Tata Chemicals Limited (500770) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q3 FY '22 Earnings Conference Call of Tata Chemicals Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Gavin Desa from CDR India. Thank you, and over to you, sir.

Thank you, Stephen. Good day, everyone, and thank you for joining us on Tata Chemicals Q3 and 9-month FY '22 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 of the statements made in today's discussion may be forward-looking in nature and may involve risks and uncertainties. I now invite Mr. Mukundan to begin proceedings of the call. Over to you.

Thank you, Gavin, and good morning, and welcome to everyone to the quarterly earnings call. I'm joined by my colleague, Mr. Zarir Langrana, Executive Director; and our CFO, Mr. Nandakumar Tirumalai, for today's call. I just will highlight some operational issues and strategic direction. After which, Mr. Nandakumar will take us through the financial performance for the quarter. As such, this quarter was relatively good compared to the challenges we faced during the quarter. And this has been possible because of the revenue and margin momentum we've seen in our soda ash business. As we mentioned previously, the demand/supply dynamics for soda ash has gone favorable and is likely to remain favorable for a certain amount of time, I would say, a couple of more years, and we define it like this in the medium term. Let me move on to the individual segments within soda ash. The Indian business has delivered performance and profitability. As you know, in the 3 of our sites, we have taken a maintenance shutdown. This is in India, the U.K. and -- South India, U.S.A. and in Kenya. And so there was a bit of a lower volume this quarter, but we've seen very strong demand, and prices have remained strong during the quarter. And we expect them to remain in the similar zone going forward too. On the international business, again, TCNA has had a growth of domestic and growth in export more importantly because there's been bounce-back of underlying demand. And there, again, the shutdown has meant that -- if you look at the trading quarter, which is Q2 to Q3, we lost some volume. And also because maintenance shutdown was taken, it has increased our fixed cost a little bit in both India and the U.S. Magadi has also performed well. And sequentially also, we've seen improvement in operational performance. As far as U.K. is concerned, I think this quarter, as Nandakumar will explain, some of the elements of the carbon capture unit as well as the hedging of CO2 carbon, buying carbon in those markets to hedge the futures have all come in and help us. And I think that strategy will play out so that we are very protected from any variations or any sudden spikes in the marketplace. And we continue to have a very strong risk mitigation strategy, not just on energy, input energy, but also now on carbon market. As far as salt is concerned, it continues to be strong and steady both in India and the U.K. And bicarb business, again, I think India and the U.K. has done well. In terms of nutrition, nutritional solutions, [ ANSAC ], I believe our focus is on maintaining the position of positive EBITDA level, which is what we are working to, and we're hoping to secure customer acceptance and ramping of our utilization. So that is also declared in these numbers. Both domestic and international delivered healthy growth in revenue. Our 3 business had some stress. The company is investing for growth and is working on faster integration for some of the products, which should help in its supply chain and margins. As far as the strategy of Tata Chemicals' stand-alone expense is concerned, our focus remains to expand capacity in our core segments of soda ash, salt and bicarbonate and also move the needle in terms of the SBS and [ neutral ]. On SBS, we may be accelerating the investment because we've seen a strong demand from our customers. With this, I'd like to state that our strategy of focusing on core business, ensuring the supply dynamics are delivered well on the ground, and we support the demand recovery with a strong supply chain performance and also mitigating some of the risks which we had faced in terms of the input costs have been done well. Also wanted to highlight that we now have a good understanding of the market supply and supply situation on the input side. And we would strongly believe that the company will be able to manage the pressures which had come on the input cost side in quarter 2. We have overcome them in quarter 3. And going forward, in quarter 4, with the prices having been renegotiated across customers, you will see the margins also reflect the resilience which we are building in terms of the input cost management vis-a-vis the pressures which are coming from the external market. With this, I would now hand over the floor to Nandakumar to take us through the financial performance.

