Earnings Call Transcript - XNSE:TATACHEM 2026-11-07

Operator

Good evening, ladies and gentlemen, and welcome to the Q2 and H1FI27 Earning Conference Call of Tata Chemicals Limited. Please note that this conference is being recorded. As a reminder, all participants will be in the lesson only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star then zero on your touchstone phone. We have with us today Mr. R. Mukundan, Managing Director and CEO, and Mr. Nandakumar Tirumalai, Chief Financial Officer of Tata Chemicals Limited. 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 risk and uncertainties. I now hand the conference over to Mr. R. Mupindan to begin with the proceedings of the call. Thank you and over to you, sir.

R. Mukundan, CEO

Thank you, Sapnali. Good evening, everyone, and welcome to our Q2 FY27 and H1 FY27 earnings call. It's a pleasure to connect with all of you during this festive season, and I would like to start by wishing you and your families a very happy and prosperous Diwali. I begin with brief overview of industry landscape, followed by key operational business highlights across our markets and geographies during the quarter and first half of the year. We're starting with the customer end, which is demand scenario across various segments and geographies. In the living essential, which is mainly bicarbonate, salt, and FOS, the demand outlook remains supported by premiumization, increasing consumption across food, feed, and pharma and beverage applications. Salt and bicarbonate are expected to continue to provide stable growth, while prebiotics offers attractive long-term opportunities driven by increasing customer focus on gut health and wellness. In terms of industry essentials, which is mainly soda ash and also silica, the near-to-medium-term outlook for global soda ash industry continues to remain challenging. Market conditions are characterized by persistent oversupply, subdued industrial demand, especially in China, and intense competition across export markets. Significant capacity additions to China over the last two years, coupled with slower-than-expected demand recovery in end-use sectors, have continued to pressure global soda ash prices and produce a margin. The ongoing conflict in the Middle East, including disruptions impacting regional shipping routes and energy markets, have increased freight volatility and supply chain risk. While large-scale demand disruption has not materialized, in fact, in some parts of the world, the demand is robust. Customers remain conscious in procurement decisions amid macroeconomic uncertainty. China remains the key determinant of global market dynamics. High operating rates continued export, and competitive pricing from Chinese producers continue to influence global sourash prices and trade flows. This is coupled with weak domestic demand from China's real estate and construction sectors, resulting in additional export volumes entering the international market. Amidst all this, India continues to outperform most global market. Demand growth remains healthy, supported by strong activity right across segments. Capacity expansion by solar glass manufacturers. Continued infrastructure investments are expected to continue to provide above average global demand growth. Southeast Asia remains highly competitive. While the region is growing, it remains competitive, especially from Chinese exports. In terms of farm essential, uneven rainfall, delayed sowing, affected demand during parts of the quarter. Although Kareep Aikre subsequently recovered, the broader agriculture outlook remains cautious, supported by crop coverage. Improving irrigation policy support, technology adoption, and resilient rural demand. However, weather volatility, crop price movements, and elevated input costs continue to weigh and remain a near-term risk. In terms of supply scenario, broadly, mainland China continues to be the driver of supplies, including in the bicarbonate, we saw increased supply. on account of new capacity. Global throw-ash market, as has already been highlighted, is beset with high Chinese capacity growth and inventory levels. Export volumes from China remain elevated. By the end of September, producer inventory had reached nearly 1.89 million metric tons. Inner Mongolia Beruns phase won 5 million ton, underwent maintenance outages in October. This capacity is expected to full operating rates at the end of the month. Meanwhile, Chinggai Salt Lake, Solway-based soda ash producer, will reduce operating rates at the end of October. The magnitude and duration of these impacts remain uncertain. In addition, Jingjing Technology, parent company of Shandong Highton, also announced that they will close the soda ash and bicarb operational lines. Recent announcement by U.S. producer to reduce production at Wyoming by 1.5 million tons and exit uneconomic export volume underscores the severity of current market conditions. Remains one of the key concerns, that is persistent low export realisation and the structural demand supply imbalance, causing, which are causing the global sour ash industry. Within India, EDTR has recommended quantity restrictions on sour ash imports for two years, after concluding that imports have surged and are causing serious injury to domestic industry. Imports have increased by 89% in FY20. and remained at elevated levels and driven by global oversupply and capacity additions in export countries and diversion of export volumes to India. The pricing environment thus remained under pressure for soda ash. Indian