Tata Chemicals Limited (500770) Earnings Call Transcript & Summary

Ladies and gentlemen, good day and welcome to the Tata Chemicals Q3 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 CRD India. Thank you, and over to you, sir.

Thank you. Good day, everyone, and thank you for joining us on Tata Chemicals Q3 and 9-month 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 discussion may be forward-looking in nature and may involve risks and uncertainties. I now request Mr. Mukundan to begin proceedings of the call.

Thank you, Gavin, and thank you, everyone, for joining our Q3 9 months ended earnings conference call. As already informed by Gavin, I have with me Zarir Langrana, our Executive Director; and John Mulhall, our CFO. I will begin by highlighting some key operational development, post which John will summarize the financial performance for the quarter. During the quarter, we are happy to report 2 major events which happened, both positive. And first one was the acquisition of balance 25% stake in Tata Chemicals (Soda Ash) Partners in North America from our partnership firm -- in our partnership firm for USD 195 million. The second one was that we have now the NCLT approval for demerger of consumer business and merger with TGBL or TCPL [indiscernible]. Details of the same will be discussed and elaborated during the call. On the operational performance, we've had, again, a set of resilient performance all across. And except for Tata Chemicals, Magadi in Kenya, where we had operational challenges. I'll come to that in a minute. In terms of the basic chemistry products, India operations. The revenues were almost slightly lower, a tad lower, but the margins for the quarter improved and the base of improved efficiencies and lower input costs, which had led to better performance at the bottom line. On the international business, as I highlighted, we have already acquired the 25%. We are now 100% owners of the U.S. operations. On the operational front, TCNA had a steady quarter. Some pressure was in the market for the first time, but I think these seem to be one-offs as we move forward. TCE also delivered in a good number on account of better product mix, sales between the manufactured and purchased for resale. Most important point, I just wanted to draw your attention is to Tata Chemicals Magadi, where there has been a softness in performance due to lower sales volume, and these are being addressed during the quarter. Their production has been steady. However, their reach to market was -- this had with certain operational issues, which have since been rectified. Overall, I would say, basic chemistry products has held a steady performance during the quarter. As far as the Specialty business is concerned, starting off with Nutraceuticals, the performance in the quarter was on expected line with revenues of INR 18 crore in the quarter, Nellore facility is in the last stage of commissioning and customer approval is on the way. And we expect the same to be available by Q4 of this year. Moving on to Silica business. We are on track with the commercial production. And we are in the early stages of getting the customer approvals for commercial delivery of these products to tire customers. And this is largely a domestic faced project -- product, and it will add significant value to Specialty business. Rallis performed well. The revenue grew 28%, and the company continues to focus, invest in new product launches. As far as the last, the Specialty business, which is the Energy business. We have been allotted the land by government of Gujarat. And we were beginning early project work there in terms of the -- filling up of the -- landfilling and other activities, which are preproject work are beginning commencing soon. And we are also in continuous dialogue with potential partners. We'll be making a formal announcement as soon as we have made a significant progress on the same. In terms of the capital investment, which is one of the key drivers of future growth. The CapEx in the Mithapur expansion is on its way and proceeding well on schedule. We have, this year, committed approximately INR 800-odd crores. And overall, we are investing INR 2,600 crores into Mithapur site. Parallelly, as I said, the specialty business has a similar number of investment of which you would see continued investment in Rallis. Investments have been made already in Nutraceuticals and in Silica business. And very soon, the investment in the Energy business would also start. So these are investment-led growth opportunities, which continue to drive future bottom line of the company. In terms of Consumer business, as I mentioned, the NCLT has approved the demerger of the business into TCPL. And as a consequence of this, the financials have been demarketed as continued and discontinued business. We expect the transition of business to close before March 2020. So in itself, the continuing business as reported in the SEBI balance -- SEBI reports are comparable. What is not comparable is the full company business, which included both continuing and discontinuing business. And it's very critical to draw that attention, and also ask John to bring them out very, very clearly. Within Consumer business, Salt maintained a steady momentum in terms of higher volumes. Pulses and spices also grew by 22% in the base of higher volume and good track record. We expect this piece of demerger and merger into TGBL to conclude during the current quarter. With this, I would like to invite John for his comments.