Thank you, Mukundan, and good morning to all. I will walk you through the performance for Q3. Our consol revenues for the quarter was at INR 3,142 crores, 21% more than previous year; and PAT at INR 340 crores, over 70%, both in last year. This is mainly due to the growth in soda ash and bicarb volumes, notably in U.S., U.K. and Kenya and the impact of price increases in India and other geographies. Coming to India now. Revenue was at INR 931 crores, up 15% over previous year. The EBITDA margin was 26%, an increase of 3%. The PBT has gone up from INR 148 crores to INR 214 crores, a 45% jump compared to last year's Q3. The CapEx is on track. Coming to U.S., the volumes rebounded from previous year, and revenue of INR 891 crores is up 20% and PBT is at INR 37 crores. The U.S. volumes remained strong with growth in domestic and export market as compared to previous year. Export volume mix is higher than previous year. Export revenue is seeing recovery, and domestic prices remain stable. Turning to U.K., revenue of INR 551 crores is up 47%, and PBT is at INR 13 crores compared to a INR 2 crore profit last year. U.K. soda ash was -- our sales in soda ash remain stable with higher sales price. Margins were higher for the quarter due to higher sales prices despite rising input costs, including coke, ammonia, packaging costs. And as Mukund mentioned, we also started taking out carbon in U.K. The markets opened up in the U.K. ETA is in the month of May or June, and the [ customers ] were able to offer us the hedging from October 1. So as of now, we're hedging all of our carbon exposures in the U.K. there. Now coming to Kenya, revenue was at INR 132 crores, up 24%. EBIT at INR 18 crores, almost same as last year. Kenya is performing well with improved sales volumes and higher sales price. Coming to Rallis, revenue at INR 628 crores, EBIT at INR 48 crores. Revenue has been steady with growth coming from domestic crop care and international business, and margins were impacted due to the higher raw material and fixed costs. Our profits from our JV has been good mainly because of the joint venture in [ Morocco]. We had received the JV in line in the SEBI, which was a substantive job compared last year. Our CapEx spend was INR 1,040 crores for 9 months as compared to INR 895 crores last year; our net debt at INR 4,120 crores, INR 200 crores more than March. I now hand over the floor to Gavin for the Q&A.

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

My question is regarding PLI and the reference of the Tata Motors call when the participant asked why did the Tata Group not participated in the PLI for advanced chemistry sales. So they were -- or the reply was they found that [indiscernible] was not working out for us. So what's your view on that? Are the plan is on or we are not going to -- going for the battery segment actually? Kindly talk about that.

So I maintain the same thing that we have been saying and maintaining that the -- if there is anything specific to discuss or present to shareholders, we'll do at that point of time. As of now, there is nothing specific beyond what has been stated up until now.

Okay. So okay, so for the time being, we are not thinking of if there will be any progress even in the net. Then still, we are going to work on that, we are going to -- we are having a plan to stay into the business or not?

Sorry, I think there was some -- yes, so I think your comment is valid. But I think if there is any change in the provision, any change, anything substantial to be informed, we will do at that point of time.

Okay. Okay. Now talking about the financial side. We have seen that interest cost in this quarter was lower despite the gross debt is at a similar level. So can you comment on that? What was the key reason for that?

I think that -- see, look, we did some refinancing and repricing of a lot of loans in the U.S. And we've be able to refinance the bulk of the loans, which are at L plus 4% to L plus 1.5% during the last 4, 5 months' time. That's why the interest cost is lower compared to last year's Q3.

Okay. Now talking about overall U.S. business. We have seen margin pressure in that. Again, if we consider a INR 27 crore insurance claim we have in the base quarter and we will be adjusting the base quarter, despite of that, we have a margin business in the -- in the U.S. business. And the way export business is growing and the price is going to come up, what kind of margin profile we can look for, for the coming quarter? And do you think the input cost pressure is going to subside in the coming quarter...

So broadly and as a principle, export realizations are lower than domestic realization. And as you know, the domestic volume never went down in the U.S. substantially. So they were being able to maintain the volume. The growth is coming primarily on export volume because of lower realization and a slightly lower margin structure. Of course, the full benefit of renegotiated export prices and all will come into Q4, which should improve the margins further. But the mix impact will continue. If it becomes a steady-state number equal to what the mix impact was, therefore, a steady year before the pandemic. That is all I would say.

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

Sir, the first question is sometime during the end 2020, Solvay had indicated that they would be adding soda ash and bicarb capacity of about 1.4 million tonnes by 2022. This will be probably a brownfield expansion. Any further update on this given that we have exposure across different continents?

So I will not comment specifically about any company because it is unfair other than our own company. But I can give you a general comment on the market. Generally, our analysis shows market is about 3 million tonnes short as we speak. And this demand/supply tightness of about 3 million tonnes in those prices for at least 2025, '26, largely, give or take, 6 months give or take.

All right. Got it, sir. Sir, the second question is on the domestic market. So domestic market, how has been the pricing environment during the last couple of months? And what would be the currently rolling prices in the domestic market?

