 "Tata Chemicals set to expand consumer business")
Instead, it plans to focus on growing the consumer business, now comprising salt and pulses, to bring higher return on capital and prune debt by nearly a third, to Rs 2,500 crore.
TCL is the world’s second largest producer of soda ash, with manufacturing facilities in Asia, Europe, Africa and North America. Its product range includes ingredients to some of the world’s largest makers of glass, detergents and other industrial products.
The demand for soda ash has slowed across the globe, due to the economic slowdown. And, the fertiliser business is suffering due to subsidy payment arrears by governments. This has raised the working capital requirement, bringing down the return on capital. The rising price of gas has further increased cost for the industry, making it unattractive for investment.
“In the next five years, we have planned no further expansion in the existing core businesses. These will be run as cash cows, to help generate the new consumer products,” said P K Ghose chief financial officer, on the sidelines of an event to celebrate 75 years of operations. “We have been in salt and introduced a few new products such as pulses but in the next five to 10 years, we will see an enormous amount of this happening on the consumer front.”
TCS plans to spend Rs 1,700 crore in capital in the next two years, a little more than half on maintenance of existing facilities. Of the rest, a major part will be for expanding the salt making capacity, with the residual portion on building new consumer businesses. The company is also expected to come up with a nutraceutical plant in Chennai, to make products such as sweeteners and anti-obesity products.
The plan is also to bring down consolidated debt to about Rs 2,500 crore in the next five years from Rs 6,900 crore now, using internal accrual from its cash cow businesses.
“As the Indian economy travels towards $3 trillion, two-thirds of that will get concentrated in 24 cities, which will be the engines of urbanisation, creating new consumer buying behavior with the greater need for convenience,” said R Mukundan, managing director, talking to this newspaper on the sidelines of the event.
The company followed this strategy earlier when it started selling packaged salt about 27 years back. This strategy got momentum when it launched packaged pulses about 2 years back. The company is accelerating the same strategy at a time when the returns from core businesses have stagnated.
Company’s net profit for 2012-13 more than halved to Rs 400 crore from Rs 837 crore in the year ago period. Its return on capital employed has came down to 12.23% in 2012-13 from 16.83% 5 years ago. The company had market capitalization of Rs 6,735 crore on Thursday, down from Rs 8,213.4 at the end of 2012-13.
It is expected to announce its result for quarter ending December early next month. It reported net profit of Rs 209.65 crore for the first half of 2013-14 at the back Rs 7,538 crore net sales.