Tata Chemicals Limited (500770) Earnings Call Transcript & Summary

Good day, everyone, and thank you for joining us on Tata Chemicals' Q4 and FY '21 Earnings Conference Call. We have with us today Mr. R. Mukundan, the Managing Director and CEO; Mr. Zarir Langrana, Executive Director; and Mr. Nandakumar Tirumalai the Chief Financial Officer. Before we begin, I would like to mention that some statements made in today's discussions may be forward-looking in nature and may involve risks and uncertainties. A detailed statement in this regard is available in the results presentation. I now invite Mr. Mukundan to begin proceedings of the call. Over to you.

Thank you, Gavin, and good morning to everyone, and welcome to our Q4 and FY '21 earnings call. I hope all of you are safe and sound and healthy. Before I start, let me introduce my colleague, Zarir Langrana, Executive Director; and Nandakumar, who is our new CFO, who took over from John from 1st April 2021. Before getting into operations, I just want to say that we are all working very hard to keep our employees safe as well as our communities safe during the second surge. A lot of work is going on in terms of our effort towards contributing towards handling this crisis. And this effort is not just centered in Mithapur where our operational plant -- largest plant are. In Gujarat and Dahej or Ankleshwar where those units are, but also right across where our big clustering of our teams are. So they're all working hard to make sure that this -- we overcome this current crisis. Operationally, I would say that this quarter, when you look at overall volumes, market side data has been positive. But financial outcome has been fairly muted and has been fairly sharp reduction in the financial outcome in terms of profits, you would have noticed. We'll walk through that. Let me start with, firstly, the volumes are completely back. The TCNA export volumes have picked up nicely and are back to the normal run rate. And that's a big positive, and we would continue to see that run rate go through -- right through the next year. In terms of demand across sectors, all of them are showing positive trends. And I'll speak with one exception, maybe some kind of a delay or movement by 10, 15 days in terms of de-inventorization maybe happening in India because of this current COVID situation. But otherwise, overall, we think the volumes are going to continue to be strong going forward in the current year. And that was reflected in Q4. What did happen in Q4 was very specific to several one-offs, which we'll speak about as we move forward. The second element during the year has been an extremely tight focus on cash flows and operational cash flow. And the teams have done well. I think India has actually delivered negative working capital for the first time, a very creditable performance. At the same time, we've had, even with lower profits overall, much higher operational cash flows right through the year, both at stand-alone and consolidated level. And Mr. Nandakumar will walk you through that when he comes on and presents the financials of the company. The demand from sectors detergent and container, the glass segment, all are back. Container glass is slightly soft right now, but we expect that it would pick up. In terms of margin, we did have, as we had alluded to, TCNA exports, there has been a price reduction of $5, but sequentially, we expect the prices to move up in line with spot. Spot prices have actually had a very strong bounce back, in some cases, expanding as much as by $25. So every quarter as this -- the spot quantities which we have in the market would then get reset to the market prices. And we would see the complete reset by the time we come to Q4 of this year on the contracted quantities. As far as event is concerned, we had a one-off coming from the event which happened in Polar Vortex, which froze the oil wells in Texas from where the gas feed happens to our unit, and that resulted in approximately a onetime hit of INR 45 crores. And we are relooking at our hedging policies to make sure that these sort of price spikes which happen do not impact the company going forward. The prices actually spiked from $2.13, which a normal range for MMBtu, to write up to $150, $160 per MMBtu during that period of presidential holidays, which was a 4-day event. In terms of U.K., we -- again, while the business was steady, there was a bit of softness in U.K. in terms of the salt sales, mainly arising out of the very, very strict shutdown orders, which impaired it down in the quarter 1 of the calendar year. As U.K. opens up post its corona cases coming down, I think this softness should start to come down. Otherwise, U.K. is also fully sold out, and we would continue to see good outcomes from there. However, we had 2 one-offs in the U.K. One was refinancing cost for the quarter. There was also a tax asset write-off, which we had to take this quarter. And there was an impact of unseasonal floods, which impacted the operations in a minor way for a small period of time. In Magadi, while the realizations were lower, the margins did contract. The team did a very creditable job of ensuring the fixed costs were controlled and they ended up delivering a profitable outcome as far as the final numbers were concerned. So very creditable performance by the team in terms of making sure they were profitable. So overall, as you see, the operations in India, both Tata Chemicals and Rallis, are profitable, and Magadi delivered profit. And there were one-offs in U.K. and U.S.A., which impacted our final number. In terms of the new businesses other than what is in Mithapur, the Cuddalore unit is doing well, and they are going to continue to work towards moving the product mix towards the rubber and tire industry. And the Nellore unit, in fact, has also done well and would continue to improve the utilization going forward. And in terms of the salt sales, there has been an encouraging growth, and it continues to grow. And we believe that our expansion plan, which we put up in Mithapur is on the right track, which supports the expansion of salt along with the debottlenecking of soda ash. As far as agri business is concerned, Rallis has done an excellent job, delivered a very, very encouraging quarter. And their plants are going to be prioritizing and delivering growth in the coming years with focused investments to ensure they can enhance their product portfolio. A quick word on CapEx. Out of total committed INR 2,400 crores, we have earmarked approximately INR 500 crores for FY '22 and have spent about INR 300 crores in FY '21. The expansion plan both in Mithapur and Rallis is on track with some moderate delays due to COVID situation because of shortage of labor in some of the contractors. I'm happy to announce that -- share with you the Board has announced a dividend of INR 10 per share. This will be subject to shareholder approval in the AGM. To conclude, I want to reiterate that our strategy of building the performance materials business beyond soda ash and silica is on track. Our nutrition business tend to build a portfolio of products, especially based on fermentation technology. Beyond, salt is on track. And our focus to offer a wide portfolio of crop protection and seeds to our agri farmers through Rallis is also on track. We believe that we are -- we will be able to overcome this surge in cases, which we are all going through, in the coming months. And we believe with the pace of vaccination picking up as it is expected in the coming weeks, we would slowly get through this crisis which India is facing. With this, let me hand over the floor to Nandakumar. And Nandu, as we know him, has been part of the Tata Group since 2012. He was with Titan prior to joining us here as Vice President, Corporate Finance, and was overseeing the complete finance function in Titan, overseeing including corporate finance, business finance and subsidiaries. With this, now let me hand over the floor to my colleague, Nandu, who will take you through the financial performance. Over to you, Nandu.