Yes. I just want to say, the point about pricing environment is fundamentally driven off the availability or lack of availability as it stands today. So if the material is not available, we are only giving to our consistent buyers or reliable buyers, buyers who have been -- with whom we've had a long relationship with, we have been very fair to people or to buyers to continue to stand by them. The basic issue like this that on the mainly input side, there has been a big, severe impact on both availability and cost on the input side. Firstly, on the salt, because of heavy rainfall in [ Kot ] and the extended rainfall in [ Kot ], salt availability has sharply come down. The salt prices -- input salt prices have sharply gone up. More than the prices, I think availability itself is something which was a big problem in the Q3. It may improve towards Q4 as the harvesting season starts on salt, but it is running on a very, very thin line. The second issue has been on coal. Many of the -- if you look at the Indian plant, especially our plants in India, plant is using Indonesian coal, Indonesian government has put an export ban on coal. And it has created severe issues in terms of availability for domestic market. So both on input costs as well as input availability as well as the other key element is the coking coal and the anthracite availability, which is imported from South Africa, there was a shipping problem, there were supply chain problems. All this has led to a very, very tight situation on the input side, which then led to a very tight situation on the output side, which is easing a bit, but the market conditions are fairly strong. And we see this to be continuing and the prices to be firming up. And I think on the input side, there could be some easing of pressure, which we have seen, but we need to be extremely careful and cautious. What we've done as far, as Tata Chemicals is concerned, is to reduce the level of risk by stocking up, which has led to some -- in the working capital, which you see, there is an increase in working capital which is there. Bulk of it is on the input side where we have increased the stock level so that we can be safe and sure.

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

On the renewables of the U.S. business side, which on the annual contracts, what is the uplift we have taken in this January?

Yes, I think Zarir would like to answer that.

So our U.S. exports, as you're probably aware, [indiscernible]. So in general, in most markets, from what we are hearing, export market we've seen to Southeast Asia and Latin America, there has been, really based on the supply dynamic that Mukund spoke about, uptick in prices on a CFR basis, which is could be done also with an increase in freight costs. So we are probably seeing an increase, from what we hear in those markets, of anywhere between $30 to $40 a tonne.

Okay, okay, okay. And on the battery side, a lot of traction at the global level is happening on sodium-ion batteries as an alternative to lithium-ion. One, are we looking at that space? And secondly, if that traction happens, you see us benefiting on the soda ash business, right?

Really, I think sodium batteries depend on sodium, vanadium, phosphate as of now. So while the work on the lab will be -- our labs continue to work. I think there are still, I would say, on the sodium side, challenges related to the density of energy, and we signed a number of sites that can operate these needed energy. So this is still in a development stage, and I would not want to [ add ] anything in terms of volume demand coming off that. But work is on. If you look at the basic reason why the work is being pushed is because, as you know, sodium is more easily available than the other competing materials. I think you should also not forget the power of hydrogen. So I think both hydrogen and sodium will compete with lithium. So I can say they are at last place. That's about it, nothing new.

Okay, okay. So we are investing towards that kind of development?

No, I think I'm only addressing the question, do you see a demand uptick for sodium.

Okay. No, my first part of that question was, are we looking to invest in that part, I think?

See, I think at the lab level, we will continue to work on this because these are issues of electric industry we are seeing here, the family of it. We also work with some external labs. So I think we do continue to work on them, and it is an effort which we will not give away. But to your second other question, does it lead to any change in demand for any of the products we make, I think that is a little bit too early to speak right now.

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

Just a couple of questions. First one, on the U.S. renegotiations, which Mr. Langrana just touched upon kindly. So exports, as you said, you've seen about a $30 to $40 uptake. Could you also characterize the kind of increase you're seeing in the domestic side of the business?

I think probably the way you should look at domestic is there's going to be a margin of $1 or $2 or $3, and that's not more. I think the real change in color of the EBITDA earnings of that business are going to come from export volumes going back to normal. And also export pricing going up by a range is very rare. I think I would state that net of freight, that's about $40-odd give or take and then [indiscernible].

Okay. So the reason there's no increase in the domestic business is because you have multiyear contracts with those customers? Or how is that we think about that?

The issue on domestic is that you see gas prices have gone up and also the local freight rates have gone up, so I think that is not moving the needle much. The needle is moving on the export side. I really think if you really look at the margin expansion on an overall basis, GP expansion on an overall basis for the U.S. business, it is going to come out to exports.

Okay, understood. Second, I just wanted to check if it might be possible to share the average realizations for the quarter for the India products, soda ash, salt and bicarb.

So I think we don't share product by EBITDA, Abhijit...

Realization, not EBITDA, realization I was asking for.

No, we don't share that.

Okay. All right. And the last thing, I just wanted to clarify, Mr. Mukund had said the market is 3 million tonnes short right now and you see that continuing until 2025, '26. Is that -- did I capture correctly that?

Yes, we want to highlight...

