Tata Chemicals Limited (500770) Earnings Call Transcript & Summary

Welcome to Tata Chemicals Q1 FY '22 Earnings Conference Call. We have with us today Mr. R. Mukundan, the Managing Director and CEO; Mr. Zarir Langrana, the Executive Director; and Mr. Nandakumar Tirumalai, the Chief Financial Officer. Before we begin, I would like to mention that some of the statements made in today's discussions may be forward-looking in nature and may also involve risks and uncertainties. I now invite Mr. Mukundan to begin proceedings of the call. Over to you, Mr. Mukundan.

Thank you, Gavin, and good morning and welcome, everyone, to our quarterly earnings call. I hope all of you are safe and I'm joined today with my colleagues, as Gavin has already mentioned, Zarir Langrana and Nandakumar. Let me start the discussion with some key operating highlights across business and geographies. After which, Nanda will walk you through our financial performance. To begin with, I think what we're seeing from the start of the year, the demand environment across all geographies has been positive. There has been a bit of -- the demand environment will improve further going forward due to -- we had a bit of a tough wave 2 in India and I think we will see sequentially even further improving demand environment going forward. But compared to previous years, certainly, the quarter 1 of the current year was a much better demand environment. The volumes have improved substantially, especially in potash. And we see across all product categories, the volume pickup has been fairly strong. As we said, that we're straight away diving into the challenges. The key challenges would be the rising inputs energy cost; the issue related to supply chain bottlenecks, which are happening mainly in the shipping area; and lastly, the carbon price in Europe, which has shot up to over EUR 50. Broadly, as we have always maintained, that as the volume picks up, as the utilizations improve, the ability of manufacturers to pass on price increases to customer also improves and that we are seeing already. In the spot market, the prices are already up. And as contracts reopen, we expect the prices -- price improvement will continue sequentially going forward, even though in many of the contracts, the prices are still at the previous year or slightly below previous year levels. In terms of our units, all units have performed well, especially India has done well. North America has done equally well. And Kenya also has had a very outstanding run in terms of volumes and we will continue to see good performance. As far as Tata Chemicals Europe is concerned, while it's been steady, they've had the headwind of mainly the carbon price, which has impacted them. And we are putting in place a plan to deal with this, especially through cost improvement programs, both in TCE, as well as in Kenya, where we expect that we have further efficiency improvements to be had even though they've gone into [ profit zone ]. With respect to our Salt business, that business has done well, largely driven by volumes, and it will continue to grow well. Approximately, we had 5% growth and that growth rate will be sustained going forward. Rallis did perform well domestically and the [indiscernible] seed business had a soft quarter. Overall, it contributed at pretty similar levels to what was the contribution which was in Q1. In terms of the 3 key priorities which we have, we have already highlighted that in the presentation, the first one being to continue to invest and grow in India. We see good opportunity for all our businesses to continue to focus on free cash flow and use that appropriately to reinvest in business, especially in India. And thirdly, to focus on the free cash flow to delever the international debt. You can see broadly the 3 pillars of how we will be operating going forward. In terms of the investments in India, we had highlighted about INR 2,700-odd crores would be invested in the Mithapur site itself. And that investment, CapEx investment, is on schedule. It is slated to increase the capacity of soda ash by about 20-odd percent and the salt capacity would also go up broadly by about 30-odd percent. There are other products which will also increase in capacity, but for the [ sake ], these are the 2 big drivers of the volume and revenue and bottom line growth. In terms of Rallis, they have a plan to invest about INR 800 crores to INR 900 crores and that also is pretty much on schedule. I think both these activities, CapEx as well, been impacted by about a few weeks of delay due to the pretty difficult COVID second wave. And we are working with all our partners to get them on schedule to meet our customer commitments, which are already being lined up. Overall, I would say that the theme remains the same, that recovery is back in terms of volumes. The pricing recovery in spot market is already there. It will creep into the contracts as these contracts open up sequentially. At the same time, there are certainly cost headwinds which we are managing, in terms of energy costs, in terms of the supply chain bottlenecks and lastly, the carbon costs, especially in U.K. I feel very confident that with the actions we have put in place, we will continue to ensure that the operations remain on a sound footing and we're able to address these challenges and navigate forward with growth and the investments, which have been planned through, and on the 3 priorities, which I have already outlined, for our future. Thank you. With these comments, I now hand over the floor to Nandakumar.

