Tata Chemicals exits urea business for Rs 2,670 cr

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Tata Chemicals on Wednesday announced the sale of its urea business to Norway’s fertiliser and chemicals major Yara for Rs 2,670 crore as a part of value unlocking by the company.

As part of the deal, Tata Chemicals will transfer its Babrala urea plant in Uttar Pradesh and related assets and employees to Yara’s Indian subsidiary Yara Fertilisers India.

Tata Chemicals said it would continue to own the brands Paras, TKS and Daksha, and the deal does not include speciality products and complex fertilisers.

R Mukundan, managing director, Tata Chemicals, said, “The sale was part of our strategy to cap the capital exposure in the fertiliser business.”

Mukundan said this marks a decisive move on forward on the company’s strategy to build the consumer business while maintaining leadership in the inorganic chemicals business and focusing on the farm business through its subsidiaries Rallis and Metahelix.

As of March 2016, the capital employed in the fertiliser business stood at Rs 3,187 crore or 22.7 per cent of the total capital employed.

The Babrala plant generated revenue of Rs 2,244.50 crore and earnings before interest, taxation, depreciation and ammortisation (Ebitda) of about Rs 230 crore in financial year 2015-16 (FY16).

For the same period, the company reported total net sales of Rs 17,708 crore and Ebitda of Rs 2,165 crore.

The urea plant has an annual production capacity of 0.7 million tonnes (mt) of ammonia and 1.2 mt of urea.

“The talks for this asset started some time ago. Given the level of complexity of the deal it does take time. It is a high quality asset, which had interest from other parties too, in addition to Yara,” Pankaj Kalra, senior executive director, Kotak Investment Banking.

Tata Chemicals operates two different product lines under its fertiliser business- urea and phosphatic (complex). On the complex fertiliser business, Mukundan said the focus was to keep capital investment capped. He added that if a good partner were to come, the company was open to evaluating options.

“We plan to reinvest the proceeds from the sale in the consumer and inorganic chemical business,” Mukundan said.

The company’s consumer portfolio includes its marquee brand Tata Salt and branded pulses and spices.

The overall fertiliser business contributed 38.34 per cent to the company’s total revenue in FY16. Revenue contribution from the inorganic chemical business stood at 47.85 per cent in the same period. The urea business contributed 12 per cent of revenues in the period.

As of March, Tata Chemicals had a consolidated debt of Rs 8,694.25 crore and a debt-equity ratio of 1.38 times. The sale would be completed on a debt and cash-free basis.

The deal is expected to be closed in nine-12 months, pending regulatory approvals.

Norway’s Yara has a presence in 150 countries with 13,000 employees. It has been selling its products in India for the past two decades, but this would be its first investment in the world’s second largest fertiliser market.

“The company has a strong balance sheet and the deal would be financed internally. The acquisition gives us access to distribution. We can use this as a vehicle to grow our premium products,” said Terje Knutsen, senior vice-president and head of crop nutrition, Yara Fertilisers.

The company’s shares closed at ~503.60 per share on BSE, posting a gain of 8.77 per cent.