So Abhijit, let me first address your question broadly on domestic pricing, so the question raised by somebody else earlier as well. There's been a steady uptick in our list prices domestic. As we speak, the pricing is in the range of about 31,000 per tonne on an export basis list price. Obviously, different customers will be at different price levels, and different geographies will be at different price levels. So that should give you an idea of the way that domestic prices have moved up. Your second question was on the global demand/supply gap. As Mukund mentioned, it's in the region, we estimate of about 3 million tonnes today, and it's a number that we believe will continue to hold for the next 3 or 4 years. Just given the fact that there does not seem to be any substantial greenfield or brownfield capacities coming up in many of the geographies in the next 2 to 3 years, and of course, demand will continue to increase.

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

So first, to understand the U.K. performance, it's come in as a very big positive surprise, and congratulations on that. So can we get a sense in terms of how you managed to increase realizations across U.K.? It's supposed to be 100% contract and we are expecting the price revision from January. So how would you manage to get higher realizations there? And is there any one-off or either kind of EBITDA margin we reported in the third quarter likely to sustain for the next few quarters in the U.K. business?

Yes. So I think I will ask Zarir also to add color, but I think we've had a very difficult exercise done during this quarter because of challenges in the space. I think -- and we must thank our customers for supporting us through the difficult quarter by some of them accepting midyear contract corrections. Because of the sharp increase in gas price as well as the carbon cost, I think customers have stepped up and they have, in fact, committed that this being a very unusual increase, which we had to take a rate of INR 70-odd crores last quarter. I think they set in and sort of corrected it. And then I think we can only thank our customers. But these are very difficult discussions, but I just want to put on the table that we need a fair conclusion of the ability and the stability of supply during the quarter. We -- this year's stable numbers will be from quarter 4. But quarter 3, the reflection of the support extended by customers to ensure that we don't have heavy impact of the sharp increase, which we have chased in properties.

So in terms of the U.K. contracts renewal going forward from January, would it also have the same impact of this $30 to $40 excluding freight, as we discussed for the U.S.?

I think customers have settled at a fair number. And it is fair to assume that the pressure which we have seen in Q2 will not continue. It is going to abate, and I think that's very good. And customers have also accepted beyond certain cutoff the pass-through for both carbon and for energy. So I think that sort of protects us. That's what I would add at this point of time.

Okay. Just on the demand and supply, when you talk about the shortfall of 3 million tonnes, can we get some number in terms of what is the current available capacity? And what is the consumption in million tonnes just to get those numbers? Because the probable capacity as per data is 71 million. So I just want to get the exact number in the context of what we are discussing as a shortfall.

Yes. So nameplate capacity is about 71 million, you are completely right in that respect. We believe that the actual operational capacity and demand is probably maxed out to the end about 61 million, 62 million, which means it's gone back to its pre-pandemic levels. And that's really where the shortage is coming because demand has bounced back, continues to grow at 1.5%, 2% globally, that's the number you can take. There is no substantial expansion happening. All of the plants that we are aware of are operating at capacity. There's also been some reduction in capacity in China. I think as we enter the new year, almost 1 million tonnes in the market in China. So I think the focus of suppliers and producers is to be ready to make sure that their customers get serviced. And our focus is really on that to make sure, as Mukund said, that we continue to service customers that have been with us for many years and we make sure that their plants won't suffer.

So if I understand you correctly then, how much of this gap we have in terms of available capacity as on date and the installed capacity? Is it likely to come back given that the margins are very strong? So the 10 million tonnes of extra capacity which is not available now, can some of that come back in the next few months?

So let me take that. I think the issue is there could be at best -- and see, our figures were about 3.8 million shortfall. And the reason I mentioned 3 million is that there's still about 1 million or 0.8 million tonnes of -- is something which people could debottleneck and bring on stream. There'd still be about 3 million tonnes which has a time lag of execution, which is nothing less than 24 to 36 months, even if people were to start putting steel and cement on the ground. So that's where we are really, and that is the reason why this tightness is likely to continue. As Zarir has also mentioned, there is that demand growth which is coming from the thin carbonate business, there's demand growth which is coming from solar glass. We are driving demand strongly, which is leading to a situation where I think even if -- including us, we're also putting the steel and cement on the ground as fast as we can. But I think it is going to take time for people to make substantial numbers on the ground. It is just a gestation period. I think that you just have to look at the situation we have today.

So basically, that 61 million to 71 million gap in capacity, that capacity is not going to come back. You are saying we need new investments, and that is why we believe the supply sort of will continue?

Yes. So I think let's just go through these numbers again. I think there is -- 71 million is nameplate, and demand is at about 61 million. And the real capacity, which is available today, is about 58 million, accounting for shutdowns and the [ mothball ] capacity, everything put together. So that is leading to about 3 million tonnes shortfall. That should be the inflation.

The next question is from the line of Sarvesh Gupta from Maximal Capital.