Thank you, Mukundan, and good morning to everybody. Before I start, you will have seen the update this time for the quarter ending June. This actually improved compared to the previous quarter based upon feedback taken from all. We hope you find it useful. I will talk about the update in terms of our 6 sections, starting off with stand-alone, I'll move on to U.S., U.K., Kenya, Rallis and consolidated. On the India business, revenue was up by INR 200 crores, a 32% increase over previous year. The EBITDA margin has improved by [ 4% ]. The PBT has gone up by INR 142 crores to INR 282 crores the current quarter. This includes the higher other income due to the dividend, which came in the quarter 1. And this dividend came in Q2 last year, so in a way, it is dividend getting pulled from Q2 into Q1 for the current quarter. Coming to the U.S. operations, the volumes rebounded from previous year and revenues have moved from INR 619 crores to INR 837 crores, an increase of around 35%. EBITDA has moved from INR 35 crores in last year's Q1 to INR 173 crores now, almost a 4x, 5x jump. The PBT has swung back to profits this quarter after suffering a INR 119 crores loss in the previous year's Q1. In U.K., revenues have moved up by 29%. However, PBT has -- with the loss has gone up from INR 15 crores last year, INR 18 crores now, mainly because of the impact of carbon price, which Mukun spoke about some time back. In Kenya, because of higher volumes, revenues have moved from INR 100 crores to INR 134 crores, a large increase; and a loss of INR 2 crores last year, INR 16 crores profit in the current year. So mostly, it's a volume-driven profit coming in Kenya. Rallis revenues moved up by around 11%. The profit, however, fell slightly from INR 120 crores to INR 109 crores due to pricing pressures affecting margins and increase in the employee cost and overall freight. At the consolidated level, the revenue stood at INR 2,977 in the quarter and EBITDA expanded from -- by INR 241 crores, INR 601 crores. The PAT has moved up from INR 13 crores last year in Q1 to INR 288 crores in the consolidated in the current quarter. At the consolidated level, the CapEx for the quarter was INR 323 crores. The net debt is INR 3,991 crores, a small increase compared to March, mainly because of a small short-term borrowing taken in Singapore to fund the working capital there. And the exchange rate impact, because in the last couple of years, come down to INR 1 and INR 1 impacting our borrowing is INR 100 crores impact in debt. So that is the update in terms of the overall numbers for the consolidated. Now we can open up for Q&A. Thank you.

[Operator Instructions] First question is from the line of Sumant Kumar from Motilal Oswal.

Sir, my question is regarding India business, particularly basic [ industry ] margin at historically higher at 30.4%. And we have seen this kind of margin in Q4 FY '18 at 29.7%. So considering the overall higher fuel prices and other raw material prices, can you talk about the platform operating leverage? Any other reason for higher margins?

I think broadly, it is volumes and also the fact that we have cost efficiencies as we produce more. And from time to time, in India, we have been able to take structured [indiscernible] pricing adjustment and discount adjustment [indiscernible].

Okay. So we can say because of the discount adjustment, these are long-term or semi-annual contracts or annual contracts, that is one of the reasons for the margin expansion?

No, I think it's both input side. We have, I would say, some of our inputs have been managed fairly well, the operating efficiencies of the inputs, because of high volume of production. And coupled with that, I think also that in the non-contracted volume, I think the discounts have come down even while the list prices would have gone at a slower pace, the discounts would have come down. So I think all these 3 put together have put the margin at that level.

So what is the mix of the non-contracted basis?

Sorry?

No, I think [indiscernible].

It varies from account to account. We don't have to say that. But I think as demand environment tightens, usually, the discounting reduces as the first step before the prices are increased. And as you know, sequentially in India, we've already had 2 price increases of INR 1,000 each. And that -- so first step, we withdraw the discount; second step, we start to increase the prices, and that's really what has happened.

So when will you increase the prices, is it the month of June?

Yes. I think month of June. And there's 1 more which has happened in this quarter. So there is 2 price increases, 1 in the previous quarter towards the last month of the quarter and 1 more this month.

Any inventory gain in the soda ash business this quarter?

No, not too much there. Normal gain, not extraordinary gain to report, actually.

Okay. Can you talk about, though, what is the spot market mix, that number, in India business?

Which market?

No, in India, I would say, for sake of simplicity, India, the pricing changes every quarter. So there's a quarterly reset. So India is much more aligned. So as prices move, every quarter, the prices renew. So I think you could think in those terms. U.K. and U.S. are more annual contracts, with quarterly resets only for the Asia volumes currently. [indiscernible], it's about 30% of the overall number.

Okay. And talking about -- my second question is when we talked about the recovery, is there any pent-up demand in the U.S. market or any other market? Because we have seen a TCNA volume of 500,000 tonnes, lastly we have seen in Q4 FY '18. So is there any pent-up demand because markets are open in Q4? And currently, the demand has [ passed ]. So is this the kind of demand is going to sustain in the coming quarter or that is going to normalize?