Yes. Thank you, Mukund, and good morning, everyone. I will just walk you through the financial performance, after which we can start the Q&A. Now this talk would be over 5 sections. Stand-alone, move on to U.S., then to U.K., Kenya, Rallis and consol. Stand-alone business part, the key highlights of the soda ash volume for the quarter at 1.84 lakh tonnes is 16% more than the last year's Q4. Stand-alone business, our revenue for the quarter has gone up from INR 734 crores in Q4 to INR 841 crores in Q4 of this year, a 15% jump over last year's Q4 in the revenues part here. The revenue in the Basic Chemistry has gone up by 13% and our Specialty about 10% to the other smaller base. The other expenses for the quarter has gone up from INR 118 crores to INR 141 crores, increased compared to last year's Q4, mainly because of consumption of stores and spare parts and repairs and maintenance. This is more a timing issue as the overall other expenses for the year is almost same as the previous year. The EBITDA has moved from INR 140 crores to INR 164 crores, a 17% jump and PBT has got up 11% here. There's been an increase in fixed costs in Q4, mainly because of the mentions -- the reason on top. This has been offset partly by a one-off interest booked of INR 18 crores on income tax refund. So though the increase in fixed cost is offset by the one-off income on the interest on the income tax refund which we got in Q4. On the balance sheet and cash position for the full year, our cash generation has improved from INR 427 crores in FY '20 to INR 672 crores now, a big jump, mainly because of tight working capital and CapEx control. Our cash position moved to INR 2,098 crores in March '21 compared to almost same number last year. The capital spending for the quarter was INR 205 crores against INR 143 crores last year, mainly in Mithapur. And the entire year CapEx spend of INR 548 crores against INR 694 crores last year, INR 150 crores drop in the CapEx expenditure. Our investments in the quoted shares in the group companies has gone up sharply, resulting in our net worth going up. Net worth has gone up from INR 11,800 crores to almost INR 1,500 crores increase in the current year. Moving on to the U.S. In the U.S. business, where you are seeing a sharper drop in the PBT. I'll talk more about that in the section now here. The soda ash volumes have improved from 5.5 lakh tonnes in Q4 of last year to 5.68 lakh tonnes, a 3% increase, led to an increase in revenue also. Cumulative drop in Q1, Q2 and Q2 was 20%. And for the first time in this year, we've seen for the quarter 4 an increase in the volumes. The PBT was adversely affected during the quarter and the INR 92 crores profit made last year has gone to a INR 60 crores loss in this current year Q4, mainly because of the following few reasons: One is that the price recovery is not complete and still lags the previous year's net sales price. Second was in mid-February of this year, that -- there's active -- extreme cold weather subject to natural gas demand shooting up and natural gas price shot up, as Mukund mentioned earlier, almost 100 times. And we have a policy of hedging our gas and we are able to curtail the impact because we are hedged mostly. But on the unhedged part of the cash exposures, we had INR 45 crores impact on the open portions, which we believe is a one-off event. The production levels came down in the quarter because of which, as you know, there was production lagged the sales, the fixed cost under-absorbed, so the INR 40 crores impact because of the underabsorption of cost because the production was less than sales. But this, again, is timing issue. Let's say, next quarter, production goes up, we'll have the recovery happening here. So both aspects mentioned here are one-off, we believe, for Q4. So also a higher spend in Q4 on account of required commitments. So these are 4 of the reasons caused the drop in the PBT from -- in the U.S. from last year to current year. Coming to U.K. In U.K., the volumes in both soda ash and bicarbonate were lower than Q4 of last year, a bit lower, mainly because of impact of flooding that happened in the U.K. and a bit lower demand. The revenue for the quarter was 5% more than the corresponding previous year's Q4. We had a INR 28 crores loss in Q4 in U.K., has compared to INR 13 crores profit in previous year, mainly because of the one-off expenses like a tax write-off and refinancing cost of funds. Moving on to Kenya, Magadi. The revenue has come down a bit compared to last year's Q4. However, because of tight cost control, the PBT has moved from a loss of INR 4 crores last year in Q4 to INR 10 crores profit in the current year, mainly because of the margin expansion during the quarter, the lower input cost, the improved part efficiency and fixed cost getting optimized. Rallis, if you look at the whole thing, revenue has gone up by 36% in the quarter compared to last year's Q4, mainly because of crop care jump and very good international business. PBT grew from INR 1 crore last year to INR 8 crores this year because of the above growth. The last section is the consol, consolidating all the previous sections. Overall volumes grew for us in Q4 compared to previous Q4. The consol revenue grew by 11% over last year's Q4. The EBITDA for the quarter stood at INR 283 crores, a 30% fall from the previous year. PBT fell from INR 200-something crores to INR 80 crores. The consol CapEx was at INR 111 crores for total year as last year. And on a full year basis, the CapEx was half of last year. The free cash flow from operations for the year was at INR 450 crores, a 65% increase over the last year's full year due to efficient working capital management. The consol gross debt INR 6,933 crores, down by INR 770 crores compared to last year, net debt is at INR 214 crores lower than last year and starting at INR 3,828 crores. The consol net worth has gone up from INR 12,898 crores to INR 14,290 crores, an increase of INR 1,400 crores in the last year. That is a brief summary of the last year's highlights and back to Gavin.

