to suffer if supplies don't come onstream.

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Unidentified Analyst, [62]

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Okay. Just one last thought. So in terms of the new businesses, nutraceuticals and specialities, what is the kind of top line growth we can expect, say, in the next 1 or 2 years, say, FY '21 and '22?

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Ramakrishnan Mukundan, Tata Chemicals Limited - MD, CEO & Executive Director [63]

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I can't tell you '21 and '22. I have given a broad guideline. You should see the announcements from every quarter, but broad guidance I have given is 1.7 to 2.0 as the asset turn.

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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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Saket Kapoor;Kapoor & Co., [65]

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Sir, firstly sir, what has been the price cut in the soda ash cited for this first half, sir? Any price cuts we have taken?

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

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Zero.

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Ramakrishnan Mukundan, Tata Chemicals Limited - MD, CEO & Executive Director [67]

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Price cuts, I don't know. I don't think so. I don't think that it happened in any market, at least I am aware of.

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Saket Kapoor;Kapoor & Co., [68]

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Okay. Sir, one more. Your nearest competitor has taken a 3% to 4% price cut, that was the reason I asked you also. And sir, secondly sir, as you have earlier guided that Europe and Magadi would be strategically reoriented in a way that they would be much better in terms of the EBITDA numbers going forward. So where are we in midst of this -- you guided us -- did elaborate it 2 quarters, 3 quarters earlier. So in that process, where are we? And sir, how strategically are these units important because if we take the bottom line at the PAT levels, they're not contributing to a greater extent to the size of the company? So your outlook on this?

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Ramakrishnan Mukundan, Tata Chemicals Limited - MD, CEO & Executive Director [69]

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So I think Magadi, if you look at it, I think it is performing well, and we think their performance has moved as for what we guided. I think U.K. is still some more catch up and some more work to be done, and that work is on track. And as we said that the bicarb facility would come onstream in next 18 months. And once that comes, you would see the numbers really moving up as far as that unit is concerned. So that investment plan also is onstream, and we expect to deliver that as committed. In terms of what is the linkage for each one of them, I think they are very strategically important. Magadi plays a very important role in the container glass segment within India. It is one of the lowest-cost producers in the world, and it's an asset which we think the customers value and consumers value, not just in India, also around the world. And the main markets of Magadi are Southeast Asia, India, and both these markets are also critical markets for us in terms of being present and competing and servicing our customers.

As far as U.K. is concerned, U.K. soda ash is mainly delivered within that island. They don't take any of the major materials outside. But bulk of the EBITDA of U.K. actually is to be seen not as a soda ash operation, it should be seen more as a salt operation because the larger proportion of the EBITDA comes from the salt business. And salt is a very steady business even for them. And I think they are going through a capital investment in terms of completely refurbishing their boiler and energy setup. They are making major investments in the salt capacity to bring the cost structure down. So that performance should also improve. So as far as U.K. is concerned, one should look at U.K. more as a high-grade bicarbonate unit and high-grade salt unit and it is really not soda ash unit. Going forward when the bicarbonate conversion happens, it is going to be a unit, which is going to be supplying to pharmaceutical and food industry, and that is where their -- bulk of their demand is going to be fulfilled from. So that's broadly the outline. U.K. unit remains our unit where all the new technologies are tested out. For example, the new bicarb, we are building plant, we are building with CO2 capture. That technology once we perfect there, it can be rolled out in any part of the world. And it's a unique technology, which is focused on sustainability, reducing carbon footprint in the world and using the waste carbon emission to produce a useful product.

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Operator [70]

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The next question from the line of Rohit Sinha from Emkay Global.

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Rohit Sinha, Emkay Global Financial Services Ltd., Research Division - Research Analyst [71]

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Most of my questions are already answered. Just I wanted to know something on the Consumer side, that for the last 2 quarters, we are seeing some contraction in the margin largely because of, I think, [ad spend]. So how this will go on? And where do we see the stabilization in the margin for this segment?

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

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So I think, as I mentioned, this is really -- now as the transition happens, you will get even sharper guidance from the other team. And at the risk of not holding them to the word I'm saying because there's a transition happening, I would simply say we had highlighted certain numbers we need to reach, threshold numbers before the units becoming breakeven. If you look at spice, that number was at least reaching a 3-digit figure. We are not there. So till that number is seen, we have to continue to invest because remaining in the current scale is not an option in consumer business. You have to reach that minimum scale and once you reach that scale, it becomes engine which generates its own cash for further investment. So to reach that point, I think we are at least 1 year, 1.5 years away. Till we reach those numbers, both in pulses and spices, I think investments will continue and they will look as if the cash generation from those business is below the cash which is being pumped in to build a brand. Good news is the brand is very sticky. Tata Sampann brand has a good traction now. We can see that in all the modern trade stores. We can see in all the online stores. It's -- in its category, it is either #1 or #2. So I think that positioning and that focus has allowed us to get that position, and we should continue to engage with this. After a point, I do believe that both these categories will deliver. And our approach in this business always has been disciplined. Launch a new category only when one of the 2 categories is stabilized. We have done several pilots on what the next item ought to be. And I think as we get closer to the situation where, I think, last year, the pulses was more or less breakeven. As it moves forward, I think, we would create another new category. But all these discussions, because we are in transition, should be held with the Tata Consumer Products team, who will also relook at the strategy we've had and probably rewire it. Good news is the biggest robust performer in this Tata Salt continues to have a high market share and continues to perform well, continues to clock growth, and we are on target to deliver the consumer market growth in Tata Salt from 1 million to 1.4 million tonnes. And all those plans are fairly in a robust phase.