Demand is going to sustain. There is no issue in terms of the demand environment as we see. Unless we see a very large third or fourth COVID outbreak, that's about it. So with the increased vaccination, we see that, that risk is slightly reduced. So that's really where we are. And I've already highlighted the risks are more on the input side, not so much on the market side.

So you still believe there will be a risk of -- risk to the margin of higher fuel prices?

So the higher fuel price is about the fact that we -- the rate at which increases happen and the rate at which we can increase price. I think you can pretty much say either the margin will be maintained or towards the end of the year, the margin may go up. So I don't want to make a very forward-looking statement, but certainly, the potential for price to go up is much more then as contracts open up.

So last question is we used to hedge our power, for energy cost in the U.S. market. So is there any M2M gain in this quarter for -- in the EBITDA margin?

So that is, there is the OCI, Sumant. So we had a large gain which is coming in OCI, not on the PBT, in both U.S. and in U.K.

Sir, I didn't get that.

I'm saying if we look at the -- we had, natural, we had a gain on hedging on natural gas, Sumant, and that is accounted as other comprehensive income as coming in your reported numbers. And those were gains made both in U.S. and in U.K., because prices went up sharply for natural gas in Q1, as you are aware, and we are generally hedged for the entire year.

Okay. So it is solely in the other income you are talking about?

Other comprehensive income.

Okay.

This is a cash flow effect, Sumant, it's not a fair value hedging. So all the gains on gas hedging goes to other comprehensive income. And [ plus that with another ], actual the entire buying happens. So all the positions are mark-to-market every quarter ending and that goes into OCI. Sumant, if you look at the numbers reported to the stock exchange, INR 195 crores is the cash flow hedge [ as you know ]. That is the reported number, that's the mark-to-market gain on the natural gas hedging in U.K. and the U.S. It's there on the first page of the P&L, INR 195 crores.

[Operator Instructions] The next question is from the line of [ Zaki Masel from Northern Investments ].

Sir, you have turned around a healthy set of numbers for the first quarter. Can you hear me?

Yes.

Hello. Am I audible?

Yes, now it's better.

Sir, I have 2 questions. Number 1, how does the soda ash outlook look for you in the current year? How have the prices been behaving after the first quarter? Is number 1. Number 2 is a balance sheet question, where I would like to know what is your cash holding, cash and cash equivalent holding? And how do you treat debt -- I mean in terms of reporting gross debt or net debt, sir?

I'll cover the question on the cash part. So we had, on a consolidated basis, cash of INR 3,293 crores. That's the cash on hand, mainly in India, Rallis and other geographies. Our net debt is INR 3,991 crores.

INR 3,991 crores.

That is a net debt after considering the consolidated cash of INR 3,293 crores.

Okay. So approximately, the debt will be around [ INR 7,718 crores ].

That's exactly. Yes.

That's the consolidated level?

At consolidated level, yes.

Yes. I think that's sufficient. And what about the caustic soda ash prices, how do you foresee these in the current year? Because I think last year, they were pretty depressed.

So for us, caustic soda is a smaller play, it is not a...

No, I'm talking about soda ash, sir.

Soda ash prices, as I mentioned, the spot prices are already up and it varies from market to market. But if you take Southeast Asia market as a benchmark, it is broadly up by about $40. We expect it probably will -- more further. The contract prices are what they are. So as I mentioned, the contract prices today are either equal or slightly lower than the previous year, but as contracts open up, depending on the geography. So the contracts open up in Asia almost every quarter and the contracts open up in rest of geographies by Q3 December end. They would all tend to go up in tandem.

And sir, one last question, sir, [indiscernible], Tata Chemical has been the holding company for Rallis. There has been a lot of talk in terms of the merger, because there has been -- there has been a structural change in Tata Chemicals, the merging of consumer and stuff like that. So is there any plan going forward that Tata or Rallis will become a part of Tata Chemicals, sir?

I'm unaware. If there's any such news, we will announce as per the guidelines of [indiscernible] and stock market.

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

First, just on the U.S. business, sir, a couple of things. One is regarding any benefit from the royalty cut that was announced earlier this year? Are we seeing some benefit of that in the margins already? Or is that yet to come? And then second, just wanted to check the -- any potential impact from this railroad disruption in the U.S. on the West Coast, particularly in the context of these forest fires, et cetera? Apparently, there's been some logistical disruptions, so could we see some disruption to shipments for the next quarter or 2 out of the U.S. to the export markets?