Okay. Thanks, Mukund, and good evening, everyone. Before we open up to questions, I'd like to just highlight a few key points from our Q3 FY '20 results to be released earlier on this afternoon. And most importantly, you'll note from the presentation of the accounts that we are showing the performance of the soon to be demerged Consumer Products business unit as discontinued operations. As Mukund said, we hope to have the demerger completed this quarter, following the receipt of the NCLT order at the end of January. In the stand-alone results from the PAT from continuing operations, you see, is up INR 61 crores. But you also note that the revenue is flat against the same period last year. The major areas of change in the performance, really, we've seen an increase in other income of INR 23 crores. That's really down to 2 things. One is where we had an FX expense last year related to the Bio Energy preference shares. This quarter, we had a small INR 6 crore gain. Offsetting that were reduced income from cash and our mutual fund investments, which cost us about INR 27 crores. We saw a reduction in finance costs of INR 16 crores, and this really reflects the ECB loan that we repaid in mid-October. And operationally, we benefit from a really continued focus on fixed cost, both factory and corporate, and variable cost management to offset the soda ash and sodium bicarbonate price reductions we need to find in November last year. This effort contributed about INR 30 crores of favorability to this period last year. Our India cash position reduced from INR 2,739 crores in September to INR 2,428 crores in December. This reduction of INR 311 crores reflects the repayment of the ECB loan, with capital spending in the quarter been INR 140 crores, been more than supported by the cash generated by business operations. Operationally, the India business performed better than last year. Our soda ash volumes were down slightly. Net contributions were sustained through reduced energy costs across all product lines and supported by fixed cost efforts as well. On the discontinued operations, being the Consumer Products business unit. It recorded a 13% increase in revenue over last year. Salt, pulses and spices all recorded increased revenue. The Salt was the largest with volumes of up INR 17,000 crores or 270,000 tonnes -- at 275,000 tonnes in the quarter, continuing above last year run rate from quarter 2 as well. Our net profits are up on last year, reflecting both increased volume and benefits from reduced energy and cost control. Briefly looking at our international operations for North America, the highlight is naturally the completion of the transaction, where Valley Holdings purchased the remaining 25% share in Tata Chemicals (Soda Ash) Partners Holdings on the 19th of December. And this brings TCSAP entirely within the TCL Group. Production of Soda Ash in North America was up 20,000 tonnes over last year, it's about 4%, with a year-to-date production around 3% better than the same period last year. The company did reduce its current stockpile, which is natural around this time of year by about 180,000 tonnes. So you'll see a destocking effect coming through on the profit and loss account through the year. Overall, the profit for the quarter was in a par with last year, but we are ahead on a year-to-date basis. In Tata Chemicals Magadi sales volumes were lower than last year due really to weather and some production-related issues in the region, building evacuation of product from the site in December. While this impacted the quarter adversely, year-to-date production is only 3% down on last year's total. And while sales are down about 14% on a year-to-date basis, the effect of increased prices and robust cost control mean that we're ahead of PBT on a year-to-date basis against last year. And Tata Chemicals Europe which represents the soda ash, sodium bicarbonate and energy business units. Soda ash production was about 11% ahead of this time last year and 4% on a year-to-date basis. Overall sales were reduced, but this is due to the planned reduction of low margin, purchased for resale product. We sold about 2,000 tonnes in the quarter against 16,000 tonnes last year as well as margin made in this product. So that reduction of volumes did not affect the business [ divestment ]. The company booked an insurance settlement of INR 6 crore in the quarter relating to a fire and wind claim in 2018 compared to a net INR 8 crore nonrecurring expense last year, which is made up of both an insurance claim of INR 20 crores receipt and a pension expense of INR 28 crores recorded in December 2018. British Salt volumes were flat to last year, but reduced gas prices did provide some upside and an improved performance over the same period last year. And with that, I would like to open the lines up to any questions.

[Operator Instructions] The first question is from the line of Viraj Kacharia from Securities Investment.

Congratulations on good numbers in such a challenging environment. Just have 3 questions. First is on the Consumer demerger. So the record date, is it going to be before March? And is there anything else left? Or if you could just provide some update on that?

So I can only say that we will be working our way through announcing it shortly. I think the legal teams -- sorry, not the -- the secretary and legal teams are going through this in detail. We do have to call a board meeting to clear up all the documentation and everything. I think that's going to be done shortly. So we are working to making sure that this happens, certainly in this quarter, but certainly, somewhere if not positive -- if possible I would say that somewhere around Feb, March time period. That's where we are looking at it. But we have all the approvals in place, but we're working through the filings to make sure that we can announce the date.

Understood. Okay. Second question is on the Soda Ash business, both India and U.S. So if I talk about the India business, what we understand the market currently is an oversupply situation, we have inventory overhang. And part of the extended capacity with the new supplier was to come -- was supposed come in 2020. So despite that, if we look at our spreads, we're still kind of able to hold up our overall operating spreads in the business. And at the same time, in U.S., what I understand, we took around $15 price increase in September. But there, we have not really seen that trending into the operating spread. So just trying to understand how should one look at spreads and volume for next 1 or 2 years in the soda ash business?