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Operator [73]

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The next question is from the line of [Amit Mitra] from (inaudible).

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Unidentified Analyst, [74]

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Hello, hello.

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Ramakrishnan Mukundan, Tata Chemicals Limited - MD, CEO & Executive Director [75]

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Yes, go ahead please. Go ahead.

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Unidentified Analyst, [76]

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Sir, this may be a repetitive question because I -- my call got disconnected in between. My question is like the EBT, the earnings before tax, excluding exceptional items in terms of standalone business came down from INR 380 crore a year back to INR 312 crores. So can you throw some light over this?

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

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See, the way you should read this is, there are several moving parts in terms of dividends, in terms of other income. If you go to the segment reporting, I think that's really the chart which you should see. In the segment reporting, there's a segment reporting of Basic Chemistry, Consumer and Specialty Products, where last year, it was INR 251 crores. That number has moved to INR 273 crores of EBIT. That is the operational performance. Rest of them are all because it is stand-alone, there is dividend received from subsidiaries, dividend received from joint ventures. And then, there is also this issue related to investment income, and they vary depending on when those numbers come through. So they are all moving parts. The real core number you need to focus is the number at revenue and the profit number in the segment reporting, which is total segment result. Is that holding? I think it's good -- that number is good.

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Operator [78]

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The next question is from the line of Ravi Purohit from SIMPL.

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Ravi Purohit;Securities Investment Management Pvt. Ltd., [79]

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Most of my questions have been answered. I just have one more broad strategy related question. Sir, in the last 1 year, 1.5 years or rather 2 years, we've been kind of sharpening our focus in the core businesses of the company. So we've hived off -- we sold off the fertilizer business. Now we've carved out the consumer business. We still have Indo Maroc stake, we still have stake in Rallis, and we still have stakes in various group companies of the Tata empire. So any light that you can throw on as to how we are progressing there and what is the plan? In a sense that I think there is still a lot of shareholder wealth that can be created, but it's just not kind of visible in the sense, whether what our clear goal or clear plan is to do with those investments that we still hold. And which also kind of reflects your ROE because if your aspiration is to earn 20% plus ROC, a lot of this denominator is kind of stuck in these investments. So if you could just shed some light?

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

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I think on the ROC question, I think the issue is not coming just from these denominators, so I think there's a large [chunk] of cash which we hold and there is -- and I think that is being put to use. As I said, there's INR 4,000 crores -- INR 4,800 crores of investment, which is happening. And while we do these investments, if there is anything to be done in terms of distribution of that cash, the Board is certainly very conscious of its job to not hold on to anything, which is more than what we need.

The second element in terms of the group holdings, I think the group has been steadily unwinding cross-holdings. You saw approximately INR 900 crores of cross-holdings unwind during the last year. And I think we will continue to see from time to time what can be done on that account. So I will leave that as a program, which is continuing work in progress. We completely unwound TCS shares at some point. And then we have also done with TGBL shares, which we used to own. A big chunk of our group cross-holding is only tightened as of now. And I think we'll take a call on that as we move along. But to be -- the other element you spoke about Indo Maroc. I think you're referring to the fact that we divested fertilizer, why is something in that fertilizer value chain still with us?

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Ravi Purohit;Securities Investment Management Pvt. Ltd., [81]

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That's right.