On the shipping side, we are seeing logistics problems with respect to container movement, especially out of Kenya. And some ships availability, but we are not seeing any other logistics element. But I think they don't pose a huge challenge because we have now started to move materials closer to customers so that we can service the customers much more efficiently. So the issue for us is fundamentally the cost [indiscernible] may go up a little bit, but I think we are getting a much higher gain by the customer having seen lesser risk to the supply from us. So I think we will do whatever it takes to manage this bottleneck, which I mentioned in the opening remarks, is 1 of the 3 risks. In terms of costs, of course, shipping costs are passed through to customers mostly. So I think that won't affect our overall margin element. In terms of the -- overall, what was your question on TCNA, you mentioned something about volumes, wasn't it?

The royalty, actually, the royalty rate cut that was announced in January.

Oh, yes. Exactly we are not able to quantify. There'll be some benefit. But clearly, it depends on the mining plan. And the mining plan through the year, will -- is an [ equalized ] plan. So there are some places where there's a royalty benefit, some parts where there are no royalty benefit. And because the royalty has gone down, the team is actually working to make sure they can maximize it. But certainly, there's a part of the benefit that flowed into the quarter.

So you said a part of the benefit has flowed in this quarter?

Yes.

Okay. Got it. And the second thing was just on the soda ash supply outlook, if you could comment a little bit, whether you're seeing any signs of life in terms of revival of old project announcements? And if I may squeeze in 1 other kind of similar question, it's on IMACID. We've seen a sharp jump in profits out there, probably consequent to the jump in phosphoric acid spreads. So how do you see that shaping up? Or do you see this as sustainable for, say, the next several quarters at least?

On IMACID, I would say, certainly, I think it is 1 of the most efficient producers just in our TCNA, Tata Chemicals North America, because they have access to the project. And I think they would continue to be the most competitive supplier of phosphoric acid and then we see that the margin maintainability is certainly a positive element there. It can go down a little bit, it can go up a little bit, but it will probably be keep going down more or less in terms of elements, except when there is a huge sharp decline in consumption, which is a shock, which is like once in 5, 6 years, but it's not -- it's every now and then. With respect to the soda ash demand environment, I said it's positive. It was already turning positive towards the quarter 4 of last year. And for the one-off this year, it has turned more or less positive as [ that division ] of success. And we see this is a return to normalcy. So -- and in terms of projects, I think as the demand environment stabilizes, people will re-announce the projects which were put on the shelf. But I think even if an announcement is made, those projects would take at least 24 to 36 months to be -- even the brownfields, to see the capacity coming onstream. So our view remains that at least near term, there will be continued environment which will be fairly tight going forward. Unless, as I said, we have a very, very severe soda shortage, which comes in -- sometimes will happen, unfortunately. But that division, that risk is lower, that's about it.

And we've not heard any new project announcements so far, right, sir? And the global -- whether it be China or anywhere else, Turkey?

See, I think 1 of the things, the broad trend, let me say, synthetic soda ash manufacturing, is it's going to be a tough proposition going forward, mainly because of the CO2 carbon pricing. And COP26 meeting is due this year and there will be very clearly some announcements made with respect to coal. There'll be very clear announcements which will be made with respect to the carbon pricing and carbon mechanisms around the world. Developing countries will get some space and time. But I think in most parts of the world, especially in Europe, it's going to be an environment where I think the carbon price -- and Europe has broadly 8 million to 9 million tonnes of capacity depending on what is count in and what is count out. So there, the carbon price already sharply moved up from EUR 30 to EUR 50, it's an issue. So to that extent, I think we will have other competitive capacities which will gain ground. So even if capacities do come in, there will certainly be more carbon-efficient capacity, which then can sell to [ global ]. That is 1 piece, which I just want to leave on the table. Second piece, which is on the demand side, is with every lithium carbonate project which is announced in the world, for 1 tonne of lithium carbonate, you probably need about 1 tonne of soda ash to produce that. So that demand environment is going to constantly move up with the electrification, with battery and storage, which is already on. And thirdly, as the solar cell production picks up, the solar glass will constitute another big set of demand, which will continue to drive the growth of soda ash. So from supply side, you would find that -- we would find that carbon begins to put pressure on synthetic capacities. And the natural capacities, usually, a large proportion of them, and the growth possibility in the world is only in U.S.A. and [indiscernible]. So that's really the overall scenario. Short term, things will move up and down, but that will be a broad band of the way the market is heading.

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

Congratulations on the results. So you mentioned the prospects for additional demand from [indiscernible] solar glass. Is it possible to give a number in terms of the additional capacity that is required for additional demand that can be generated, continuing growth rate in lithium factory and the solar panels?

Yes. So what we'll do next quarter, we will come out with what are the new drivers of demand with a specific part of the investor presentation [indiscernible] so that it is much more logical and it's picking up data from all the projects. We'll do that for all of you.