So I think the broad issue here is the -- for what you're seeing as an inventory overhang is a bit of additional capacity, which has come through a little earlier out of Turkey. That's really what has happened on a strategic frame. We haven't yet assessed the supply chain knock-on impacts of the Chinese coronavirus that is not clear to us. But I think we are making an assessment. So those are 1 -- 2 broad points. The -- it is not related to the Indian situation, it is more the international situation, which is pushing back into the Indian market in a temporary basis. Other than that, we have no view. In terms of the operational benefits in India, as I mentioned, that the main benefit we are getting is, has the market prices have come down in line with, I would say, the energy costs having come down. It's more maintenance of margin, which has happened or a slight expansion of margin. Similar -- for a similar thing would play out in U.S. But certainly, we are happy to clarify about this $15 difference, which we are not sure. Zarir, do you want to weigh in on this?

So $15 was the announced price increase sometime in the month of September, October, like we normally do. But obviously, contracts may not allow or negotiations may not allow for the full $15. So the price increase taken in North America would be somewhat short of the $15.

Okay. The reason I asked is, if you look at the energy and the key raw material, the prices has been trending on a downward side, right? So one would typically see some benefit flowing in terms of operating profit, but that has not really materialized so hence the question.

So North America, I think, energy costs have been fairly stable or flat throughout the year. Where we have seen the impact of favorable energy costs have been really in India and to some extent in Kenya.

Last question was on the soda ash purchase we made. So that translates into somewhere around $800 million as the fair value for the U.S. business now. If I look at our overall net worth, which we have in Tata Chemical, ex the consumer business, is around INR 12,500 crores, INR 13,000 crores. Now we have the U.S. business and then the value of group investments, Indo Maroc and then the Rallis into that. So I'm just trying to understand the business is probably trading at -- the adjusted price is probably trading at a significant discount to what even the book worth -- the net worth is. So how should one understand the overall monetization of Indo Maroc or other group investment. Because on a cash flow basis, even after this CapEx, we will still be positive free cash flow. So the cash position will just keep on building up. So last 2, 3 quarters, have we got -- have you or the board discussed anything on this aspect in terms of...

See, Indo Maroc is not on the immediate discussion or horizon as far as we are concerned because the unit is doing fine. It has its own ups and downs depending on the commodity cycle, but it's one of the very fine units which we have. So it's not come under the scanner of strategic review. Certainly, I think the investments, I mean -- I mentioned to the extent of INR 2,600-odd crores, which is happening in TCL Mithapur and additional -- if you net out in the Specialty businesses, what we are planning. And that may be over a longer period of time. But certainly, what we are planning approximately about INR 1,500-odd crores additional will also happen in TCL. Rallis will do about INR 900,000-odd crores investment. So we have presented our investment plans to the Board. The Board has approved broadly out of this -- if I just add the pieces, INR 2,600 crores in Mithapur, INR 500 crores in the Specialty business between Nellore and Kurnool and about INR 800 crores in Dholera. And there are a few more, which are in the pipeline, which are getting cleared as we speak. So if I put all that together, it is going to add to an extent of INR 3,400 crores. So we have investment plans, but you're also right that the businesses will continue to generate cash. We are actively looking on how to engage with this whole process going forward. So we will come back to you. But I think in today's terms, it is very important to maintain our very conservative position as far as the balance sheet is concerned, in our view. And these are fairly uncertain times. We are trying our level best to fund through this uncertain time. As I said, the Turkish capacity coming on stream is a known, known, maybe that it came on a little faster than what we thought. Whereas the coronavirus is a known unknown. And we don't know how many known unknowns are out there, which we haven't quantified. So we are working our way through it. All we can say is that, we will ensure that at every step of the way, we inform you after we take a strategic decision. Our intent is to move the ROC up and our intent is also to make sure that capital is deployed rightfully. And if we cannot, we would -- we should try to return that back to the shareholder.

The next question is from the line of Abhijit Akella from IIFL.

Just on the U.S. business. So should -- can we expect the full impact of the $15 price increase to start showing through from the fourth quarter onwards, the March quarter?

Yes, Abhijit, there is no $15. We said this is announced in the last meeting. That was just an announcement. It's subject to separate negotiation by contract, by time as well. So it was 0 scenario. It was not $15 price increase.

But clarify the -- broadly what's the range?

So I think range would be somewhere in the region of about 4 to 5 for domestic. And for the export market. It's probably just softer, but export contracts are mix of both quarterly and annual contracts. So you'll see that playing out over the next quarters.

Sure. And with regard to the additional stake purchase in the U.S., is it fair to interpret that we've got only -- this was given effect to with -- it was effective December 19 in this quarter's financials. So there's only a 12-day impact?

That's correct. Yes.

Okay. And last piece is with regard to the ramp-up of revenues from the new capacities. By when can we expect the first phase of the Mithapur project to start generating revenues? Would it be sometime during calendar 2020? Second, on the specialty chemicals piece, I think, you -- because you alluded to expectation of getting customer approvals by the fourth quarter. Is that fourth quarter of this year, the March 2020, essentially? And lastly, any progress on the BiCARB trial that are going on?

