Tata Chemicals sees Brunner Mond in black this fiscal

Tata Chemicals, the flagship chemicals and fertiliser arm of Tata Group, is confident of turning around its biggest overseas subsidiary, Brunner Mond Group Ltd, by the end of this fiscal.
The company, in fact, expects all its subsidiaries to move out of the red during the year.

“All our subsidiaries have registered handsome growth in the last fiscal with their profits growing by 43% and most of the momentum has come from overseas,” said R Mukundan, managing director, Tata Chemicals.

Though all these subsidiaries were profit-making at the Ebidta (earnings before interest, tax, depreciation and amortisation) or operating profit level, some amount of loss still loomed on Brunner Mond at the group level, he said, adding, the losses would be wiped off by the third or the fourth quarter of this fiscal.
Tata Chemicals had acquired Brunner Mond in December 2005 for Rs508 crore.

At that time, it was one of the biggest soda ash manufacturers of Europe. By virtue of the acquisition, Tata Chemicals became the second-biggest manufacturer of soda ash and currently boasts of a capacity of 5.5 million tonnes per annum with supply chain in four continents.

The acquisition of Brunner Mond sure helped Tata Chemicals get global reach, but the company hasn’t yet registered profits. For the year ended March 2010, the company posted a net loss of £4.2 million, or Rs31 crore at current conversion rate, down from £9.3 million, or Rs68 crore, in 2009 at the group level.

Figures for the 2011 fiscal were not readily available.

“The Magadi plant in Kenya, under Brunner Mond, did not perform well due to higher coal and coke prices. But things have changed now and both units in Kenya are doing well,” PK Ghose, chief financial officer, Tata Chemicals said.

Another major reason Brunner Mond is likely to turn in profits is that its UK operations are expected to witness better realisations and robust demand, according to analysts.

“While the raw material cost will continue to harden at Magadi plant, it is running on full steam and will see better realisations. Even the UK operations will see good numbers,” said an analyst with a leading domestic brokerage house.

He added that since Brunner Mond contributes close to 12-13% of the total revenues of Tata Chemicals, the profitability at the subsidiary level will reflect well on the parent company’s numbers, too.

However, Mukundan said, the fertiliser industry as a whole will be under pressure this year. “Demand will not be a problem at all, but energy pressure will bear heavy on all fertiliser firms in the country. There will be cost increases and not all of it will be a pass through. Some have to be borne by the companies,” he said.

Ghose said the company plans to raise $375 million this year, of which $250 million will be through a long-term instrument for which a bond issue is also being evaluated, though nothing has been finalised so far. “A decision will be taken by July.”

The company will also firm up fund-raising for its $290 million Gabon project by the end of this calendar year, he said. “Fifty percent of it will be through internal accruals and for the renaming half, various overseas debt instruments will be looked at.”