Okay. And the next part is now if you're looking at the advantage you mentioned for the tonne of the capacity in the context of the carbon pricing impacting the synthetic capacity. What is the headroom you have in the TCNA to add additional product capacity there? And how would the carbon pricing impact are to be addressed for that project?

So the debottlenecking project in U.S., which we are planning, is about 180,000 to 200,000 tonnes. So that's the current immediate plan, as soon as the market tells us hold strongly. Beyond that, I think we have to really go back to the drawing board and work on that. In terms of the overall differential, again, what are the norms and how to look at the norms, we will include that in the next presentation. It's part of general information available to you.

Okay. Just one last, sir. Now if you're looking at the product cycle now, one gets the sense that you are possibly going to see a tight market. So has the pricing already reflected that? Or do you see the dollar per tonne pricing moving up over the next few quarters? And do you see new capacity particular of most commodity markets? So what is your sense on that?

The spot prices have already moved up by $40, but contract prices are -- they are what they are because they were negotiated at the peak of the COVID and where there was excess supply. So as these contracts open up, they would also move forward. But broadly speaking, today's contract prices are actually below the previous year contract prices which we had. So -- but that situation would change every quarter as we move forward.

The next question comes from the line of Ritesh Gupta from Kotak.

Just one, sir. On the salt side, there is no profitability gain, right, this time? And your pricing would be pretty much standard on a [indiscernible] basis, because of [indiscernible] that you said?

The salt, broadly, the way it impacts the bottom line is volume-led. So we need to track the volume. And as I said, our capacity expansion plan was to go from 1.1 million tonnes to 1.2 million tonnes and from -- move from 1.2 million tonnes to 1.5 million tonnes. So those plans are being driven and that would be just volume at a constant margin moving forward.

Understood. And just on the ANSAC, kind of the [indiscernible] disintegrated, I mean, how it will benefit your or impact your profitability? Or how does it open more markets, will you just brief us on that?

So I think this is fundamentally disintermediation as we move forward. I think as far as we are concerned, and we get closer to consumers and customers, and this will be a long-standing request about our customers that they would want to have a direct relationship. I think it helps us. The second thing is that we, when we sell to ANSAC, there is no visibility of where our product is going. Now we can build relationships with customers and manage the customers' margin, portfolio of customer management can be done. So we can evolve in a very different way. If you look at it, right through the pandemic, 1 of the things which helped this company was a higher proportion of sales to distribution and container glass. And that -- because that is more resilient, because that is more aligned to continued demand. So when we have the direct sales, we can also proportionately manage the risk of and the cyclicality of business. [ Flat glass ] generally goes to automotive and real estate, which got impacted very badly with COVID. Since we had a lesser exposure to that, we were less impacted during COVID as we move forward. So we will be able to do all that on the exports out of U.S.A., which is why this direct connection to customers is important. It is to manage both customer portfolio, also customer margins. And also, it's been a long-standing request of customers, that they want to deal with us directly.

The next question is from the line of Dhavan Shah from ICICI Securities.

I have 2 questions. Firstly, about the power and fuel cost. So if I look at the quarter-on-quarter growth for this quarter, which is probably 13-odd percent in the revenue side. Whereas if I look at the power and fuel costs, it is down by around 9%. And we have seen the inflation into the power and fuel. So I'm unable to understand the [ build over here ], if you can, able to understand. So this is my first question. I mean if you can share thoughts on that, why the power and fuel cost for this quarter is down by around 9% on Q-o-Q.

So I'll explain that, Dhavan. See, if you remember last time on the call, we just spoke about in U.S. where we had a one-off kind of impact on natural gas hedging in Q4, which is -- we had about INR 45 crores last quarter, which is not there this quarter.

It's -- yes, last quarter, what happened was there was something, a big freeze which happened, where in Texas, the gas prices out of the gas supplies coming out of U.S., the prices spiked for about 3 days. And I think that impact is not there this quarter. So that's one. Two, I think in general, as volumes pick up, the efficiencies improve. In fact, at lower volume, efficiencies are lower.

Okay. Okay. I think this kind of delta is maintainable over the coming quarters? I mean in terms of the power and fuel cost and we can see some more operating leverage to play out once you -- the volume growth kicks in. So is this the fair understanding?

So wherever you see volume growth come on, where additional capacities keep coming on, I think the efficiencies will keep moving much more, it will become more and more efficient. So that's clearly because we are spreading the energy over a larger volume and we're able to throughput more. But I think where there is capacities are constrained and we are producing to the capacity, there's always a limit. So I think after that, it is just going to be whatever happens to pricing will just flow through that number.