So I think the -- this time around, I think, John has certainly shared certain additional details in terms of time line, broadly broken up into certain quarters the effects, lying with you in terms of soda ash, salt and caustic and cement as we see it. That should be a broad indicator of where it is going to be. With respect to the spectrum, I think the plant getting fully commissioned in the third -- fourth quarter of this year is correct. And I think the various approvals, including the approvals by U.S. regulatory authorities will happen after it's commissioned, because they have to come for -- we have to submit our filings, after that they may ask for a site visit and approval, or they may even do it remotely. But it's going to happen in -- during the course of the first half next year. So the plant would be ready, which is what I said. And I think that the approval process for different customers would take different sets of time. As far as the Indian customers are concerned and certain local Asian customers are concerned, the plant would be ready to ship in the first quarter of next year itself. That's really the time line on the Nutrition Science business.

Yes. The last piece is on sodium bicarbonate. Any update on the trial runs that are going on there?

Sorry, Abhijit, was it the Indian bicarbonate or the U.K. bicarbonate?

The India piece.

We have our capacities coming on stream every time. I think this next set of capacity, which has been highlighted in the sheet is September 21. I can't see any date being put out other than that.

The next question is from the line of Madhav Marda from Fidelity.

My questions have been answered. Thank you, sir.

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

Actually, I missed out on the Africa part, but why the revenue -- and gross sales and revenue are down and as well as the EBITDA is in the negative side? And probably, the next question on the Europe side, since we have discontinued the trading business, is it fair to assume this kind of EBITDA margin to sustain in the future course also?

So I'm not sure about the EBITDA, but the EBIT numbers, which are there in front of me unconsolidated. If I look at quarter-on-quarter, if you go to the segment results, last year same quarter was INR 292 crores, and this year it is INR 367 crores, this is the EBIT number. So broadly, the EBIT number is up. We don't do trailing quarter in the chemical business, because some of this is -- live by season. So I generally compare quarter-on-quarter from the previous year. And if you take the trend line as far as the 9 months EBITDA there, EBIT number, which is [indiscernible] leading with the [ JVC ]. It is INR 1,017 crores as of last year, and it is INR 1,204 crores as of this year. So these numbers are up -- I really don't know what you're referring to. The other question, what was your question? I'm sorry.

On the Africa business, why the -- why production, sales and EBITDA is down there?

Yes. I think we had supply chain dislocations happening, which have been fixed. It is the -- broadly, the unit was producing to its level, but I think the -- we had certain supply chain issues, which were operational, which have been fixed after that. Really one-off issue, which has happened in that site. And they should be getting back to normal in the fourth quarter.

The next question is from the line of Ritesh Gupta from AMBIT Capital.

On the debt side, the December balance sheet kind of reflects -- the gross debt shown in the presentation reflects the amount that you would have paid for the TCNA debt also. I mean, it's already reflected there? Or it will be -- it's a cash flow which is yet to be resolved?

The forecast is net debt increase in the quarter because of that $175 million borrowing.

Okay. That's already reflective of that, right?

Yes.

And what is the CapEx number you are looking for in '21 and '22, if you have that in hand?

'21 and '22, I think the CapEx does peak in '21 and then goes down again. So you could broadly work out that as a curve, which is about INR 800-odd crore and then peaks fairly substantially and then comes down a bit in terms of...

Okay. So next year, we are building about INR 800 crore and then it gradually goes down?

Yes. It's not gradually goes -- the split is, first year it's moderate, second year it's peaking and third year moderate.

Got it. And just on the EBITDA side, when I look at your continued operation, and I don't have the numbers for 3Q FY '18, but if adjust for broadly, I assume that Salt marketing margins, et cetera, would be constant. I still see that the profitabilities have been weaker than, let's say, FY '18, so 3Q FY '18, 3Q FY '19 and 3Q FY '20 if I compare. So I think the international businesses continue to remain lower than what they were in FY '18 level. We expect the profitability -- I understand that Africa has been under pressure. But barring that, TCNA, et cetera, do you expect the profitability to improve there from these levels?

I think most places have been almost flat. I just haven't seen that any major movement in the quarter.

Okay. Okay. No, I was comparing '18 because '19 you had almost 23%, 24% decline on EBITDA. So this was a very reasonably weak quarter, I think, in a base quarter. So I was just adjusting...

24% decline? What are you reading? Can you give your numbers? Where you're reading these numbers?

No. I'm reading it from the last year number, not this numbers. So I'm looking comparing base. I'm not comparing...

Last year's EBITDA?

Last year's EBITDA.

Last year's Africa EBITDA.

No, not Africa EBITDA. I'm looking at the overall EBITDA, which...

If you look at last year overall EBIT -- if you look at EBIT as declared in the results. It's INR 283 crore for basic chemistry products. It's INR 327 crore now. So you have to...

Okay. I'll send it...

Send a separate note for the question you have been asking.

Yes. Okay.

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

Yes. So my question is regarding the Tata Chemical consumer business. So is this any integration costs in this quarter? And how was the A&P expense compared to Q2 FY '20?