Sir, first question is, so during the pandemic, one more thing which happened specifically for your India soda ash business is I think the imports were severely impacted because of a variety of logistics challenges, et cetera. Now while we understand the global supply/demand impact, but now as we open up and things are getting normalized, what can be the impact of the imports coming back into the Indian markets and the impact on the realization and the demand/supply situation for the Indian business, soda ash?

The issue really is on both the shipping availability and shipping costs. As the shipping cost of imports keep increasing and is at fairly elevated levels, I think this is a natural hedge and protection for the domestic prices to hold up. So I think that is one element. Second is I think the -- fundamentally, because of the COVID restriction, the port operations are not really fully back to normal. Trucking availability has been a big issue in many, many countries. So these are all leading to supply chain bottlenecks. And we don't see shipping lines coming in the situation where they're saying that there's going to be double of containers available or there's going to be double of bulk cargo available. I think this is really the issue, which is cost elevated levels. And that adds the cost of imports with domestic producers on ships.

Understood. And the other question which is more at the macro level is, while there is a 3 million tonne shortage that you alluded to, but at the same time, because of interest rate increase concerns, et cetera, there can be a situation wherein housing, especially the incremental new housing which will get built, can get impacted. So do you see that as a possible threat on a global demand level both for your U.S. as well as India business because that has been on a boom and there are obvious concerns on the incremental situation? And if you can also sort of give some color on how much housing is important for your business in U.S. and India.

Yes. I think fundamentally, let's look at the segments in their own. So there's one segment which is needed, container glass, not flat glass, that segment is [ deferring ] other chemicals. I think soda ash is really used in making other chemicals. That is steadily rising. And there are new applications which have come, which is the solar glass, which I think the world is switching to more and more renewables. And within carbonate, both need soda ash, one kind of lithium carbonate. These are not internal soda ash. So I think that really is driving the new demand. Now coming to traditional demand, we switch away from plastic to more sustainable glass containers and glass bottles, and these are all thin-walled glass bottles, which have very good strength and all that. I think that those are driving the demand on the container glass segment. We don't see that revealing. In fact, we see the in-home consumption as it continues to hold up even post-pandemic, we will continue to see very good demand in that segment. I think at least that's what our customers are saying. The second element is about the flat glass. I think there are 2 drivers here: one is the infrastructure and the commercial flat glass; and the second one is the housing flat glass. And the third element is the automotive flat glass. I think automotive demand has been a bit constrained. And I think our demand from automotive side is constrained, not so much because there's no end consumer demand, most of the automakers are telling us that the need for private transport and safety of private transport has increased, but they are not able to produce because of the shortage of various other inputs like fixed and other elements. As these things lead us, I think the glass demand that will be going into automotive will increase. Now coming to infrastructure, I think most countries are upgrading their infrastructure after a long time gap. You saw the Infrastructure Bill coming in the U.S., which is going to sort of look at not just growth, this is also going to look at airports. This is going to look at all the public spaces, and all of them will have a huge amount of demand for glass. And on top of that, I think residential housing restarts both in affordable housing area in developing markets and housing, what I call housing recycling in many markets into suburban living. Because right now, what has happened, work from home and all these have moved this to larger houses and shifting into more open spaces. I think there are also -- again, if you see the news coming out of developed markets, the housing demand actually has picked up faster than anybody has anticipated. So all in all, I would say that one segment of the market was anyway building up right to the pandemic, this is in non-glass, non-new, let's say, segment. And then container glass anyway is growing as far as we push towards sustainability. The new applications are coming in, which is in the solar glass and lithium carbonate. And the good news is we believe that the auto sector will get back to growth story once the current shortage of things like [ lithium subsides ] over there. And lastly, I think housing certainly is growing in the developing markets. But in the area of developed markets, again, most people are saying it is positive. So this is what we are hearing from our customers. We have no better knowledge about this than any of you guys. I can only tell you that we hear our customers closely and strongly and plan our future, which is why we are also planning to further expand our facilities in India, and we'll come back to specific plans as soon as they are clear. As of now, the execution of the current plan, which is INR 2,600 crores, is on schedule. That's all I can comment. Thank you.

Do you have any idea about housing, what is the end user demand by housing in per city?

We'll come back to sectoral demand patterns in the next meeting. We certainly have the data, but we can't give it to you.

The next question is from the line of Chintan Modi from Haitong Securities.

Sir, can you tell us what would be the size of demand for soda ash in these new applications like solar impacting figures?

Yes. So our estimate is that for lithium carbonate, it could be anywhere moving up to close to 750,000 tonnes per annum soda ash demand over the next year or 2. And for solar glass, it's going to be much, much higher, maybe close to 1 million, 1.5 million tonnes. Additional demand is coming out of solar, primarily in markets like China, et cetera, which is one of the reasons why I think Chinese exports have come down. We are focusing more now on supplying the large uptick in demand that happened in domestic Chinese market itself.