Got it, sir. And my second question is about the contract pricing. So you mentioned that the U.K. and U.S. both have around 20% of the contracts on the quarterly basis, while the rest is on the annual -- is the annual contract. So roughly, these 2 geographies contributes roughly 55% to the basic chem revenue. So is it fair to say that around 55% of the rest business, which is the India and the Magadi and the rest part of -- the 20% part of the -- these 2 geographies, U.K. and U.S. also, will see a pricing revision from this quarter itself? And we can see realizing growth going [ forward ] for the next few quarters until the -- we can see some pressure -- maybe if we can see some pressure in the demand?

So U.K. is 100% contracted. So I think there'll be no reset till Q3 end, which means no reset till December. I had mentioned about 20-odd percent of the U.S. capacity is supplied to Asia at a quarterly reset. And India and Kenya would more or less be on a quarterly [indiscernible].

The next question is from the line of [ Ashish ] [indiscernible] with Quantum Mutual Fund.

Yes. So I just wanted an update on the new businesses, if you can throw some light on your [indiscernible] business and energy business.

So on the 2 new businesses, silica and on the Nutraceuticals prebiotic business, they have shown a healthy growth, which we can pretty much look at in the stand-alone numbers. And we are waiting for further customer approvals to ramp up the output. So we would continue to work through that. Quarter 1 was -- there was a bit of a slight impact with respect to COVID and some dislocation, which we don't anticipate in quarter 2, quarter 3. So they will continue to show increasing numbers going forward. That's about what I can say. And you could also -- you would also notice in the stand-alone numbers, they are tending to start to move towards at least becoming less and less EBIT negative and I think that trend would continue every quarter. I have addressed the question. Is there anything specific, more?

I was asking you on the status of the energy business.

That has been explained, even at the AGM, it is under review and if there's anything specific, we'll come back to you.

The next question is from the line of Rohit Nagraj from Emkay Global (sic) [ Sunidhi Securities ].

Congrats on a really good set of numbers. So the first question is on the newer capacity. So you explain the challenges for the new synthetic soda ash capacity in terms of the carbon pricing. So what would be an optimum level of soda ash prices where the incremental projects will be feasible and that would keep a threshold in terms of the pricing environment at a particular level?

So I think if you're saying what is the right level of pricing at which the new projects can come on and especially projects in U.S., synthetic purely depends on where -- who wants to take a risk on expanding with the carbon environment as it is. So I really cannot make a commentary on that. From our side, we are very clear in terms of shifting the portfolio towards bicarbonate even in the U.K., where we are doing carbon capture projects to make sure we can capture the carbon and make it into a useful product. But our exposure to soda ash in U.K., if you recall, is only 350-odd thousand tonnes. It's a small capacity we have and that we would increasingly move towards bicarbonate and that's 1 of the reasons. But if you want a large scale, 1 million tonnes, at least I think it is a number which is not known because even the carbon prices are moving, moving numbers. Today, maybe it's EUR 50, as the norms for carbon keeps tightening, we will find that the carbon prices keep moving up. So I really would not want to comment. But with respect to the U.S. assets, I think the prices need to move up a bit more for it to become viable in U.S. for any additional capacity to be financially justifiable at the cost of capital.

Sir, the second question, in terms of the demand environment across geographies. So has the demand come back to normalcy or recovering across geographies? And was there any impact due to the supply chain challenges because of which the supplies, there was an impact in terms of availability of the material? And how do you foresee these going forward given the current environment of supply chain challenges?

Good question. I think the supply chain bottlenecks are an issue. And I think if your question is, do we see any pricing spikes because of localized shortages, I think that we don't want to take into account in our commentary because they are very specific to a very narrow band of periods. The only issue which it flows through is it increases the cost of servicing customers. And as I mentioned, it is also passed through. So we are very much aware that we want to be as efficient to our customers as possible and we would want these bottlenecks to get cleared. So really, we don't want to put any pricing number because of these bottlenecks. These are more about customer servicing and cost of servicing customers. So I would leave it at that.

All right. And if I can squeeze in 1 last bit. So sequentially, Indian business, we have seen lower volumes. But on the contrary, the margins have gone up despite being -- facing the fuel cost increase challenge. Any specific reason because of which the margins have been higher in the domestic business, despite the volumes being lower sequentially?

Sequentially, just to give you the data, it has been 118,000, then it went to 181,000. Then in Q3, it was 168,000. And then in Q4, it was 184,000. So sequentially, if we take the last year Q1, 118,000; Q2, 151,000; Q3, 168,000; and Q4 was 184,000. So it has been sequentially going up. Your question about why has it fallen to 167,000 in Q1. This, I mentioned, there was a serious COVID wave 2, which created issues in the couple of months in the beginning of this quarter, which, because of which some of the sales could not be done, but we expect this would normalize because we are seeing the environment, pretty much the COVID restrictions and all the labor, everything all returning to normal by the third month of -- by June, we started to see that normalize.