Sorry, can you repeat, before A&P expense, what was the first question you asked?

I was talking about, like, the -- we have an integration cost in Q2 FY '20. So is there any expense this quarter for consumer business?

No.

Okay. And how is the trend of the advertisement and promotion costs in Q3 FY '20 compared to Q2 FY '20?

I think that is fairly managed by the business. But I think maybe if I were to state what -- it was slightly tad lower than the previous quarter.

Okay. So overall, we have seen a significant improvement in margin as well as the absolute growth, 43%. So what was the key reason for that?

So 1 minute, just hold on. In Salt he is asking about the season. See, the same quarter last year, there was Salt pricing -- there's a shift in the pricing between that period as well as the volume increase. There's about 20% volume growth, and then there's a price increase on top of that.

So you are talking about this quarter volume growth of 20%?

I'm comparing it to quarter of last year, same quarter last year. So the combined effect of both volume and price is about 20%, broadly.

Okay. So we have a 13% top line growth Y-o-Y and EBITDA growth of 43%. So it's all because of operating leverage, or any other cost is lower compared to previous years?

No, cost is lower. The energy costs are lower. That's certainly occurring, but I think it's not the big driver, the driver is fundamentally volume and pricing, yes.

Okay. Okay. And talking about India basic chemistry business, we have seen an improvement in margin, so apart from lower fuel cost, any other cost is lower?

It's mainly the energy, again, coming through and some operating efficiencies.

Okay. And the FY '20 CapEx, you have talked INR 800 crore?

Overall, yes, we expect that to be the number.

The next question is from the line of Saket Kapoor from Kapoor and Co.

Sir, firstly, the benefits of the lower energy prices will exclude going forward -- or has already started factoring in, in the numbers, the lower crude price is I'm referring to.

See, energy prices, we do expect that they will remain benign. I think if you just read the headline, the -- because the crude oil prices are impacting Magadi, Saudi Arabia's production of crude oil by 1 million tonne -- 1 million barrels. So I think the oil producers are cutting back. The bigger issue is not the energy price. So we are taking stock of what may be the impact of the -- on the demand side because of coronavirus. And I've mentioned that is a known unknown. So we will work our way through that. As of now, we haven't seen any major impact. But if that happens, that is a bigger issue rather than the lower energy, which we continue to enjoy.

And sir, domestically, sir, we are feeling the punch of inventory levels at the -- at higher levels than what it usually used to be. So what is currently the inventory levels in the system, if you could say about the industry as a whole? And what factors are contributing to it? And are you seeing, sir, any decline in the same because fourth quarter is generally the best quarter for the industry. We are, well, 1/3 into it. So what is your understanding of the environment for soda ash now?

So I think the environment for soda ash moving forward, at least for the next quarter or 2, given the changes in trade flows occasioned by increased availability out of Turkey is likely to be about the same as we are seeing today. On top of that, there's the China effect, which I think a lot of people are trying to figure out how that will play out. It's a little early to tell. I'm sure it will have some effect, but in what direction, both domestically and in the international markets, is a bit difficult to predict at this point in time. So I think over the next 2 quarters, you'll probably see performance in the market in terms of demand/supply dynamics being about the same as they are today.

Yes. Just to elaborate on the Chinese situation, one way to look at it is because those supplies may not come to market, there could be opportunity for non-Chinese producers. That is one way to look at it. But I think as Chinese supplies don't come in and many of the consuming industries, including electronics or auto, many of the parts do come in from, whether they can keep up their production is a question mark, which we haven't fully understood. And I think that needs to be factored in. So which is why I think more we are -- on one side, the supply-side benefits of Chinese situation will be positive. The demand side issue coming out of China, we don't know it yet. So we don't want to state anything except exercise caution on this one. So we are moving cautiously on this issue.

Right. Right. Sir, lastly, sir, on the budget that wherein the [ DDT ] has been abolished. And Tata Group, in particular, has been very liberal in rewarding shareholders to very good payout in the form of dividend. But now the same being -- will be taxed in the hands of the receiver. And Tata Trust and all being the -- in many cases, being the largest shareholder. I know sir, that it is not easier within 48 hours to come up with a conclusion. But there has to be some rethinking in terms of way -- how the dividend distribution works out now, in terms of the higher tax that is deducted -- we're receiving now?

See, I think we have a policy already put out in the website, the dividend distribution policy. We will continue to be guided by that. The board has taken note of the changes in the policy framework, and they will work their way through that.

[Operator Instructions] The next question is from the line of Dhavan Shah from ICICI.

Yes. So I have one question on the segmental numbers. If I go to the result note on the Page #8. So there is some -- a strict mark in the basic chemical segment, wherein the intersegment revenue of around INR 229-odd crore goes to the consumer business. So is that related to the Salt?

It's mostly Salt. Yes.