[Operator Instructions] The first question is from the line of [ Amandeep Singh ] from Oculus Capital.

Sir, in the last quarter call, with reference to electrochemistry, so you mentioned that the Board had cleared the plan, but nothing was finalized. So just wanted to check out any update or any plans have been firmed up on the lithium ion?

Yes. Let me take this question. There is no further update. The entire business is under evaluation. And if there's anything specific, we'll come back to you. As of now, as you know, our status remains the same. We've got licenses from several entities like CSIR as well as ISRO, and the R&D work will continue. But beyond that, there is no further update, and whenever there's an update, we'll come back to you.

Sure. Sir, anything on the battery recycling?

Sorry?

Anything on the battery recycling? Sir, last time you had mentioned that you were making...

That is continuing. That is continuing, and the business is being handled as part of the performance material vertical now because they've got a good sales team. And Because the business is now scaling up, it is being handled under the same performance materials vertical. We will call out specifically the numbers maybe from the first quarter of next year in terms of what is the recycled sales. Handed -- it's now called beyond the lab into actual business line.

The next question is from the line of Rohit Nagraj from Sunidhi Securities.

Sir, just taking the earlier question forward. So till a couple of quarters back, we were showing in our presentation as the fourth pillar being the energy sector. But this particular presentation shows only the 3 pillars. So is there some change in terms of strategy for the lithium battery? Or is it gone on back burner due to COVID-related factors? Or any other factors?

So I think our view was that, in fact, we wanted to make sure that we were very accurate in our statements. And since it was being picked up as an extra item because we have been maintaining that this is a business which is under review. We are making all the right first few steps in terms of exploring it. I think it -- that status remains exactly the same. We didn't want to sort of pitch it beyond that, which is why we've said that we'll focus on what -- where the revenues are and that shift has happened after our internal review. That's about it. In terms of the exploration, I think the company would continue to explore that space because there are several opportunities in that space in terms of serving that market as India and the world transitions to new energy outcomes.

Sir, second question is on the soda ash market. So have you seen any kind of new capacity additions across any geographies? And what is our view in terms of pricing of soda ash across different geographies for the next maybe 6 months to 1 year?

So I think Zarir will add more color to this. But I just want to highlight that the demand is fully back, I think, across the globe. The container glass demand is the only one which is slightly lagging now with -- as tourism picks up, even that could pick up across the board. And overall, there is tightness in the market because of the spot prices have moved up, and I think this situation is likely to continue for some time. And as you would know that several of the announcements which were -- expansion announcements which were made, have all been put on a pause mode, and there have been public statements made by several of the entities which had announced this because of the current pandemic, which will probably mean that any fresh announcement will take at least 3 to 4 years to fructify. Zarir, do you want to add anything further to this?

No, I think that's absolutely right. I think producers who had announced earlier are probably waiting to see long-term secular trends, both in terms of demand picking up, which is very positive, as Mukund mentioned. But more importantly, I think the lag effect of pricing, once that comes into play, you might see some of them coming back with announcements, but it will probably be at least 3 to 4 years before we see any fresh volumes coming out of these plants, which means that the market will continue to tighten.

And just a follow-up on that. Any sense on the pricing across different geographies, sir?

So as Mukund mentioned, spot prices in many of the export markets have staged a sharp comeback. In some of these markets, I think people are contracted. But as these contracts, whether it's quarterly, half yearly or annual, come up for renewal, I think you'll find soda ash producers, including ourselves, moving in tandem with what market pricing is. So yes, the movement is positive and upwards in most markets. India, given the current state of what's happening on the pandemic, as Mukund said, there's some de-inventorization that's taking place, and that might affect price movements maybe by a few months. But overall, demand is back, and that is always a positive sign.