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

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Clearly speaking, the piece which we divested in the fertilizer value chain was the piece of the value chain, which had subsidy element in it. So we are very happy that the element which has gone out had the subsidy recovery from government. The one in Morocco actually is very, very -- positioned very competitively in terms of access to rock phosphate right there next to it. And it is a very competitive operation. But we will continue to review. I'm not saying, never, no. But the fact of the matter is, it is one of our better performing and good units. So it is immediately not a -- as far as Rallis is concerned, it is part of our core strategy. It is part of our agro-science business. There is no question of us discussing Rallis as not part of the core. If you look at our -- the strategy has been that Basic Chemistry business is in soda ash and bicarb. And when it comes to the growth areas, which we are also focusing parallelly is on the Specialty Chemistry, which is agro-science, nutrition science. And in all these pieces, what matters is intellectual property and customer relationship, and they have better ROE and ROC than the basic soda ash and bicarbonate business. So we would continue to invest strongly in Rallis. We will continue to invest strongly in nutrition science, energy science and material science business because these will help us to move towards the greater ROC. The question on ROC, which you mentioned, I think, also is stemming from the fact that we've had, I would say, relatively difficult performance coming from the soda ash unit, especially in U.K. and in Magadi and in U.S. While U.S. makes money, it needs to -- it needed to improve its performance, which it has done. U.K., as I said, once the investment in the bicarbonate unit is done, would improve its ROC. And Magadi is also mending its ways. And once we also look at opportunities to change the product mix towards more purer soda ash at a lower energy intense option, which we are investigating, I think those performance would also tend to improve. So we've got 2 tasks at hand. One is to improve the ROC of the core Basic Chemistry business and to invest more strongly in the Specialty business. That is broadly the strategy which we'll follow. And your have 2 suggestions on the holdings, which we have, the group cross-holdings. I'm only saying that it is work-in-progress. And on Indo Maroc phosphate investment which we hold, I think you should view it as part of the agriculture value chain. But we will never say we'll never review it, but it is in a very, very good cost competitive position, and it is a very good ROC unit. If you take that as a metric, you would keep it as a core.

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Ravi Purohit;Securities Investment Management Pvt. Ltd., [83]

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Sir, just one question on this HDS business. So one of -- so is it right that one of the larger companies in India is Madhu Silicates (sic) [Madhu Silica] because we were looking at their numbers and they were making almost like 24%, 25% EBITDA margin. So is the HDS business actually a 20%, 25% EBITDA margin business? And therefore -- and if you have like 1.5x, 2x asset turns, which you alluded to earlier in the call, there is a significant opportunity to scale in that business and do you do envisage because some of these guys actually buy soda ash from you, right? I mean as their raw material. So if you could just throw a little bit more light on this HDS business, the opportunity size that we are looking at. And over what period of time, what kind of scale can we achieve? And are we looking at this business purely from local point of view? Or are we looking to achieve global scale in this business?

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

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So I think the HDS is, while it is silicate, it is a very highly specialized form of silicate. We have a patent protection on our product, and it has been developed in-house, the technology. And so it is part of the same family tree, but I would not put it in that same tree because there are also -- it is bit like saying bicarbonate, there's a pharmaceutical-grade bicarbonate and there's a commodity bicarbonate. So to that extent, this is more specialty business than a commodity business what we have within our portfolio.

Second point, which I just wanted to highlight is that once we start serving the customers, basically CEAT or other Indian tire companies, I think if some of them have international operations, it is only natural that we follow these customers internationally. And we see no reason why any of the businesses, if you look at nutrition science business, our big customers are going to be overseas, not within India. If you look at agro-sciences, as I explained, the large growth has come this quarter also from international business. These are all seen as businesses which will have factories and plants and R&D centers in India, but will serve international customers.

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Ravi Purohit;Securities Investment Management Pvt. Ltd., [85]

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In terms of scale, if you could throw some light, what kind of scale over a long-ish period I'm saying, blue sky scenario or the long-term vision that we have? I mean it will not serve your purpose to create businesses, which do only INR 400 crore revenue annually, right? I mean -- so if you could just share a little bit about the scale of opportunity in these verticals?

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Ramakrishnan Mukundan, Tata Chemicals Limited - MD, CEO & Executive Director [86]

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The first metric we are saying is that we must reach INR 500 crores in both Materials Science and in the Nutrition Science. Nutrition Science, in reach, is faster because of certain internal advantages which we have. And the second phase will be to double that to INR 1,000 crore, so we'll -- we should track with that perspective in mind. So we can give the international numbers across. It's INR 8 billion, INR 15 billion demand. I think that we can share next time in the presentation.

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Ravi Purohit;Securities Investment Management Pvt. Ltd., [87]

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Yes, that could be very helpful I think.

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Operator [88]

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Ladies and gentlemen, that was the last question. I now hand the conference over to the management for their closing comments.

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

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Thank you all for this call, and we just want to again reiterate that the company has performed in a market environment, which has been balanced, and in a cost environment, which has been benign. We expect the cost environment to continue in the same manner and market environment to continue to be more or less balanced. In terms of the overall strategy of the company, which is to invest -- continue to invest in core, while expanding the footprint in the specialty business is on track, and we will continue to report back to you every quarter how we focus, with additional details on each one of the business as we progress them. Thank you, and see you all next time.

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Operator [90]

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Thank you. Ladies and gentlemen, on behalf of Tata Chemicals Limited, that concludes today's conference. Thank you for joining us, and you may now disconnect your lines. Thank you.