And should we account this -- I mean, around INR 900-odd crore number, even post the demerger of this Consumer business in the Tata Chem number overall based on the transfer pricing?

Which INR 900 crore you're talking about?

Like around the intersegment revenue, full year FY '19 number was around INR 887 crore. And this 9-month is also almost the same number on Y-o-Y basis. So...

Yes. I think the Salt revenue would continue to accrue, and it would come in TC again.

So to this INR 900-odd crore, can you share the segmental EBIT number for this -- the intersegment sales?

No.

No. I think that is part of the basic chemistry product explained there.

Yes. Yes. But the Salt is INR 229-odd crore revenue is coming from Salt. So can you share the EBIT, which is levied, I mean, which is on this Salt business?

So the number is INR 3,000 crores is the total revenue, of which INR 890 crore or INR 900 crore is Salt. And the total EBIT of everything put is INR 762 crores, right?

Yes. That's correct. That's correct. But if I look at the quarterly numbers, the basic chemical quarterly segmental revenue for this quarter was around INR 2,006 crore, out of which it is mentioned that INR 229-odd crore is for the Consumer business. So I -- it's probably, it is for the Salt business. So similarly, the segmental EBIT for basic chemical is INR 327-odd crore. So can you share the portion of the Consumer business segmental EBIT out of this INR 327 crore.

See, we have a disclosure now as a segment, which we have done. We have clarified the intersegmental number. You would also see in the annual report, the production numbers of salt as they would be. We have actually disclosed the full production expansion of Salt. I think that is all we would do. Beyond that, I think we are not in a position to disclose.

Okay. Okay. And secondly, about the Europe business. So I just wanted to understand what could be the maximum sales or the peak sales of the soda BiCARB in the European market TC because I think our strategy also reduced the soda ash volume over there and to increase the soda BiCARB business. So if you can share some more thoughts on that?

Zarir, do you want to explain or maybe we do it next time?

I think...

I think we'll come back with specifics on the...

The economics are explained by market as far as BiCARAB is concerned.

So what Zarir has said is that, there's no constraints on the market side, but he will come back with the broad outline of that in the next quarter presentation.

[Operator Instructions] We move for the next question that is from the line of [ S Ramesh ] from [ Nirmal Bank ].

See, there is this entry regarding the booking of around INR 707 crores by way of the difference between the consideration paid and the book value of the noncontrolling interest of your U.S. acquisition. So is this on the consolidated balance sheet? Or is it on the standalone balance sheet?

It will be on the consol balance sheet from -- which is the balance sheet in March.

So that means you have -- may book some capital gains on that sale?

It's basically the transfer from noncontrolling interest to retained earnings. So it doesn't go through the P&L. It's just the balance sheet.

Okay. Okay. So this is not a -- but cash flow item. Just a...

No, no. No. It just relates to -- when we've taken over the remaining 25% of our operation in North America, there's a true-up of the various balances, eliminating noncontrolling interest and the difference goes to price paid and noncontrolling interest value is reported as retained earning. That's all.

Okay. Just an accounting entry. Okay. Fine. And the second question which I have is on the stand-alone special segment. Now we have seen persistent losses at the EBIT level in this business. Although you have a substantial investment there. You look at the assets, about INR 539 crores, net of the liabilities, an equity investment of around INR 500-odd crores. So what is the reason behind these persistent losses and the low revenues from the specialities business?

The investment has just happened now. I mean, I just don't -- I think the plant is not yet commissioned. It's in a pre -- it is just in the process of getting commissioned. So I think that's a reflection of what's really playing out in the numbers here.

No, I understand that the -- what you are saying about the future investment. But on the existing...

No. No. These are existing. This is accounted fully. I think the CapEx of the...

INR 250 crores.

Of Nellore is accounted. And also the Kurnool investment is accounted in this. So these are all, I think, INR 250-odd crore for Nellore and INR 120-odd Kurnool is part of this. And they will start showing results. But I think this is -- it's in the process of getting commissioned.

Yes, I understand that. So I just wanted to get some sense in terms of the reasons behind the persistent EBIT losses...

There is no -- it's not persistent. I think I would not want to use the word persistent.

You have seen that over the last several quarters, Mr. Mukundan, I just wanted to understand if there is any operational issue? Or is it just a question of not having the...

There is, I think, the point is the plant is not yet operational. We just invested. It's like you buy a vehicle, it is not running. It will run at a certain point. It's a new vehicle, that's all.

The next question is from the line of Sameer Gupta from India Infoline.

Basic questions around the consumer business only. So you've mentioned that the Salt volumes have grown around 3% in third quarter and YTD. Just wanted to understand what was the value growth in the Salt business, just the Salt, 3Q and YTD both.

So we don't -- we give you the volume information, but we never disclose segmental Salt revenue by itself. Salt is the biggest part of that Consumer Products business unit. You can probably work out from there.