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

So my question is regarding U.S. business. Post incorporating INR 45 crores of the cost -- one-off cost, still U.S. business is very subdued. So I can understand you are hedging your energy cost. So maybe some part of is not and fuel prices increased. Apart from that, any other reason for the subdued performing?

See, what Nandu has already explained is that there are 2 effects which happens when you -- because of high cost of gas, we only produced to the extent we were hedged, so that we reduce the impact of the spike in the gas prices, so that led to loss of production. But our sales remained -- we were selling out of our inventory. But when you de-inventorize and your cost is still continuing, you have unabsorbed fixed costs, which already number was highlighted was also equal to -- we can't put an exact number there, but I think it's estimated to be close to another INR 40-odd crores. Nandu, you want to explain that.

That's correct, Mukund. See, how it works, Sumant, is that whatever in a quarter we have production which is less than sales, the costs are underabsorbed. In a quarter where the production is more, it's over-absorbed. More a timing issue and not really a loss in that sense, which is permanent. So on the INR 45 crores natural gas is even which has happened, we can't recover that. However, this INR 45 crores or INR 40 crores of the fixed cost absorption is more a timing issue. Next quarter in terms of production is more than sales, we get a gain back. So -- but other quarter, we had a double whammy in terms of the gas price as well as in terms of the cost in terms of -- because of production lagging the sales.

But when we see the performance of the previous year, INR 208 crores, and we subtract, say, INR 45 crores, there, difference is INR 96 crores. So going by your number of INR 96 crores minus INR 40 crores, INR 45 crores, again, there is a gap of INR 40 crores, INR 45 crores. So what are the cost that increased in INR 40 crores, INR 45 crores, whatever difference can we have?

Yes. So the balance is mainly because of the increase in the fixed cost, more because of the -- we had, I think, 10 days of lockdown happening in U.S. for the plant and spare parts consumer higher in Q4. This also to see for the year, it's okay because in consol level, the fixed costs are intact. It's more shifting of costs from Q3 to Q4. Not really permanent.

And also, Nandu, one more point we could add here that -- which is a point you had already highlighted, there is -- the exports are fully back now. And the export volume, when you take it at a $5, let's say, which is what the fall in prices, that would account for the rest of the change, which has been there.

Can we say the overall mix of the business has changed towards export because domestic sales has declined and domestic has a better margin and export has a lower margin?

I think the way to look at it is that the mix is now at the level it should be with domestic and exports. Exports are fully back. And the export prices are actually lower by about $5. And I think as Zarir explained, every quarter, as we get the pricing back in our -- I think that this would sort of start to move up again. So as the contracts are, for example, the contracts in Asia are quarterly. So the export contracts in Asia get reset on a quarterly basis, this should get adjusted over a period of time.

Is this quarterly basis going to fit in the coming quarter?

Yes, the quarterly change, I think Asian contracts of exports out of U.S.A. are quarterly contracts. So every quarter, you would see them moving in tandem close to the spot prices because that's where the market is. Zarir, do you want to clarify further?

Yes, I think that's exactly right. I think the majority of export contracts in Asia are quarterly. As we come up for renewal, you will see pricing, I think, reset in some of these markets as far as export are concerned. So yes, the trend is going to be upwards as far as Asian pricing is concerned. In some of the other geographies, where contract size are half yearly or annual, it might spill over into subsequent quarters.

So what -- I understood. Overall, INR 141 crores difference of the EBITDA compared to previous quarter -- previous year same quarter. And out of that INR 45 crores one-off and INR 40 crores, INR 45 crores operating fixed cost. Then INR 40 crores, INR 45 crores is all because of the price, whatever the price decline in export market. And any other reason for freight cost?

So there are 4 reasons, Sumant, that explain, one is in terms of the INR 45 crores on the gas and INR 40 crores and INR 45 crores because of the under-absorption and INR 30 crores, INR 40 crores would be the fixed cost getting deferred from Q3 into Q4. Therefore, the Q4 expenses are higher. The fourth element is the price change. There are 4 reasons, Sumant, if you could hear me right. Let me repeat that. One is the gas price increase of INR 40 crores, INR 45 crores, that impact that you spoke about. INR 40 crores would be on account of the fixed cost under-absorption because of lower production than sales. Third is the fixed cost is not going up because they've moved expenses from Q3 into Q4, but the overall fixed expenses remain intact. The fourth element is what Mukund explained on the price drop compared to last year. Last year's Q4 than this year's Q4, there was price difference. All the 4 put together has led to this drop.

Okay. And you talked about other expense increase because of repair and maintenance costs in stand-alone. Any other reason for higher over-expense in the consol level?

No, not really. Consol for the year as a whole, Sumant, I think it's almost on par with last year. It's not much of a change, okay? So there's another reason apart from some costs moving in from Q3 to Q4, consignment, exactly, the spend happens the way it's supposed to happen. So there's no other bigger reason beyond that. It's more because of the -- more bunching of what's happening -- yes, yes.

