CRISIL reaffirms Tata Chemicals'' post acquisition rating

CRISIL has reaffirmed the 'P1+' rating on Tata Chemicals Limited's short-term debt programme. The rating reaffirmation follows the company's announcement that it is entering into two separate agreements for acquiring a majority stake in a UK-based chemicals company, Brunner Mond Group Limited (Brunner Mond), subject to certain terms and conditions, and regulatory approvals. The investment in Brunner Mond Group Ltd. may be made directly or through a subsidiary / associate of Tata Chemicals. (See: )

Tata Chemicals proposes to fund this acquisition through the proceeds of its $150-million (Rs6.6 billion) foreign currency convertible bonds issue, and by liquidating its marketable securities. In CRISIL's opinion, Tata Chemicals' strong revenue diversity, high financial flexibility, and management strength, will enable it to mitigate the pressure on its capital structure and liquidity arising from the proposed acquisition. Moreover, the acquisition will strengthen the company's presence in its chemicals business, given Brunner Mond's established position in the global soda ash market.

The rating continues to reflect Tata Chemicals' strong business profile, supported by its diversified revenue stream and superior operating efficiencies. The company enjoys revenue diversity since it services a wide base of user industries, including agriculture, metals, leather, textiles, detergents, and fast-moving consumer goods (FMCG), through its mainstay chemicals and fertiliser businesses. These business strengths are complemented by Tata Chemicals' comfortable financial risk profile, marked by healthy profitability, favourable debt coverage indicators, and a comfortable net gearing.

Efficient operations, relatively stable accruals from its urea business, and the healthy income from its investment portfolio, have resulted in high net profit margins of about eight per cent since 2000-01 (refers to financial year, April 1 to March 31). These strengths are, however, offset somewhat by the fact that the performance of Tata Chemicals' fertiliser business is highly dependent on government policies and the monsoons. Also, the company's soda ash business remains susceptible to imports and international price fluctuations, limiting its pricing flexibility.

About the company: Tata Chemicals manufactures fertilisers, soda ash, other inorganic chemicals, and cement. The fertiliser business (comprising urea and phosphatic fertilisers) accounted for around 62 per cent of its revenues in 2004-05, and the inorganic chemicals business (comprising soda ash, branded salt, cement and sodium triopolyphosphate (STPP)) made up the remainder. In contrast, the inorganic chemicals business accounted for 52 per cent of the company's profit before interest and tax (PBIT), and the fertiliser business, 48 per cent.

For the year ended March 31, 2005, Tata Chemicals recorded a net profit of Rs2.3 billion (Rs2.2 billion in 2003-04) on an operating income of Rs30.0 billion (Rs25.4 billion). For the six months ended September 30, 2005, the company reported a net profit of Rs1.9 billion (Rs 1.3 billion in the previous corresponding period) on net sales of Rs.15.1 billion (Rs12.5 billion).

.Brunner Mond manufactures soda ash and sodium bicarbonate, and has manufacturing sites in UK, Netherlands and Kenya.