Right. Sorry, I probably framed the question wrongly. My question was volumes have been down. But on the contrary, your margins have been up despite facing some challenges on the costs, primarily due to fuel. And at the same time, if the volumes are down, obviously, the operating efficiency benefits would not have trickled in. So on the margin front, I was asking on a sequential basis, it has gone up from 20% to 29%.

Yes. I think the teams have worked out most optimal operations and contain the cost. Also, they always manage the increasing input cost with really, a variation of input materials from different sources. So they've done that piece well. And also, because production was high, but the sales could not happen, there's a bit of a [indiscernible] of that production, a quantity also has happened in this quarter, especially in India. But those will move to the customers because right now, the customers have started to open up.

The next question is from the line of [indiscernible] from [ CNS Investment ].

I have a question regarding the balance sheet. We are having a lot of investments in related Tata Group companies. So can you quantify the amount of investments which we are holding in terms of market value?

There is an annual report issued some time back. It's all there, all the breakdown is given there, how many shares we are holding.

And are we having any plans to monetize those holdings to fund our future expansion plans?

This is really a Board decision and a Board call. All I can say is that from time to time, Board has taken the decision. For example, we used to own, TCS used to own Tata Global Beverages, all those shares have been monetized over a period of time as and when the need arises. So it's really a Board call.

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

Sir, I have this question pertaining to the U.S. operations, sir. And sir, we took the remaining 25% stake from our JV partner for, I think, around INR 1,400 crores. So post that, what has been our rationalization in improving the profitability levels? And for the current year, sir, what are the current maturities? And for [ foreseeable ] reasons, our foreign subsidiaries are not performing at the optimum levels. So what are the steps that are in the annual -- that will improve the profitability, both for the U.S. and the U.K.? And also, about this flue gas part of the story, sir, if you could throw some light?

In terms of U.S., I think the issue really what we have had is that around the time, given the short time we were acquiring those shares, the COVID impacted us and we went through a pretty difficult period. So I think it is more an external environment which caught us completely off-guard. And the team has responded well by reducing manpower and reducing people cost, last -- all the way through last year. And the focus was on generating cash. So if you look at really the cash flow, which was 1 of the highest free cash flow generating years, where we actually managed the cash flows, made sure that the cash position of the company was always held well despite a reduction in sales volumes. As the market open up, I think you will see the efficiency creep in. So I would rather wait for these efficiencies to come through as the sales volumes continue to go back to normal. They are already getting pretty close to near normal with respect to the market demand. But in terms of pricing environment, they will, in fact, further improve by the time we hit Q4 of this year. So we, as I mentioned, we need to wait for 2 more quarters to get that -- especially in the areas of contracts, where it is an open area, I think we will probably be resetting them every quarter. So that's on the commentary on the U.S. So we are pretty much focused on making sure we run an efficient operation. All things going well, it will continue to work as a pretty efficient entity. And we will focus on having cash flows pull through that entity and use that same for [indiscernible]. As far as U.K. is concerned, U.K. has certainly much more degrees of freedom. They've got 2 product lines, as you know. They've got salt, soda -- in fact 3 products: salt, bicarb, soda ash. The salt has always been a very profitable business and it continues to be profitable. The pressure point has been on the soda ash business and bicarb also has been profitable. So we are doing everything we can in terms of addressing the current pressure which we have because of the spiking of the carbon prices from EUR 30 to EUR 50-odd. And we are preparing ground by which the transition through this, let's say, carbon transition is done in a very smooth manner. So that's the plan, we are working to there. And I said already that cost and the people rationalization plans are underway in 2 geographies through this year, which is the U.K. and Kenya. So that's [indiscernible]. In terms of...

Just a second, sir, a follow-up. Sir, for the U.K. part, you told that we were collaborating with the government also for some carbon capture [ story ] that will play out in the near future?

Carbon capture unit is almost complete. In fact, it was supposed to be hooked up this quarter. Unfortunately, in Q4 of last year, U.K. went through a difficult COVID and they could not get some of the people to, technical people, to commission the plant. So they're undergoing commissioning now. So we hope by the time we come to Q2 of this year, we'll be able to report back to you that it's fully functional.

And how is it going to benefit us, sir, this carbon capture story playing out, margin decretive by what proportion?

I'll give you that number separately. Right now, I don't have it, but it's useful to make the bicarbonate product.