Okay. No issues. Sir, one more thing about the Consumer business. So there is a sharp increase in the EBIT margins. And if I look further, this is basically because the base quarter margin was exceptionally low. So just wanted to understand, was there a one-off there? Or is it the seasonal nature of the business, the third quarter margins are that low.

No. It is more to, as I've said on the last call, on the quarter 2 results. It's more to do with allocating of some fixed costs related to...

Not with the transaction.

The transaction, yes. And also things like rent and corporate costs that -- the consumer part business will be accepting going forward, that's all.

Okay. So this was a one-off in the third quarter FY '19.

No. No. No. Quarter 2 was depressed because of certain costs being absorbed in that quarter.

Okay. Sir, what I was asking was about third quarter FY '19. So if I do a EBIT calculation, this comes to around 12.5% EBIT margin. And this was coming down from around a 19% margin from the previous quarter. So I just wanted to understand in the FY '19, what was the issue?

No issue in FY '19.

Okay. So the margin that has gone up this quarter. This is a organic improvement.

What we're saying is that -- quarter 2 this year had other costs coming through there. Quarter 3 results against quarter 3 last year is really a result of, as Mukund said earlier, volume increase of about 17,000 tonnes. Price increase, some control of fixed costs and also benefiting from improved costs, energy cost reduction.

Got it, sir. I get that. So sir, last and final question on this. So the EBIT margin profile of this business, this used to be around 19%. If I look at FY '19. And this is now today trending at around 15%. So could you just give some color as to why this margin profile is lower this year.

Yes. I mean, I'm not sure your numbers. I'm not going to quote against your numbers. But there's nothing -- what you're seeing in the last couple of quarters is as a result of the demerger. Some corporate costs that are directly linked to the Consumer Products business unit have been attached to those numbers. And that's what you're seeing there. There's nothing that's happened.

Got it, sir. So as this is demerged and merged back into TGBL, it would probably, again, trend at around 17%, 18%. Would that be a fair assumption?

That's your numbers, not mine.

The next question is from the line of [ Chaitanya Shah ] from [ Aditya Corporation ].

Sir, my question is regarding the acquisition that we've done, the 25% acquisition. Firstly, I wanted to -- I have 3 questions regarding this acquisition. Firstly, the reason for this acquisition? Secondly, if you see the 25% stake is valued at around $195 million. So the entire U.S. entity would be valued at around $800 million. So I wanted to know what is the basis of this valuation. And thirdly, what will be the yearly impact on P&L that could be transferred from the minority interest to the operations of the company shareholders.

We have a good opportunity to fill out our acquisition of North America at a fair negotiated price. The other party has been public about them not wanting to own assets that were not core to their operation. It's core to us, we are [indiscernible] in North America. And it gives us much more management control and much more efficiency in operating that business. The value was negotiated over a period of time, and I think we're happy with our -- are happy with the value that come out of that.

It isn't going to be positive in terms of the period because while the minority interest will go because it's a fully leveraged acquisition, we're going to have debt, which will come on, which will cost us, but net-net of that will be an improvement in the margin, the bottom line.

Okay, sir. So would you be saying that it would be fairly comfortable with the $800 million valuation that you've given to the -- to that unit.

Don't -- we're not really comfortable with that. But the acquisition was for a 25% minority stake, with no management control. So that's where the valuation is taking on.

It's a discount to the numbers what would be other [indiscernible] That's because it was a minority stake, it was not a controlling stake, controlling stake will come at a premium.

Okay. All right. And sir, I heard that you gave a road map for investments totaling INR 3,400 crore. Could you just let me know, once again, this would be over what period? I mean, how many years this would be stretched out, about how many years. And in your previous presentations, you had mentioned that the ROC that you're expecting from the investments is around 18% to 20%. So that would be around INR 600 crores on an EBIT basis. So when do you expect to realize this EBIT, like in the next 3 to 5 years? If you could just give me the time line on that?

So INR 2,600 crores is going to go on the ground in next 2 years. And the capacity schedule has been highlighted already by John in our presentation -- investor presentation. If INR 500 crores has been already invested on the ground, part of it, about INR 400 has been invested on the ground between the Nellore and Kurnool. That tells you the substantial pieces. The balance piece, Rallis, would be investing. I think they have invested close to INR 150-odd crores already, and they are on their way to invest the balance over a period of time, and that is over a longer period of time, over 4 to 5 years. And the energy business investment is today just in the land. And if you add the land development activities, it's about INR 90-odd crores, INR 90 crores to INR 95-odd crores, but the real investment in the plant and machinery we'll come back to you as soon as we have all the agreements with the technology partner and we move forward on that.

All right. So I'm asking, especially in the energy business because in the demerger presentation you had mentioned the target on the energy business to have a INR 2,500 crore of revenue in the next 5 years. So I just wanted to understand how -- are we on track to do that, or if there's anything that you could share with me on that.