Nandu, actually, the fixed cost internationally have gone down. But on the rupee term, it is remaining constant mainly because of the issue related to effects of ForEx because last year, the fixed costs were translated at INR 70. This year, the fixed costs are getting translated at close to INR 74, INR 75.

That's right. Okay. And can you quantify the U.K.? Any one-offs in EBITDA level?

U.K., I explained, I think, at the beginning of the call in terms of 3, 4 factors. One was the impact of the flood. Two is that we had a tax -- deferred tax asset write-off in the quarter. And the third was the refinancing cost taken in Q4. These 3 elements are more...

Part of your EBITDA?

Sorry, that's more on PAT. So EBITDA is because of the flood impact and because of the refinancing cost.

So how much is the flood amount will be?

Can't really tell you off-hand now. We'll come back to you on this?

Okay. Okay. And last question is in the CapEx you were shown in FY '21, INR 1,242 crores. Can you give the breakup of that?

You're saying in the consol, breakup of the CapEx spend?

Right, INR 1,242 crores.

We'll come back on that because off-hand, we don't have the number.

And talking of the domestic U.S. business volume decline, is it because of lockdown? Any other demand slowdown? The U.S. domestic soda ash Y-o-Y has gone down? Because of...

For the full year?

I'm talking about the Q4...

Zarir, you may want to explain what has really happened with a specific -- one specific contract probably. But otherwise, there's no decline. Isn't it?

Yes, yes, I don't think there's a decline. I think, as Mukund mentioned, demand has completely come back, which means all customers across application segments are operating at normal rates. What has happened here is one of our large customers, domestic, that has a plant both in North America and across the world, moved some of their volumes from domestic to international. And in order to support them, we've moved some of those volumes also into the export market. So that's what's happened there.

[Operator Instructions] The next question is from the line of [ Patrick Jonza ] from NBS Brokerage.

I have a question. So I was just going through your presentation. And the PAT margins about a year back, they were in the range of 8% to 9%. Just wanted to check, you just explained a couple of reasons. But when do you perceive quarter-on-quarter basis will achieve this kind of margin going forward? And what does your basically take for next 1 or 2 years on the top line growth going forward?

So on the top line growth as the capacity we are putting in India mainly in Mithapur and Rallis and the full utilization of the units in South happened, our own estimation of the growth is close to -- I'm going to give a range of at least 50% to 70% growth will be there on the top line, and that will happen. Now in terms of -- and that on the consolidated basis, which means it includes almost, let's say, mill growth elsewhere, but mainly in the all the Indian units, including Rallis, our subsidiary. In terms of 8% to 9% margin, if you look at the numbers, we've had a fall of about 5% dip in contribution itself, which is largely led by the price erosion, which we've had and shortfall in certain volume numbers in the H1 of the year, which has led to this. And I think volumes are that. And the prices, as Zarir has already explained, will continue to improve quarter-on-quarter, and we expect the Q4 when we negotiate next year contracts and assuming the pandemic stays as a component globally and we get back to those levels, we should be inching closer to that 8%, 9% margin, which you said.

I believe some gentlemen initially had asked you on the EV front. So just wanted to understand, are we still progressing -- because I was just cut off for a second in between. So are we still progressing on the EV front? Or there has been some deviation in the plans?

In terms of the progress itself, which stands at the same level, we are reviewing it. There is no specific decision taken. And our efforts in the R&D continue. But beyond that, we are just going to review more.

Okay. And sir, the 50% to 70% growth in the top end what we just mentioned right now, it will be over a period of the next 2 to 3 years, if I'm not wrong, right?

Yes, you could probably say closer to 25%, 26%.

The next question is from the line of S. Ramesh from Nirmal Bang.

The first thing that I would like to understand is if you can quantify what is the kind of volume growth you can expect in FY '22. And the average improvement in prices, one can expect taking all the geographies for FY '22, that will be helpful.

Zarir, do you want to...

Yes. In terms of volume growth, the way we see it today, if you look at our various geographies, I think we should all be back to normal operating rates there, which means that volume will go back to historical levels as we progress into the year. In terms of pricing, as I mentioned to you, we are seeing price improvements in most of the export markets. But there, we are constrained by contractual commitments. As they come up for renegotiation, we'll see a recovery in prices there as well. In the case of U.S. domestic, those are typically annual contracts, which means that we are unlikely to see any price declines in those markets. And as we come into the end of the calendar year and into next year, we should see either stable or an increased pricing in some of those markets as well.

So in your assessment -- in your assessment...

To highlight the full impact of the recovery of price would be visible by Q4. But sequentially, it should be improving as contracts come for renewal.

Yes. So just to follow up on that. So if you look at FY '23, Can we expect the average volumes of around 3.7 million tonnes, which we had in the last 5 years, assuming normal consumption growth in all the Indian sectors? Or will it be more like in FY '24 that you see that kind of peak volumes?

No, I believe it will probably happen in the next financial year, for sure.

Okay. And just one last one is -- one last one, in terms of the U.S. and U.K. operations, they had these one-off items kind of impacting the numbers. So how long do you think it will take for the normalized revenue growth and margins in U.S. and U.K. operating, assuming normal energy prices and your costs are absorbed on normal volumes?