domestic pricing softened towards the later part of the year following improved import availability and increased domestic supply. U.S. export pricing remains under pressure. Looking ahead, pricing is expected to be range-bound, and as market prices... Now, I will turn to the operational highlights and TCL performance in Q2 and H1. The company delivered a relatively resilient operating performance in a very challenging global environment. Higher sales production volume improved operating efficiency, and cost management helped mitigate impact of continued pressure on soda ash prices. The elevated input and energy logistic costs weighed on the results. Despite a resilient operating stand-alone performance, our consolidated results were sharply impacted by natural gas cost increases in the UK. The prolonged Middle East conflict continued to drive input costs. Both in CO2 as well as in freight and logistics. These were additionally weighed down by temporary suspension of Kenya operation on the consolidated performance. Standalone highlights, revenue from operations stood at 13,003 crore, up 8% compared to Q2 FY26. EBITDA at 292 was up 22% compared to Q2 FY26. However, profit from tax was down 31% at 122. In terms of consolidated highlights, the revenue from operations was also up at 4177 by 8%, driven by higher volumes both in India and U.S. EBITDA at 381 compared to 537 was lower, mainly due to lower realization in overseas subsidiaries, especially U.S. exports to Southeast Asia markets. Higher energy and logistic costs in the UK and suspension of operations in Kenya. The loss after tax at 50 crores compared to profit after primarily due to lower realization, higher energy costs and reduced other income and lower JV income. Net debt without leases stood at 6,127 crores. Likewise, in stand-alone H1, the revenue was up 9% at 2,584 crores. EBITDA at 6.56 crore was up 29% from H1 of 26, and profit after tax was down 4% at 4.65 compared to H1 at 5.26. In terms of consolidated highlights of H1, the revenue from operations at 8,432 crore was up 11% compared to previous year H1. EBITDA at 936 as compared to 1186 was lower, mainly due to lower realization in overseas subsidiaries and higher costs incurred in logistics and energy. Profit after tax, before exceptional NCI, at at least 10 crore compared to 535 for H126, thus impacting the profit after tax. Unit-wise highlights, India performed, as I have highlighted, better. Mainly due to higher volume of salt, FOS, silica. Higher depreciation due to capitalization of projects. Increase the finance cost. In India, the overall demand picture remains stable and positive, pressured with oversupply and steady import pressure. In the US, during the quarter, ECNA was declared the successful bidder for Chapter 11 bankruptcy proceedings of Surge Valley Minerals, and this led to acquisition of customer contracts representing half a million tons to be serviced over two years. On business performance, higher revenue compared to previous year due to higher volumes, Mainly due to various contracts which we had acquired during the year was partly offset by lower pricing during the quarter in export market. UK, the lower revenue compared to previous year is due to lower realisation in salt and the variable cost increased sharply in UK due to increase in gas cost. Supply chain also resulted in lower realisation of sales, especially to Middle East markets. As highlighted, Kenya operations remain suspended during the quarter. Singapore sales performance was in line with expectation. Rallis monsoon shortfall and delayed sowing affected agrochemical demand during the year. Kari Fekaray recovered as the season progressed. Against this backdrop, Rallis delivered resilient performance aided by growth in crop care and soil health. Profitability, however, remained under pressure due to input cost inflation and unfavorable operating conditions. In conclusion, operating environment continues to be challenging. These are characterized by geopolitical uncertainties, evolving trade flows, and continued oversupply. We continue to focus on disciplined execution, operational reliability, and strong customer partnership to ensure resilience. Near-term market conditions are expected to remain a range-bound, especially due to the impact of capacity addition in China and sustained export activity. The demand is going to be supported by several segments, including solar glass, lithium, food, pharma applications. The U.S. producer announcement reinforces our view that industry is entering a phase where cost competitiveness, operational excellence, and capital discipline will be the key differentiator. In this environment, our priorities remain clear, strengthening cost competitiveness, enhancing supply chain resilience, driving operational excellence. We continue to advance our strategy of increasing contribution of non-cyclical, specialty and value-added business, reducing earnings volatility, and strengthening quality and resilience of our portfolio. Our investments, especially in the living essentials, coupled with innovation and sustainability-led solution, will support long-term value creation. Companies' performance continues to reflect strategic direction outlined under LIFE framework with sharper focus on application-oriented businesses. Through a balanced approach of strengthening core business while expanding non-cyclical segments, we are building a more resilient enterprise. With this, I close my comment and hand it back to the moderator to open the Q&A. Thank you.

