Tata Chemicals Ltd., the world’s second largest producer of soda ash, with manufacturing facilities in Asia, Europe, Africa and North America, is selling its fertilizer business, which might be valued between $800 million and $1 billion. Kotak Mahindra Bank Ltd. is in charge of finding buyers.
Tata’s decision to sell part of its diverse business demonstrates the group’s general desire to sell assets that drag down profitability. For example, Tata Steel Ltd went through a $790 million write-down in May on its UK assets, which Tata is trying to sell as well. The company commented that it “routinely assess the performance of [its] businesses and the relevant market conditions, including evaluating growth and restructuring opportunities”.
In India, the government caps prices of fertilizers to help farmers, while companies producing and selling fertilizer are compensated via a subsidy program. Tata’s fertilizer division has, however, been experiencing some delays in receiving compensation, whereby this problem is commonplace among most companies eligible for subsidy. The exact amount that is due is 19.7 billion rupees ($310 million) in arrears as of 31 March, according to a May presentation on its website.
R.Mukundan, Tata’s CEO, said that the company wanted to improve its farm business — “at least the non-subsidized, deregulated part of it — from 25 billion rupees to 80 billion rupees”. The fertilizer unit of the company accounted for almost 40 percent of Tata Chemicals’ revenue in a year to 31 March. Pre-tax income from the business was roughly 18 percent. According to Sumant Kumar of Elara Securities, “higher input cost, lower realization and a lack of clarity of the government’s urea policy impact profitability of the fertilizer business”.