So it is about 3-odd percent currently of the total demand of that also hatched that...

That's right, but growth rates there are in double digits.

Double digits. And does this require specific grades of soda ash? And is there any significant difference in the pricing today?

No, not really. The grade of soda ash is the same.

Okay. And are we able to map like how much would these new applications contribute for us in the soda ash and any kind of growth rates that you would like to show?

Yes. I think we have a direct linkage to the lithium carbonate operations in South America. So certainly, it is going from our plant, [ New York ] facility. And as far as the solar glass is concerned, as the product -- glass product in India take off, we will be certainly supporting that. It's an opportunity. As of now, there's only just one product glass facility in India.

But could you share some rough contribution number? How much would be contributing to our volumes?

So in terms of like segment exposure, we will come out with broad segment exposure next time as we come out the overall market exposure.

Sure. And lastly for the silica and prebiotics, we were expecting to get some customer qualifications. So has that happened? And what is the kind of traction that you are seeing over there?

Yes. I think on silica, we have -- we won one direct customer qualification. We are expecting even more. And on NPS, I think we've got international qualifications from markets like Korea, but we are still expecting some sales with some European customers. Still early.

Okay. Can we expect like this business to kind of double in, say, next 2 to 3 years for us?

Yes. I think we are seeing some positive news and positive push coming in the area of silica. So certainly, we are working on internal plans. So we will come back to you as soon as the midterm plans are clear. On silica, I think it is a bit of a -- we need to still establish our products in the marketplace before we can comment. But I think silica will move a little bit faster.

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

So I have a question on the U.K. business. So can you share the realization growth we have taken for the U.K. growth this quarter? And given that there is a trend of input price inflation this quarter as well and you say in U.S., both are long-term calendar contracts, so by what quantum do you foresee that there will be any input price inflation going ahead? We can be at breakeven and beyond that, we can have some optional impact on that thing. If you can share thoughts on this.

So I will add a broad color. I think the current structure of contracting we have done in both these markets allows us beyond certain cutoffs to have a full pass-through of the cost. And I think that took us in a very, I think, stable situation than what we had experienced in the quarter 2. So I think I will stop there because I think that's what we negotiated with customers, and customers are fairly supportive of this shift.

Okay, okay. And can you please share the realization growth for U.K.? I mean $30, $40 per tonne versus for U.S. So what was the realization growth in U.K. business this quarter? Or maybe it can be sustainable going there?

Yes, yes. I think across markets, the range is about the same. I think we'll use the number we gave for the U.S. exports.

Okay, okay. And you mentioned that there could be around 3 million tonne kind of the shortage between this demand/supply of soda ash. So given that if the -- after winter lumping, do you foresee that given that China is currently the net importer, but it can -- the imports from China can get reduced and then that can give us comfort in terms of the demand/supply situation? And...

Actually, the reverse is true. What has happened is because of India holiday and the Chinese New Year holiday and the issue related to Olympics, some of the customers consuming industries have slowed down during the period. In fact, the price has slightly come off in China during this period. We expect once the Olympics and the season is over, the Chinese demand -- the continuing Chinese demand will pick up and pricing will go back to the normal levels, which were the before. So really the phenomenon which you explained affected our [ convening ] future entities in China. So we expect that demand to go back in a moment.

Okay. And lastly, on the U.S. business, you mentioned that there is a lower realization on the margins in the export business. But if I look at the Q-o-Q business, Q2-wise, so there has been a drop in the export business, export volume for U.S. But still the margins have also been reduced on Q-o-Q for U.S. So is that largely because of the higher gas prices? Or...

Yes. The main issue in India and Kenya and the U.S., I wanted to say that the -- you see that because of the shutdown which we have taken, I think that each plant had a different level of lower production. It could take anywhere between 20,000 in some plants, 10,000 tonnes of lesser production. That has led to lower fixed cost absorption and margin reduction. And also, that also has impacted some of the -- if you're going to take these shutdowns, it is not as if the power plant is stopped. It continues to run. So the variable cost continues to be incurred, and that puts pressure on margins. So that would be the broad issue, it will go Q2 to Q3.

The next question is from the line of Bharat Sheth from Quest Investment Advisors.

Sir, just one small clarification, that in U.S. last quarter, we stated that we have renegotiated contracts for pass-through after certain other things. So that is still is in place and over and above whatever price increase that we have taken. Is that correct understanding?

No, there were some export markets, I think, in the last quarter, especially in Southeast Asia, where contracts are on a quarterly basis. So those came up for renegotiation at that point in time. But currently, as we go to the new year, most of the pricing has been set at the new level. So you would have seen an uptick in those prices as well -- you will see, sorry, you will see as we view the results coming in for Q4 and moving forward.