Operator

Thank you, sir. We will now begin with the question and answer session. Anyone who wishes to ask a question may press star and 1 on the touchstone telephone. If you wish to remove yourself from the question queue, you may press star, then 2. Participants are requested to please use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question comes. Participants are requested to limit their questions to a per participant and can rejoin the queue in case of further questions. A reminder to all, you may press star and 1 to ask a question. We have the first question from the line of Saurabh Jain from HSBC. Please go ahead.

Saurabh Jain, Analyst — HSBC

Yeah, hi. Thank you for the opportunity. My first question is, can you give us more details around what's happening in the Kenya operations? You mentioned that the operations continue to remain suspended. But then, trying to take a long-term point of view, it seems to be entangled into political issues. So, what is the way out now? Because you also approach the court, and it seems that the court has kind of, you know, not, you know, looking to this matter. So, what is the future course of action? What are the possible solutions? And what is your outlook on the kidney business?

R. Mukundan, CEO

I think it's a fair question in terms of the risk facing the company. Kenya operations, as you know, are fairly resilient and it's a debt-free operation and the unit has continued to generate a positive margin even in this challenging environment. It's unfortunate that the operations were suspended post-notice from the Ministry of Mining. We are engaging With administratively, with the ministry and the officials, also through the legal mechanism, because we also have to protect our legal rights. We do believe that we have strong legal rights with our lease, which is extended right up to 2053, and these are inalienable rights. In addition to that, the mining licenses are a layer on top, because the mining law itself came much later, and we have on hand... Approved mining licenses for which fees have been paid but not issued. So, effectively, I think the discussions are ongoing with the technical committee. We have given them certain options in terms of how to engage with the progress. In parallel, the legal process did not end. The court actually directed us to go to a special court, which is the Economy and the Environment and Land Court, where these matters are decided. And we have placed our matter to them. They have notified the other participants and the court will be hearing during the course of November the proceedings and we will wait for those proceedings in parallel. After that, of course, there is a long way in terms of the judicial as well as administrative remedies. But it's fair to say that we remain committed to Kenya, we remain committed to the business, and we will do whatever is right the way we run our businesses in a very ethical and sustainable manner.

Saurabh Jain, Analyst — HSBC

Sure, that is helpful. But then whatever the news and the media was reflecting and highlighting, you think it is possible that if the, you know, political leaders come to a decision and choice that we would kind of seek for the operations to end. So despite Tata Chemicals owning these mining licenses, are they in a position to kind of direct Tata Chemicals and then can it be a result that Tata Chemicals has to shut shop the operations and then kind of close the business in Kenya?

R. Mukundan, CEO

I think for that, Saurabh, there are multiple remedies. We are not actually in the process. And fundamentally, I think this operation is covered under UK-Kenya. What is the next course of action? We are going through the legal process and if you ask me what is the ultimate, I mean, at the end of the day, every business has a right to seek compensation in courts beyond Kenya. But right now we are in the courts of Kenya to seek justice.

Saurabh Jain, Analyst — HSBC

Okay. Are you also looking to make any other kind of business diversification into Kenya or investments to kind of showcase that you remain committed to the development of Kenya? Any sort of that plans, if you can highlight?

R. Mukundan, CEO

No, I think as a group. Tata is very much invested in Kenya, and also Tata Chemicals, we have highlighted how we were in the midst of our expansion to doubling the capacity. We were also in the midst of adding bicarbonate unit there, and also getting a partner to set up container glass, because we ourselves are not in the business. It has been done with someone who is in that business. So all these have been highlighted to them. It is part of the submission we have made.

Saurabh Jain, Analyst — HSBC

Okay, understood. So, any outlook in terms of for how long you would believe that these operations will take the minimum to start operations, like a quarter or two quarters, you know, any sort of that comment?

R. Mukundan, CEO

I would not like to comment, but as a long-term investor in any country, we are ready for ensuring that we do everything in ethical and sustainable manner.

Saurabh Jain, Analyst — HSBC

Okay, thank you. My second question is on the US business. You know, you were a successful bidder for CLS and you kind of got, you know, some contracts which are existing with the CLS. But what is the mid to long term benefit of kind of making these kind of bids? Is it only acquiring certain portion of revenues in any ways given the realizations that we see? It will be very difficult to make profits on these contracts, in my understanding. Correct me if I'm wrong here. But then is it also, does it also have to do anything with taking a midterm or long-term benefits that also come to you along with this acquisition?

R. Mukundan, CEO

I think Surge Valley Mineral had an operation in California. They have a very strong position within the state of California and are joining the country of Mexico. I think we get the benefit of being able to service customers who are in geographical proximity, which obviously enables us to... We also have much greater control on logistic cost, which is one of the issues which is impacting the business today in terms of netbacks. The main issue has been the increase in cost of diesel as well as the increase in the cost of the shipping freight and also non-availability of shipping logistic connections from time to time because most shipping industry is now impacted by the long routes they need to take to avoid various Conflict zones. So, this being Overland sales, most of them are positive for the company, and we hope to serve the customers well enough to continue to have their continued flow of the orders from them for a long term.

Saurabh Jain, Analyst — HSBC

So, any binding commitments you have with these customers for these contracts? So, once these ends, would there be kind of an automatic order that will come back to you?

R. Mukundan, CEO

So, these are over two years, as has been mentioned, and beyond that, I think we'll have to go through renewal process. Hopefully, we are able to renew them, and hopefully, we continue to serve those customers well enough, not just serve those customers, also pick up some additional customers.

Saurabh Jain, Analyst — HSBC

Okay, sure. Thank you so much. All the best, and I'll join back. Thank you.

Operator

Thank you. We have the next question from the line of Abhisheed Akela from Kotick Securities. Please go ahead.