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Tatas moving out of urea production...

Remember the massive restructuring done by Ratan Tata soon after he took charge in 1990s?  Making use of the opening up of the economy,  he focussed on brand consolidation and on a few key sectors and phased out other businesses. He inducted a younger team of professionals and set age limits for directors and also to expand investments overseas. The group recorded spectacular growth in the areas selected for focus like IT, steel and automobiles

Cyrus Mistry, who succeeded Ratan Tata three years ago, is attempting further consolidation. The group is expanding priority to civil aviation, defence production, and aeronautics. The losses incurred by Corus Steel consequent upon the meltdown of the global steel industry, has led to the bold decision to sell it off and concentrate on the domestic market.

In yet another major decision Tata Chemicals plans to vacate urea production. The company expanded into this field by setting up a large capacity ammonia-urea plant at Babrala in U.P based on gas conveyed through the HBJ pipeline.  TCL’s urea plant is among the most energy-efficient fertilizer plants with annual production of 12 lakh tonnes of urea. The operations have been quite profitable. Revenues during 2015-16 were at $ 350 million with after-tax profits of $ 35 million.

However, in line with the other urea plants, the Babrala unit has also been suffering from the humongous delays in the settlement of subsidies. The continuance of the control over urea prices has been a major irritant for the industry. Recently, Tata Chemicals decided to sell the urea plant to Yara International ASA of Norway for $ 400 million (around Rs 2670 crore).

I have had occasions to visit the Babrala plant a couple of times. I have been deeply impressed with the excellent extension work done by the company. The company has been extending a vast range of services through the Tata Kisan Sansar outlets making great use of technology, information, and management techniques. At Babrala, the company, along with TCS and Tata Telecom, set up a highly sophisticated centre to provide a broad range of information to farmers spread across several north Indian states. The TKS outlets in themselves provide a vast variety of services. The impact was indeed spectacular: I remember the ease with which the company assisted farmers to switch from traditional varieties of rice to basmati rice cultivation bringing about handsome increases in farm incomes.

However, the neglect of this vital fertilizer sector for long with an irrational subsidy system and delayed settlement of agreed subsidies in a regime that professes freedom from controls should have forced this decision on the Tatas.

For quite some time, Tatas are also appear to be concerned about the intense competition and constraints for growth impacting Tata Telecom. One may not be surprised if the group decides to vacate this space as well.

Tata Chemicals has retained the phosphoric fertilizer unit at Haldia. Rallis India Ltd, another Tata unit, may continue to focus on the agriculture sector.

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