In U.S., you should see this during the year. So there is no need to change. As far as U.K. is concerned, I think even as the salt volumes pick up because the hospitality sector opens up, there, also the margins would move to the normal levels. So you would see this shift happening during the year. And we've taken all precautions with this unseasonal floods. We are now seeing extreme climate events are going to be the new normal. So we need to prepare for it. So a lot of precautions are needed. We will work through the year to make sure they are put in place well in the floods.

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

I just wanted to understand the CapEx spend that we have lined up for FY '22? And if there's any sort of broad thought process for FY '23. On what projects are we spending the growth CapEx? If you could just help break it down a little bit, that will be really helpful.

Zarir shared this in the, I think, previous presentation. So we are happy to share that again. But broadly, let me say this, CapEx spend of -- is spread over the next 3 years, and it is going to be in Rallis, close to -- the balance left is about, I think, INR 500-odd crores, but it's going to be spent on mainly the manufacturer of technicals and formulation units in the Rallis. And in terms of the product technicals itself is concerned, the CapEx spend is largely concentrated in Mithapur. And last part of it is for expanding salt capacity from 1 million tonne to 1.5 million tonne. We are already at 1.2 million tonne. And I think we'll inch towards 1.5 million tonne, adding another 300,000 tonnes of capacity into Nellore next. And the soda ash capacity would go up by another 200,000 tonnes. Part of that 200,000 tonne expansion will reflect itself as a bicarbonate output because that also would go up. And part of it would reflect to those products. So these are the 3 broad lines of investment as of now, which have been cleared and approved, which are under execution.

And just as a follow-up, what about -- I think in the 2Q FY '21 con call, we have sounded out growing capacity for the HDS and the nutraceutical business fairly aggressively. So does that happen in the next couple of years? Or it's sort of more 2, 3 years out once we will get in between capacity ramp up?

No, I think that's also on track. And I think -- sorry, if I missed that out. The first priority is for us to shift the product mix in silica. And after that, our next phase of investment is to move the capacity from 10,000 to 50,000 is what we have said at that point of time. We will come back to you with specific plan, but it's pretty much on the radar and it's not off the radar. And second in terms of the load capacity to move from 5,000 to 10,000 is also on the radar. But right now, the utilization is what we want to exit. We want to exit this current year with the high utilization of 75%, 80% utilization with the current unit so that we can deliver on the bottom line. So process that -- the plan we have set out is on track. We want to make sure that this year, we deliver a steady outcome in terms of EBITDA margins. So that when we expand, we build on that margin as the new schemes come on stream.

And the 75% exit utilization they're looking at for both HDS and nutraceutical [indiscernible]. So that's the sort of target by...

No, there's a difference. The silica business actually has pretty high utilization even now. There, they have to shift the product mix from food grade to rubber and tire grade, which is more higher specification. So it's a grade and mix issue. As far as Nellore is concerned, it's a capacity issue, which they are currently, they have exited by close to, I think, at about 40%, 45%. They need to up their utilization close to 70%, 75%.

All right. And my last question is basically on the battery chemicals. A lot of questions have been asked already, but I just wanted to understand basically what will be the figure for us to sort of commit CapEx for this project? Is it basically looking at India electric vehicle industry as a whole picking up? Is that what we are basically looking at before we start committing CapEx there?

There's an all-round review going on. I think we are ceased of it. And whatever the outcome is, once it is done, we will come back to the specifics. As of now, I think what we are really focused is making sure that the review is comprehensive.

Okay. And sir, the government PLI program also sort of helped us in this direction, does that sort of benefit any CapEx in this industry?

Sorry?

The government's PLI program, does that have any allocation for the kind of investments that we might do in the space in the future?

No, I think in terms of the PLI program across all categories, we are in active discussions. We have given our suggestions to government. And our view is that these are welcome. And there are some suggestions we have given in terms of how each fund should operate. And the government is also actively taking them on board. If it makes financial sense for us, we will go through the route of the PLI scheme. In other cases, we may just do the investment in any case because the market needs it.

[Operator Instructions] The next question is from the line of Harsh Bhatia from Emkay Global.

I just have 2 simple questions. Considering that Church & Dwight and Owens-Illinois, these are key customers in the North American market. Owens-Illinois, for example, is ramping up its recycling first in the glass segment. That's what we can see from their commentary. How does the management in, obviously, next 2 to 3 years, look at this recycling impact on the soda ash demand. So that is my first question.

I lost the line. Can someone repeat it again?

Mr. Bhatia, can you please repeat your question?

Sure. So my question pertains to one of the key customers. Considering that Owens-Illinois is one of the key customers for Tata Chemicals in North America. And they have been ramping up their sustainability efforts through recycling of glass. And just on a broader basis in the next 2 to 3 years, how do we see this recycling effort in glass segment impact the soda ash demand, if it is negative, if it is net-net positive? So existing management thoughts?

