Yara Deal: Tata Chemicals shares trade flat a day after

Tata Chemicals, on Wednesday, said that it has decided to sell its urea fertiliser business to Yara Fertilisers India Pvt Ltd for Rs 2670 crore. The company signalled its intentions to move out of all businesses that are heavily regulated. 

Shares of the company jumped 9% on Wednesday. However, they were trading flat on Thursday following the analyst conference call on Wednesday evening. 

Tata Chemicals, in a statement, said, "The Urea Business along with the assets, liabilities, contracts, deeds etc., shall be transferred and vested with Yara India pursuant to the Scheme becoming effective on a slump sale basis i.e., in exchange of a lump sum consideration to be paid by Yara India to the Company, on the terms and conditions as agreed between by the Company and Yara."

It said, "This process of divestment by Tata Chemicals Limited is in line with the strategic direction of the company to continue to strengthen the Fertiliser businesses by partnerships and/or transfer of ownership to world class companies."

The company maintained that the transaction does not include specialty products and complex fertilisers. The company will continue to use Paras, TKS and Daksha brands to sell other fertilisers as they enjoy strong recall among farmers. However, the company has agreed to allow Yara to use its Paras brand for some time in order to facilitate smooth transition for Yara as it will take time to build its own brand.

However, Rohan Gupta and Pratik Tholiya of Emkay Research, in a note on August 10 said, "There is increased possibility of company divesting its balance NPK fertiliser business." 

They said, "Fertiliser business which includes urea as well as phosphatic fertilisers has been affected due to government’s control of prices and delay in disbursement in subsidies. This has resulted in wafer thin margins and high working capital thus adversely impacting the profitability from this business segment. The company has time and again made it clear its intention to exit this business while concentrate on the inorganic chemicals and consumer business and focus on farm sector through Rallis and Metahelix."

The duo said, "With limited information, we cannot exactly quantify the impact of this deal on EPS, networth and return ratios. Management has also not mentioned about the uses of the funds from thisdeal but has reemphasised its focus on expanding its consumer business. We estimate PAT to increase by ~5% assuming funds from sale proceeds generate interest income while ROCE may improve by 250-300bps as low ROCE business is knocked off from the balance sheet."