Tata Chemicals - Recent Updates

Tata Chemicals - https://myweekendspot.blogspot.com/2021/02/tata-chemicals-huge-opportunities-ahead.html

Twitter Handle: @shuchi_nahar

Recent updates about the company

The chemical industry can play part in these sustainability solutions – reducing carbon emissions, turning waste into useful products, i.e. circular economy. Tata Chemicals can also play into chemicals going into health and hygiene – it already plays some bit through detergents and other applications of sodium bicarbonate.

Grow volumes & maximize realizations in soda ash (price increased in Q2 FY22).

Timely execution of capacity expansion: Salt 165k MT by end of FY22.

Soda ash demand drivers

Demand is likely to remain strong thanks to growing new applications in sustainability solutions. Soda ash demand is likely to pick up from the use of glass panels (flat glass) into solar cells, lithium carbonate (every ton needs one ton of soda ash), and the move to container glasses from plastics. This is likely to drive a significant uptick in soda ash demand.

Indian soda ash suppliers are in a sweet spot. Indian soda ash suppliers are going to benefit given

(1) surplus availability of salt,

(2) good availability of limestone and

(3) improving energy competitiveness given the shift to compliant fuels across the globe. 

A rise in logistics costs has reduced the competitiveness of imports from markets like the US and Kenya into India and Southeast Asian markets. Synthetic soda ash from India is likely to turn competitive for exports too in Southeast Asia as well as the Middle East apart from becoming more competitive within India.

Growth in near terms

·        First tranche of Soda Ash, Bicarb & Salt expansion on stream by FY23, delivering incremental revenues.

·        Continue to focus on costs.

·        Qualification with customers on Prebiotics & Silica

 

International business

Export price maximization & target higher domestic realizations during contract renewals in Q4 FY 22.

Hold volumes & pricing - Target higher realizations during contract renewals in Q4 FY 22.

Operational efficiencies through cost structure rationalization.

Sustain volume growth momentum.

 

China is unlikely to increase its capacities.

Chinese soda ash capacities may not increase substantially on the synthetic side given

(1) limited availability of salt and

(2) declining use of ammonium chloride (a byproduct in Hou process which Chinese use for synthetic soda ash) as a fertilizer.

Natural soda ash demand

Natural soda ash capacities in China are growing in Mongolia but are uncompetitive vis-a-vis China due to higher logistics costs. As per internal estimations of Tata Chemicals, China is likely to continue to be a net importer.

The natural soda ash market has three sources of supply. Turkey, Kenya, and the US are the three sources of supply for natural soda ash. Turkey is likely to have reached optimal capacity levels and is unlikely to see an incremental supply increase. Geopolitical instability is also likely to play a part in keeping supply/demand in check. Kenya and the US are also likely to remain stable and contribute only to local growth markets. The US may support incremental growth in LATAM due to increased use in lithium carbonate.

Overall pricing environment to tighten driving better RoCEs on new projects. Turkey-led supply disruption is already behind us. With most of the markets not adding substantial capacities, demand-supply would get tightened with most soda ash buyers likely to focus on gaining supply security.

External factors

No headwinds in the medium term in terms of environmental activism environmental laws are already high in the US. TCL operations are fully compliant and protective of the environment. In Kenya, the company is not facing any legal challenges so far and working out on royalty rates with the government. Lake Magadi in Kenya is a self-replenishing lake company so doesn’t see challenges on the sustainability side.

Capacity expansion

Tata Chemicals has headroom to expand capacity in the US by 10%-12% over current capacity. India offers the best returns on incremental investments followed by Kenya for new capacity expansion.

Tata Chemicals is looking for Rs26 bn investments in India soda ash and allied products expansion as well as Rs9 bn investments in Rallis. They have a few more projects in the pipeline which will get announced gradually.

Tata Chemicals sees multiple solutions for storage and mobility. It is an evolving field and many plays are possible in hydrogen cells as well as batteries. In both, electrochemistry is used and hence Tata Chemicals is confident about doing well in either space. Tata Chemical's intent is to play directly as well apart from their presence through soda ash. They are also entering the area of battery recycling.

Source: 

Q2FY22 Investor Presentation

Kotak Institutional Equities

ICICI Securities

Twitter Handle: @shuchi_nahar

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