I think Zarir will also expand on this. I think this focus on sustainability is extremely critical. As you know, Tata Chemicals also has signed up and our targets have been approved. And our team is actively working to make sure our capital plan henceforth is aligned to moving the direction of the signed targets. And we're also working to -- working on a plan, what we need to do beyond that target, which has been set for 2030. And I think likewise, all of our customers are moving in the same direction. And it's very important to be part of this network of companies which are committed to climate change and climate change efforts. One piece of that is, of course, the recycling business. In every area, people will be moving towards recycling. And effectively, the -- with recycling, the need for first soda ash would come down marginally. But as you know, the -- globally, the demand for soda ash continues to increase. And with that, with the movement from away from plastics to glass, which is a normal trend as part of the sustainability, we believe it is right for container glass manufacturers, to the extent they can move towards recycled glass, it is positive. But also, I just wanted to highlight, the recycled glass usually cannot be the clear glass. Clear glass is usually made from virgin material. Recycled glass is used mainly for colored glass production. And I think there's a limitation in terms of the demand that kind of a glass would have. So both will co-exist. And our view is that we welcome this move by our customers and we would support them to the extent they can. And I think this will also make sure that the need for virgin material, overall, even as the growth of demand happens, it is supported well with the current supply base already established. Broadly, overall, if you look at it in container glass, the shift from plastic to glass is going to be a big shift, this recycling going out and creating a downshift. Zarir, do you want to add anything?

No, I think, Mukund, that's exactly -- and actually, if you look at why they are actually working along with them on some of these initiatives. And there are 2 things happening in the way. One is exactly what you picked up, which is the move towards greater recycling. But at the same time, they're also expanding capacity for container glass across the globe, right? And that has really been driven by what Mukundan spoke about, which is the move from plastics to glass, and it's not just Owens, I think we have seen all of our container glass people doing that.

That's really helpful. Moving on to the soda ash royalty reduction, the government has in North America, specifically for Wyoming, has slashed limits from 62% for the next 10 years. Going back to the same quantitative move in 2012, the government had moved from 2% to 6% in the reverse direction. At that point, Mukundan sir has commented that the impact would be in the range of $7 to $10. So obviously, this time, it might be slightly different. If you could share your views, how should look at the soda ash royalty reduction in the current terms? And over the next 10 years, what is the quantitative impact on a per tonne basis?

Zarir?

Yes. I think, once again, the things that determine this is the mining plan of various producers, right? So how much do you mine out of government leased areas and how much from private? And obviously, the team in North America is trying to optimize that. I think the number should be -- land somewhat close to what you mentioned, perhaps a little on the lower side, but we'll get greater clarity as we work through our fresh mining plans.

Yes. I think just to clarify, in U.S., the state, there's an alternate between federally leased and state leased, and I think the alternate plots of 1 square mile. So you really need to work through your mining plan to arrive at the exact number. But it probably is going to be in the same range. We'll get back to you next time on exact number once the team has completed its review of its mining plan.

Just one last question from my end. Are we looking to broaden our portfolio in the Specialty Chemicals business, looking at downstream derivatives in the benzene chain or the chloro chain, something like that?

Yes. So I think the team at Mithapur is looking at what beyond the plant. We've already got the approval on board, and I think that includes -- the current plan, certainly, includes the expansion of chloro-caustic, but also I think the chlorine and bromine derivative is one area the team is focused on. But we'll come back to specifics. I don't want to make any comments, but to tell you directionally, the focus is there in terms of where to take Mithapur so that that site becomes more and more a specialty sit. As far as the nutrition portfolio is concerned, the overall, I think, approach is to build on the fermentation platform. I think it's a pretty strong platform and current team in Nellore can go at least 5 times -- 4 times, 5 times the current capacity. And there are exciting products, which, we believe, are there. Once we the prove current unit delivers an EBITDA positive turnover, and after that we will move forward with further investment. In terms of the performance material is concerned, I think silica business, we believe, is extremely versatile with wide application. And we will continue to push ahead building on what we have already in the portfolio. So all the 3 elements, which is the inorganic chemicals, which is the halogen chain, the gluco chain on the performance materials side. On the nutrition side, the fermentation platform, both these are for the multiple product portfolio. And I think these are the areas we're going to continue to focus and expand. Right now, I think we are committed to delivering on the approved plan. And as that plan comes to close, which means most investments are on the ground, we will come with the next phase of plan beyond that.

The next question is from the line of Tejas Sheth from Nippon India AMC.

The U.S. annual contract was signed for this year, what would be the price difference versus half year?

Zarir, go ahead.

Yes. I think U.S. domestic contracts typically tend to be 1 year or longer. So they are also multiyear contracts. Okay. So if you look at pricing between last year and this year, I would imagine that, while there is some compression, it's not really -- it's not as large as the compression that we've seen in the export markets, which again, as we mentioned, is recovering.

Okay. And in U.S. operation, how much of the volume would be contractual and how much would be in the spot?

U.S. volumes are almost all contractual. There's very little spot in the U.S. domestic, which is why I said the pricing -- somebody else had asked earlier, the pricing for this year is set for U.S. domestic.

Okay. Okay. Okay. And what would be the budgeted CapEx for FY '22?

Nandu, do you have the figures ready?

Not ready right now. Last year's numbers, which we have, but next year's numbers, we don't keep it. And I think we don't share the numbers also if you look at the whole thing. We'll come back to you on this.

