Interview-Tata Chemicals: Worth Its Salt

FROM traditionally being a chemicals and fertilisers company, Tata Chemicals has moved decisively in consumer products while expanding its portfolio of farm inputs. The company’s young managing director R Mukundan is all enthused to lead the company through this transformation, which will see the company further strengthening its farm and consumer segments. Talking candidly on the things that didn’t go as planned in the past, he took a stock of the situation and shared the growth plan for future in an interview with ET Intelligence Group’s Ramkrishna Kashelkar. Edited excerpts:

With the recent launch of pulses in retail market under the i-Shakti brand, Tata Chemicals is set to become a ‘farm-to-fork’ company in true sense. How did you plan for this?
We look at the company operating in three verticals — living essentials, industrial essentials and farm essentials. In each of these verticals, we first look at the depth, our scale, strength and significance of presence in each of the offerings. Our living essentials business was mainly centred on branded salt for long. Its strength was its consumer reach. Tremendous distribution channel built up over a period of time. While in the farm essentials, we had a strong position in fertilisers, which was supported by a service vertical Tata Kisan Sansar and also Rallis’ Kisan Kutumb.
Because of this service business, we had a great relationship with farmers. We also have a great relationship with consumers in the living essentials business. And what we are trying to do is connecting the two with supplychain to benefit from both of them. This is what means the ‘farm-to-fork’ model.
Our first attempt to achieve this was Khet Se. Pulses were our second attempt. We are very happy with the progress in pulses we have made. There I think we have gone in the right direction from day one. Fresh food is bit more challenging, but it’s just a matter of time. On all these initiatives, we have been working for the past 4-5 years, it is only now that the results have become visible.

What will be the next steps in this regard?
We have set a modest target for ourselves. We will go crop-by-crop or product-by-product. For each one, we will stabilise, build scale and then we will move ahead. For pulses also it’s early days. With supply centres in Punjab and Tamil Nadu, we are opening centres in Maharashtra, Karnataka and Madhya Pradesh. In terms of sales, we have been test-marketing in Tamil Nadu and have just entered Mumbai region. We have to take this to all India level, which should take at least 8-12 months. Once those systems and supply chains stabilise, we will move on to our next products. This is not to mean that work is not going on right now. We already know what those next products would be.
Within fresh fruit and vegetables, we are focusing on bananas. Any new perishable products will be added under Khet Se, while there is a whole range of other products like food grains etc. We will take a decision based on where we can add more value.

Can you share your experience with the ‘Khet Se’ initiative?
Based on our understanding and prioritisation, we focused on fresh vegetables and fruits initially, because there is a lot of wastage in transportation and storage. If we could improve that, there is a lot of value created for everyone. So we entered into a joint venture with Total Produce of Ireland named ‘Khet Se’. However, this has proved to be a tough challenge. We have launched just one centre in Punjab so far. In accordance with our initial plan to set up 24-25 centres across India, we should have had four centres in place by now. However, we thought of first making a success of our first centre before rolling out others. This will probably be the first year when we are seeing some early signs of reaching our goal. We have a very good business model and a good partner, so I think it is just a matter of time.

Your recent acquisitions were made to fill some strategic gaps. Does the company have any more such gaps that can be filled through acquisitions?
All our acquisitions have been guided by a clear vision as to their strategic necessity. In farm essentials, our strength was in fertilisers. We also wanted the whole portfolio of the products. So we acquired Rallis to get into crop protection. The acquisition of Metahelix filled up the gap in seeds area — even more so in research in seeds area. They are a researchfocused organisation with a strong portfolio of germplasm for developing new hybrid seeds. So now we have in our portfolio what I call Brahma, Vishnu and Shiva of the farm industry.
One aspect of farm productivity is embedding the necessary components in the seed itself, rather than adding it to external environment. Acquisition of Metahelix will help us in that. With acquisition of British Salt, the vacuum we had in Brunner Mond’s raw material
sourcing is now fulfilled. It will also allow us to enter food space in the UK. It also gives us access to gas storage business, but that is some time away. In terms of gaps, we continue to monitor what things we can add. As and when the options become available, we keep filling in. One such gas we perceive is in potash business. India imports a lot of potash for fertiliser use as there is no local availability. SO WE have tied up with Central Salt and Marine Chemicals Research Institute to develop a technology to produce sulphate of potash from seawater. The pilot plant is expected to come up in around 18 months.

Tell us about your research efforts. How has that helped you launch new products?
We have a nano and biotechnology lab in Pune and an agricultural technology lab in Aligarh. Our recently launched products like the water purifier, Tata Swach, and customised fertilisers have their origins in these laboratories. In the case of Tata Swach, if you look at its heart — the bulb, which does the purification — it is made up of nanocoated rice husk ash. This is something we developed in our innovation centre. Rice husk ash as a filtration medium is something TCS had started working on more than 12-13 years ago. The only issue with it was that it could purify only till 90% extent. We wanted it to go up to 99.99%. Our scientists were able to encapsulate it with nano-silver, which acts as anti-bacterial agent and achieved the desired result. Our first customised fertiliser plant at Babrala has been running now for some two months and has launched some 4-5 formulation targeting sugarcane, potato, wheat in the nearby region. All these formulations came from our Aligarh lab. We have done soil mapping of the area around Babrala and know the cropping patterns. Based on that, we have developed the customised formulations. And the response has been tremendous. We are currently in the process of identifying the location for our second unit. We have shortlisted three high priority sites and I think it will take us three months to announce the final location. These plants with small capacity of 150,000 tonne per annum will cater to areas within 100 km of distance.

Going by the financial numbers, the past couple of years have been tough for Tata Chemicals. What were the reasons behind that?
We faced a number of issues in the past couple of years that affected our performance at the bottomline level. If you look at the EBITDA number of the company, it has grown from around 1,000 crore some four years back to 1,800 crore now. But what has not grown that smartly is PAT numbers.
The reason for that is there were a number of adjustments we had to account for. There was a structuring cost of shutting down our Netherlands operations. There was AS11 adjustment for foreign currency loans on our books as rupee weakened. Initially, the hit had to be taken in the year of impact, but now according to the new modification, it would spread over three years. So this year would be the last when we need to write off on this count.
Then a crash in the stock market resulted in pension fund adjustment, for our UK and US-based subsidiaries. Beginning of this year, we have switched the adjustment to balance sheet. Most of these adjustments were non-cash, but had to be accounted for. So we had a strong and growing cashflow. But at net profit level, there was stagnation.

What are your plans for the soda ash and related business?
In terms of capacity addition in soda ash, it will mainly happen in the US, as it is the lowest cost producer. We are in the process of debottlenecking our unit in the US, which will add 100,000 tonne capacity. We are also looking at adding more capacity there. We continue to do minor debottlenecking across all our plants but major investments at Mithapur are centred on salt.
Till a few years back, you were a ‘soda ash company with couple of fertiliser plants’. Now you are fully present in farm inputs and have several consumer products. Where will Tata Chemicals be five years from now?
All our three segments would continue to grow, however, increasing proportion of revenues will come from consumer products and the farm segment. In industrial chemicals, we already are the second-largest globally, so we will continue growing at the industry growth rate of 5-6%. Certainly our focus will be on consumer facing as well as farm facing activities. Our biggest investments are also going in this direction.
The new products coming from our innovation centre would also play a big role. You will see us introducing more products that satisfy the needs of the homemaker. In future, we see this company playing a prime role in three areas such as food, energy and water. Our initiative in bio-fuels has not come into play so far. When I say water, it is not just drinking water. There is an even bigger challenge in agricultural water. As regards the industrial chemicals, it will continue to maintain global leadership position.