Urea price hike to benefit us: Tata Chemicals

Tata Chemicals, the country's second-largest soda ash producer, may witness margin pressures in the near term due to an increase in raw material and energy costs. However, if the government decides to hike urea prices by 40 per cent on the back of declining rupee, then the move is likely to benefit the company.

“Urea costing will benefit due to the rupee depreciation. We are now focusing on efficiency for maintaining margins. Our volumes are likely to grow in a subdued manner” said Ramakrishnan Mukundan, Managing Director at Tata Chemicals.

Mukundan told NDTV profit that the company is not under any pressure to hike produce prices.

Below is the complete interview.

Q: What is the likely impact of high raw material prices on your company?

A: Higher raw material prices, which we are seeing in most commodities, are going to impact. The biggest is going to be on the energy cost which we see all across the board and that is going to be high. Also most markets, where we have to measure this in the domestic currency with the strengthening of the dollar, the energy cost in the domestic currency is tending to move up sharply.

The other issue, which is a key input for us for the fertilizer business, is the imported rock or phosphatic acid. Generally, the international prices are tending to come down and soften a bit. So while we are currently under pressure with the historical contracts, going forward the situation would ease a bit.

However, a lot still depends on the kind of subsidy regime that the government decides as far as that fertiliser is concerned. So overall, the pressure of raw material cost continues as it was there in the last year. The intensity is more on the margin side because the markets are showing a immense amount of resistance now to any cost increases that may be passed on to consumers. Hence, we clearly see volumes remaining in a subdued growth. Margins will be under pressure and thud, the need of the hour is to focus on efficiencies and tighten the belts of the organizations.

Q: What is the likely impact of the rupee depreciation on your company?

A: In my view, falling rupee has impacted our operations, especially our phosphatic and the potasic fertilisers. Urea may benefit from the rupee depreciation and also our domestic business soda ash would benefit from the same. So, two parts of our business will benefit and two parts will get impacted.

The real issue is the consumer side. On the consumer side, there is a sharp resistance to any increase in cost push, which may come on them. So we hope that we don’t have to put any further pressure on consumer. Also from the input cost and from the foreign exchange side, we are not pressured further to take any increases in prices.

Q: Reports in suggest that the government may slash subsidies on DAP, potash fertilisers. Have you got any intimation in this regard? Will you take it up with the government?

A: If you go by the international prices, then there is going to be a move to reduce the subsidy number because the equivalent prices have come down. The drop in prices and how much the subsidy drop happens that you will have to see once it is announced. We don’t have any intimation. As a company we do believe that’s an imminent step because if you look at DAP prices, they have come down so we expect some softness in MOP as well. In our view, DAP will fall more sharply than MOP, but we will have to wait and see about that.

Q: Any updates on urea decontrol? Where is it hung up according to you and how much time will it take?

A: Clearly, we all know where it is got to go next. It is got to go to the group of ministers and the committees of secretaries will clear it. We are all hopeful it will move in the right direction. Certainly, the government is looking two options. One option is to bring in nutrient-based subsidy scheme (NBS) for urea and the other one is to continue the current regime, but to optionally compensate the units for the fixed cost increase.

As far as we are concerned, our view of this has been that while we would say that bringing NBS is the right step, it is up to the government to think through when it wants to. The bear minimum the government should do is to make this sector at least little bit more viable by compensating us by fixed cost increase, which is not been done for last two and a half years. So, one of the issues the government needs to correct. Hopefully, it will get corrected soon.

Q: Any updates on gas supply from Reliance?

A: We have been getting our supplies. In fact, we have got an additional allocation of gas from GAIL which government has given. So we are being fully-serviced as far as our requirement is concerned and we are producing to our capacity in Babrala, Uttar Pradesh as of now. We have no fresh intimation from anyone about any changes in this regard.

Tags: fertiliser, NBS, nutrient-based subsidy scheme, Ramakrishnan Mukundan, rupee depreciation, Tata Chemicals, urea decontrol, urea price hike