Okay. Okay. Just lastly...

Last year's numbers, there was a question earlier on the CapEx spend, one question. I can answer that in case you wanted to, but it also help you to build the model. So we had INR 1,250 crores CapEx last year on the whole, INR 550 crores was Tata Chemicals stand-alone company, INR 250 crores is U.S., INR 270 crores is Europe, INR 160 crores is Rallis and INR 15 crores is Kenya. INR 1,250 crores is overall number for last year. So next year's number, you can work out with your assumptions.

Sure, sure. Just on the investments towards nutraceutical, also highlighted that it can be a big, big opportunity. When can we see a larger investment going in that space, considering that we'll be looking at exiting this year at a very high utilization?

Yes. I think, as I mentioned, towards the end of this year, we'll come back because I think we would have had surety of all the pieces falling in place and then going into the next phase of investment in that. But at the same time, if you look at the nutrition portfolio, the salt also is equally attractive as the other one. So there is headroom to move both the needle on both fronts.

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

Just a couple. First is Mr. Mukundan just mentioned that some time back about 15% to 17% consol revenue growth target for the next few years. So I just wanted to make sure I heard the projection correctly. And also, if you could drill down a little bit in terms of what the key building blocks of this growth rate will be across business divisions?

Sorry, I think it was not growth rate. It was -- I said in -- like 25-odd, our number should be inching close to 50% to 70% higher than where we are, broadly in that range for you to present on the basis of investments. And the breakdown is growth in -- let me start with our subsidiary, Rallis, there is growth in the Mithapur unit, mainly in salt. There is also growth in the soda ash. There is also growth in the chloro-caustic chain, all these 3 put together, in addition to growth in the nutraceutical business based out of Nellore. But that split, we could start sharing what those buckets continue in terms of revenue, maybe by next quarter we could share broadly capital spend as well as the revenue split, what we anticipate with broad ranges established.

Right. The second thing I just had was on the U.S. business. The North America, is it possible to just roughly break out the geographical breakdown of exports from them? How much goes to Asia, how much goes to Latin America and other regions? And how you're seeing the spot prices behave across these regions?

Sorry, can you repeat it? I lost you in between.

Yes. The U.S. exports, if it's possible to just give us a rough breakdown of geography-wise exports, but just roughly, how much goes to Asia, how much goes to Latin America and other regions. And how are spot prices behaving across each of these regions?

Zarir, you want to go ahead. I think it's probably 50-50. But Zarir, go ahead.

Yes, yes. So most of our exports, as you're aware, is around packs. So while we may not have exact numbers because we do maintain a wall, I think it's approximately -- the 2 main markets are obviously Latin America and Southeast Asia, split roughly equally between the 2. And as we mentioned, we've seen prices in Southeast Asia moving up, spot prices, in some cases, as high as $25. In Latin America, also, we are seeing a movement upwards. It's not to the same extent, but it's certainly in the same direction.

And in LatAm as well, is the pricing on a quarterly basis, sir?

No, LatAm tends to be slightly longer in terms of contracts. So it's half yearly and annual.

Got it. And just one last thing, if I may just squeeze in. On the gas cost, is there a, like, a pass-through clause that you have, some kind of fuel price surcharge clause that you can invoke in case the gas cost goes up? Or is that not an option anymore? And second, on the mining royalty front, the royalty rate reduction, will it -- actually, do you expect it to boost your EBITDA margin in the U.S.?

So on the royalty, I think it will boost EBITDA because it is part of the cost structure. Secondly, on this gas cost, there is a clause on energy, certainly, in all contracts. But I think we have not invoked anything with our customers as of now.

Yes. One is, obviously, we've not invoked. The second, while it exists in the contract, there is a certain minimum period for which these prices need to persist?

And I just wanted to address the previous question. The CapEx, our anticipation for the current year is about the same way we landed the current -- next year is going to be about the same where we landed the current year, as Nandu has explained. But there's an increased bias of CapEx towards within India rather than overseas. So there's a higher proportion of this in India both in Rallis and Tata Chemicals India.

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

Thank you all. And I think the current situation of COVID, I think we all have to stay safe and protect ourselves and protect our families. And we are extremely hopeful that this current surge will start to subside in a couple of months. In some regions, it will start to subside in a month, and it will take probably a couple of months for us to get complete control over it, and that's the way we are planning the business. Hopefully, this -- post this day, we have learned the lessons to deal with this pandemic in a more effective manner so that it allows both the lives and livelihoods to continue. In terms of our business plan, our strategy and business plan continues to be the same, our pillars of Performance Materials, Nutrition and Agri Science are the 3 broad pillars in which our investments are being done. The larger part of this investment is focused in India and for India as well as for the world market. And as we come out of the pandemic, as prices pick up, again, we will be back to our normal run rate, both in terms of return ratios as well as in terms of our margins, contribution and profitability margins. This quarter has been difficult, but we are looking forward to the coming year with great optimism. On the back of the demand of soda ash coming fully back on stream and also the pricing power coming back and sequentially we'll see this flowing into our financials going forward into next year. Thank you, and thank you for all your support and all the good guidance. Thank you.