Merger Aimed At Consolidation

Mumbai, January 22: | Updated: Jan 23 2003, 05:30am hrs
The proposed marriage of Hind Lever Chemicals Ltd (HLCL) with the countrys leading manufacturer of inorganic chemicals and fertilisers, Tata Chemicals Ltd (TCL), is aimed at bringing about consolidation in the Indian chemicals industry.

According to an industry observer, Hindustan Lever had identified its chemicals business as a non-core activity and had been planning to dispose of the business. If the deal goes through, Tata Chemicals, which is only present in the nitrogenous fertiliser business, will be able to leverage on diammonium phosphate (DAP) and SSP, both phosphatic fertilisers. This clearly fits in the groups long-term plan to enter into the phosphatic segment.

As per the new fertiliser policy, which is yet to be announced, the government is set to gradually reduce subsidies. Thus, to enhance the manufacturing and marketing efficiencies across industries, most of the companies are going in for consolidation. In line with this strategy, Zuari Industries recently acquired a major producer of phosphatic fertiliser DAP on the east coast of India, the observer said.

Hind Lever Chemicals markets its DAP under the brand name Paras, which has a very strong brand equity. The Paras-branded fertiliser is the market leader in West Bengal, Bihar and Orissa. With the merger, both companies can draw on each others strength to gain the maximum value in the market place. Tata Chemicals will be in a position to use Hind Lever Chemicals strong marketing and distribution network to sell its products in the eastern part of India, whereas Hind Lever can use Tata Chemicals strength for selling its products in ...western UP and northern India, where it has a strong presence, an analyst said.

Apart from DAP, Hind Lever Chemicals is also engaged in manufacturing SSP, sodium tripolyphosphate, sulphuric acid, phosphoric acid, sulphonic acid and gypsum.

Another industry analyst said, Tata Chemicals is the leading manufacturer of soda ash, while Hind Lever Chemicals is engaged in manufacturing sodium tripolyphosphate. Both products go into detergents. Thus, both the companies can have a common customer. Secondly, sodium triopolyphosphate is used for manufacturing soda ash. Thus, the move will not only enhance the operational efficiencies of both companies, it will also create growth opportunities for the two.

The Rs 1,500-crore Tata Chemicals produces around nine-lakh tonne of soda ash in the country, which represents around 42 per cent of the countrys consumption, at its Mithapur plant on the west coast.

However, the two companies will continue to compete in the branded salt market. Further, Tata Chemicals is said to be drawing up plans to enter the foods and culinary business, in which it will compete with HLL directly. There is no non-compete agreement between the two companies on any count, say sources.