See, I think, our investment decision and support to that is dependent on 2 factors. One is we are ready to move forward, but it also depends on the pace at which the electric vehicle market in India develops. That's -- optimistic players are projecting a very high number. We will see how the reality lays out. As you know, the auto sector is already in a bit of a difficult spot. And we are working with all the automakers to make sure that we can support them. But it is a transition which, while our ambition is to go ahead and initial phase build close to 300 to 0.5 gigawatt unit. And finally, build at least 2 gigawatt unit in about 2 to 3 years' time. This is entirely dependent on the state of the auto market. So I don't want to commit a specific time line on that because we don't want to be too much ahead of the curve.

[Operator Instructions] If we move to the next question, that is from the line of Sarvesh Gupta from Maximal Capital.

Sir, of the INR 2,600 crore that you mentioned, how much of that would be spent in expanding this soda ash domestic business by 200,000.

We had given the split some time back, but I think the total number is what we have, we would stress because it's a total package. It includes investment in utilities, which are shared across and investment in the caustic, investment in salt, investment in soda ash, and investment in cement. So it's an overall element number and...

Understood. And secondly, since you mentioned 18%, 20% ROC. So would that be visible in terms of the numbers that we will start delivering immediately? Or this is more like a IRR over a longer term where ROCs increase if the prices of these commodities increase later on?

As soon as they get on to production, I think many of them would start showing returns because they are phased over 2 to 3 steps. So we don't anticipate a huge lag, but there will be some lag, but it is not a major lag in our view. And these are capacities which are, let's say, equal to profit-making capacities in a lot of cases. A substantial investment is for the Salt expansion, which I think the market is still fairly strong.

Understood, sir. And finally, if I may check one. We were talking about coronavirus impact. Now there are 3 moving legs to it. One is, of course, the demand slowdown from the investments, they're consuming soda ash, globally as well as maybe in India to some extent. Then there is an impact of removal of capacity, which is coming out of Chinese areas in terms of both imports to India as well as imports to other countries. And third is the decline in commodity prices, which are raw material to us, like energy prices and coke, et cetera. So net-net, how are we thinking about it in case this persists for a while, would we be better off or would we be worse off, any quantity -- qualitative color if you can throw. I know that quantitative would be impossible at this stage.

All I can say as the world comes out of this event, many, many suppliers around the world would want an alternate to Chinese supply. That will be a psychological impact of this. Beyond that, I don't think we should attribute anything more. A lot will depend on the quality and consistency of how suppliers are. I think the short term issue entirely depends on how long this crisis persists. And how it will play out, while there are people who are very bullish on supplies, which are outside of China, there are people equally negative on what the impact is likely to be. I -- 2 things that we should see is consideration on the demand side, problems this is going to create. But hopefully, this is a short-lived issue. If it is a short-lived issue, I think it is a benefit for all countries, which -- so people would want diversifying their supply sources, which is a positive for Indian suppliers.

And like in India, where most of the supplies are based out of Gujarat. Is Wuhan and those areas, which have been primarily have impacted, are Chinese capacities concentrated in those regions? Or if you can give me some color on that geographically in China...

The material which comes to India is mostly coming out of coastal plant. They are not in Wuhan. They are very, very far out. I think the impact is about the various supply chain knock-on effects happening on because of the issue there. I think there's a general stoppage of travel then stoppage of materials. So I think those are things which are creating issues. But the soda ash production is mostly coast-based.

The next question is from the line of Jayesh Gandhi from Harshad Gandhi Securities.

My question is pertaining to Slide #16. I'm not able to understand on statement of profits and loss, continuing operations for the quarter ended December 2019. This year, profit before tax is INR 242 crore; current year, it is INR 297 crore. And profit after tax is INR 180 crore for the previous year; and current year it is INR 172 crore. So how is it that before tax is higher in current year and PAT is lower in current year? I mean, is there any items between them.

Yes. This is mainly the profits coming from our joint ventures. This is what we call the profit, which is accounted for...

Yes. You can't add across from these -- the number of consolidating entries, some of our international operations as well as joint venture partners as well. It will have income, sometimes taxable sometimes not taxable. And the tax rates would vary. So the mix of tax rates will vary across countries as well.

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

Thank you all. I think, firstly, I must say that we have managed to navigate the last quarter despite certain challenges. And also, we are continuing to remain focused on navigating the quarters ahead despite the external challenges, which are seeming to be a little bit more onerous than before, especially with the news coming out of China. Having said that, we remain focused on our investment plan and growth plan. We remain optimistic in terms of delivering growth in the basic chemistry business as well as in chemical business. All these investments would see the light of the day in the next 2 years and propel the company's performance forward. In the meantime, we are focused in the immediate term in ensuring the demerger of the consumer business, that its merger with TGBL happens in all earnest and a very smooth manner, which we hope to report back to you by the end of next quarter. With this, I'd like to say that we continue to remain focused on our strategy of building a very focused chemicals and chemistry business. Thank you.