All right. And on my next part, sir, on the flue gas and also how are we going to deleverage the U.S. subsidiary, so the loan which we have taken and the current maturities?

The U.S. will constantly generate positive cash and even today, for example, it is sitting on a cash position.

Have we explained that [ piece ] -- yes, we don't see the breakup there...

So I think it is a positive cash generating unit. And as the unit gets back to normalcy, we'll be in a position to sort of reduce it through the internal cash generation.

Okay. And on the flue gas part, too, sir, for the domestic market, how is the accessibility and the power plant requirement of what kind of sodium bicarbonate requirement can arise out of the flue gas opportunity?

I don't have the exact figure, but it is a new opportunity which has opened up. In fact, NTPC came up with tenders last year. And as the air pollution norms get tighter, it is an opportunity which will grow. We'll give the data separately. I don't have it readily here.

The next question is from the line of [ Jigar Shah from Financial Research ].

Sir, I wanted a brief medium-term outlook on the Specialty Products segment. I think Q1, we had a turnover of INR 57 crores. So what is the medium-term outlook in terms of capacity utilization and further increase in capacity, if you could shed some light.

Yes. So I think, as I mentioned, we are at about 60%, 65% capacity utilization. We are to go to 100% by Q4. So hopefully, by Q4, we exit, we will be reaching that position with more customer qualification coming on and that's our plan as of now. And the plan is also to make it at least EBIT neutral by -- or at least the EBIT -- close to EBIT neutral by Q4 so that we can then talk about what additional capacity needs to go in.

And -- so no fresh CapEx planned at the moment in this division?

No, we -- see, we can put up a new additional capacity at pretty short notice. Our view has been that first, make sure the current unit works and then take it to profitability before we move further on [indiscernible].

The next question is from the line of [ Pratik Katia ], a private investor.

Am I audible?

Yes, we can hear you. Go ahead. I said go ahead. We can hear you.

Yes. Sir, my question is on sodium ion batteries. There's a lot of research going on about replacing lithium ion batteries with sodium ion batteries. So my question is, does Tata Chemicals have any plans to enter into any research of sodium ion batteries?

Yes. See, we -- as I mentioned, that the work is going on in our labs. And as I know anything specific happens, we'll come back to you. But these are -- the sodium ion batteries have some distance to go before they become fully commercialized.

Okay, sir. Because 1 of the largest suppliers to Tesla recently announced that they are planning to commercialize sodium ion batteries. So is there a recommendation to the Board to consider this option? And I have a second question about the bromine-based products. I think in the previous conference call, you had mentioned that there are some plans to invest in bromine-based products. Do we have an update on this CapEx?

Bromine-based -- can you repeat the question?

Yes. My question is about any -- are there any plans for any investments in bromine-based products?

Right now, we are producing to capacity and we have some headroom to move further, but I think the team is evaluating it and there's nothing specific for me to come back to on that.

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

Can you quantify the impact of the carbon price movement on the U.K. business? And similarly, what is the benefit you would have got from the royalty reduction in the U.S. business?

So in terms of quantification, I would broadly say at the current numbers, the impact would be about GBP 2 million, broadly, per quarter.

And that is the cost?

Yes, the range, GBP 1 million to GBP 2 million, depending upon the carbon prices.

Yes. Yes. So you should take it in between, maybe GBP 1.5 million.

But it can vary, Ramesh.

GBP 1 million to GBP 2 million in terms of that. And second thing is can we quantify the benefit you would have got from the reduction in royalty in the U.S. in the first quarter?

Quantify what?

The royalty.

No, no. We -- as I mentioned, there is benefit with the slowing, but we normally don't get into that.

That was the last question. I now hand the conference over to the management for their closing comments.

Thank you, everyone. I think what we have seen has been a continuation of what we mentioned right through Q4 of last year. Unfortunately, where the demand environment was improving in Q4, we were impacted by several one-offs, which has not happened in Q1. So Q1 has turned in, in terms of the operations, on a positive side. We do believe that the operating demand environment is positive, it's improving sequentially and will continue to trend the same way right through the year and beyond that too. In terms of the -- our focus, our focus continues to be to deliver the growth and investment in India. Our timetable, which has been attached, and we will continue to ensure that that comes onstream. We also are focused on ensuring there is adequate focus on generating free cash flows and use those free cash flows to grow as well as ensure that the balance sheet is kept in the right place. In terms of international operations, our efforts will be to deleverage them. I think these are our key priorities going forward and we'll continue to work on them and thank you for your support.

Thank you. Ladies and gentlemen, on behalf of Tata Chemicals, that concludes this conference call for today. Thank you for joining us and you may now disconnect your lines.