Tata Chemicals urea biz sale to boost credit profile: Fitch

    Mumbai, Aug 17 (PTI) Tata Chemicals (TCL)’s financialprofile is expected to get a boost post decision to sell ureabusiness to Norwegian company Yara International, FitchRatings today said. The Tata Group firm last week agreed to sell urea plant inBabrala, Uttar Pradesh, to the Indian unit of YaraInternational for Rs 2,670 crore. TCL’s divestment of low-margin urea business is driven bythe company’s strategy to focus on the higher marginfertiliser and consumer products businesses, which includepulses and spices, it said while giving stable outlook (BB+rating) to the Indian company. The divestment of the low-margin urea business wouldimprove TCL’s EBITDAR (earnings before interest, taxes,depreciation, amortisation and restructuring or rent costs)margin, the rating outfit said. According to Yara, TCL’s urea business registered anEBITDAR margin of about 10 per cent in the financial year toend-March 2016 (FY16) and revenue of Rs 23.36 billion (13 percent of consolidated revenues). In comparison, TCL’s FY16 consolidated margin was 12.2per cent and revenue was Rs 177.08 billion. Fitch expects TCL to use the divestment proceeds to repaydebt and to fund capex. Hence, consolidated interest expenseswould also decline from FY18 onwards, it added. As part of the transaction, Yara, the world’s largesturea manufacturer by output, will also acquire the ureafertiliser subsidy receivables due from the Government. Consolidated fertiliser receivables stood at Rs 19.01billion as of March 31, 2016, of which about a fourth of thefertiliser subsidies (Rs 4.70 billion) has been delayed formore than six months. The sizable fertiliser subsidy outstanding lengthenedTCL’s working capital cycle and contributed to its highfinancial leverage, the rating agency said. PTI SM RSYABKSRE

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