And on those prices, if there is any movement in input cost, a shift which is substantial, above cutoff, especially in the U.K., I think we are protected.

And second, we lost some products and because of shutdown as well as supply chain issue. So is it -- can you give some broad number? How much was due to shutdown and how much due to supply chain issue?

Yes. Broadly, the production shortfall, you do not see it in sales. So the production shortfall is about 30,000 tonnes across all these [ segments ].

How much was on account of shutdown and how much on supply chain issue?

No, no, it was main -- it was only on shutdown. So we didn't have anything unused. We have stocked up our units well, so we are well protected on the input side.

And when our India expansion will be on the stream?

India expansion is coming in test. And I think, hopefully, we will get on stream by end of '23 also on all areas.

Okay. And last question, sir. On the specialty side, you had guided to break even in Q4. So are we still on the same or there is some deferment?

I think we will come back. I think we are working hard to still get to that point.

The next question is from the line of Omkar Kamtekar from Aamara Capital.

Sir, before I -- I have 2 small questions. Before that, I have a small clarification. The approximately 2 tonnes of sodium carbonate is required for the production of 1 tonne of lithium carbonate. Is that correct, sir?

Yes, that is correct.

Okay. So the first question is from the energy business vertical. So sir, what type of battery type are we focusing on? Are you focusing on vehicles, electric vehicle batteries or energy storage batteries for the larger grid?

I think, as I mentioned, no specific decision has been taken. If there is any decision, we will come back to you. That's all it is there is to say.

Okay, okay. And second small question is regarding the battery that we will be manufacturing. So we would be acting as a supplier for the battery manufacturer or we would be in-house manufacturing a battery for vehicles or the grid?

So what I mentioned, no decision has been taken. I cannot comment on it.

The next question is from the line of [ Mital ], an investor.

Yes, on the accounting side, I had a couple of questions. There was some hedging done on the accounting side for cash. So if you can just highlight on that.

Yes. If you look at the accounting side, Mital, on the other comprehensive income line in the consol, you will find the gain coming over. So the bulk of the cash positions have been hedged in U.K. and the U.S., and that gain comes in your other comprehensive income line in the P&L.

Yes. So can you just briefly, I mean, share the prices at which we are hedging or how is it?

So we have a policy we go by within in terms of the hedging policy, and we go as per that and hedge that for the forecast of what we go to buy in gas in the future. And that's why I think the price we're setting was lower than the market. Market has gone up, therefore, we have a mark-to-market gain sitting in the OCI.

Okay. Okay. So any particular gas price you can share wherein we are safe actually, so about that price we have hedged? So...

So we've been hedging for the last couple of years, which is, of course, our rating has been consistently happening month-on-month, so it's based upon the past averages. But the price has gone up in the last 9 months' time, so that's why it's a macro deal. But exactly sharing in terms of what price, actually, it's obviously lower than what the current markets are. Markets have gone up substantially.

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

Sir, earlier in the last call by the end of, I think, September, October, we have taken price hike to the tune of INR 7,000 in the domestic market. Any revision that we have taken for this quarter, sir, for the spot prices?

So as I mentioned earlier, 1st February onwards, we've increased the list price further by about INR 1,500.

Sir, I didn't get that. Come again, please?

Sorry, from the 1st of February onwards, we have increased our list price by INR 1,500.

Okay. So for this month, we have taken a price hike of INR 1,500?

That's right.

Right, sir. And for the domestic operations, sir, how much is the fixed price contract? And what are we setting on spot, sir? Or are there a price revision clause for it?

Yes. We have a mix of some customers who are on a quarterly reset. There are some customers who work monthly. And of course, there is some volume that goes literally on price during [ Mondays ] of this plan. And we try to maintain a mix of growth. As I mentioned earlier, really the focus both for us and our customers moving forward into the year is to make sure that we keep them supplied, that they feel secure in terms of the availability of soda ash.

Sir, this price hike of INR 1,500, which we have taken as of late, is it pertaining to again the energy cost or the demand/supply that has resulted in it?

It's very difficult to break up the group. But certainly, the 2 broad drivers are the demand/supply and the market dynamics and, of course, on input costs. But to break that up would be, you know.

The next question is from the line of Chintan Modi from Haitong Securities.

Sir, just one question. This price effect, as you mentioned, that could be a combination of both cost inflation as well as the demand/supply mismatch that we are seeing. And let's assume that a few quarters later when this cost inflation starts fading and, in fact, have a much lower level compared to like earlier was, do you believe that customers will ask for a price reduction in soda ash? Or considering the demand/supply mismatch, you will be able to sustain those prices and increase your margins?

Generally speaking, Chintan, I want to tell you that the inflation has been mainly on the energy side. I think while I did mention salt availability or unavailability and all, I think those prices will correct, but they don't move the needle so much. The needle will move on energy price. And the second needle, as far as the U.K. is concerned, is the carbon price. So on carbon, certainly, we are intending to make sure that carbon prices do come down, which we see carbon price normally we're ruling at about EUR 20, EUR 25, and it has moved up to EUR 60, EUR 65. Right now, it is around EUR 90 to EUR 100. So we don't anticipate it coming below EUR 70. In any case, if it does come down, it's a pass-through, therefore, we will be as far as customers are concerned. When it comes to the energy fees, I think, again, while we all hope that this energy cost stabilize, actually, the needle is moving in the other direction. So if you ask me in the short term, in 12 -- next 12 months, I don't see any respite on the energy side because if the world is bouncing back, there are pressure on coal mines from reopening. There are power plants which need to restart, and I think they're all having to scramble for this book. And on the gas side, I think the current situation in Europe and worldwide is not helping us in many ways. So I wish it would move, but I would not want to [ haggle ] with this. Unless it moves substantially on the softening side of energy, I don't expect anyone to come back because this seems to be the new normal risk that we see, at least for the next 1 year or so.

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

So if you go back to the U.K. business, if you look at the operating cost as of the third quarter, do we see that moving up in line with the current inflation for the fourth quarter and the full year? And how do we see the EBITDA margins trending in terms of EBIT terms, say, in the fourth quarter and over the next 1 year, you say?

Ramesh, repeat the question. Ramesh?

Yes, basically, going back to the U.K. business, just trying because -- if you see the pattern in U.K., we don't have a consistent trend in margins. So if you look at the margins and the cost structure in the third quarter, what is the potential for the annual increase in the cost there in the percentage terms? And what is the kind of movement we can expect in the percentage margin in U.K. over, say, the next few quarters?

Ramesh, if we look at the first half numbers for U.K., there's a substantial bit because of the carbon. As I mentioned earlier, we are able to hedge carbon from October onwards. There are also market to hedge. So therefore, the first half of the year had a substantial hedge because of carbon impact in H1 as that, as we mentioned, is now being covered by way of a hedge from Q3 onwards. And therefore, the volatility because of the carbon may not be a very good one. And also, if the pass-through happening of the carbon price to customers, you'll see that volatility in the U.K. numbers is what we are pursuing going forward, but first half had already because of the impact of the carbon and some parts of the other input costs and the lag between the input costs going up and the past cost increase being passed through.

Sir, how much is the increase in the U.K. EBITDA as well in terms of the MTM gains you have shown in other comprehensive income?

So whatever in U.K., the hedging, in general, sales of that market contract, Ramesh, it's not a hedge in the normal type of a hedge. What we see in the OCI is in terms of the gas hedge taken in -- only the gas hedge taken in the U.K. and U.S. The carbon is bought through a forward purchase contract, which is not mark-to-market.

So is there any element of that MTM gain in the U.K. EBITDA? Or is it all operating gains?

No. What I was explaining is that in Q3, since we've been able to hedge the carbon at the -- by way of policy agreement here, there is more incremental hedge in Q3 on carbon.

Okay. Okay. So that means our overall -- so to that extent, is the EBITDA in the facility of the normalized operating EBITDA that you can expect even...

To answer your question, I think that, that is correct. It is likely to remain in that norm.

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

Thank you very much. I want to thank everyone who's on the call and for your questions and your position. I just want to say that we went through a very difficult period in Q2. And I think the team has worked well to bounce back with the help of working with the customers, working with our suppliers to ensure a steady bounce-back in Q3. I think we hope that the current situation which we have in terms of our engagement with customers and our current structure of engaging with our suppliers should hold us steady going forward into, not in Q4, but also well into next year. As far as the strategy is concerned, the strategy is to expand the core aggressively. And I think the investment plan in India for about INR 2,600 crores is coming on stream, and we expect most of that should be done and invested by the year-end -- the coming year-end. And going forward, we are also looking at further plans for expansion, which we will come back to all of you as and when we are cleared by the Board. And as far as international business are concerned, the commercial terms, the renegotiation with the customers has made them more steady. They were very volatile. I actually agree with the comment, but they become steady, and we hope to hold this steady performance going forward across all our units. Overall, I would say the demand/supply environment continues to be tight. And the supply side challenges have been met well by the team by ensuring adequate stocking, adequate risk mitigation there on the input side and where it is operating excellent and excellent in servicing our customers, which are being focused on, we will continue to come back to. Thank you, and wish you all the best.

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