Not too much upside in next 2 quarters, but in 2023-24, GHCL expects margin expansion: MD

“I definitely see price firmness going forward and how much it is depends on how the growth takes place and how much time it takes. But yes, the prices are going to be on the upward side, says RS Jalan, MD, GHCL

I have the Morgan Stanley Tata Chemical report with me. What is the reality as to where soda ash prices are headed? Do you expect a marginal decline or do you expect that soda ash prices for next two quarters will remain firm?
As you rightly mentioned in the last call, we had a discussion with you where a couple of things are very important to note down. One, globally, the soda ash demand is going to be very healthy and the projection is from 63 million tonnes to 80 million tonnes by 2030. That is a very healthy demand of around 2.5% to 3% by year.

Second, China is gradually going to be not relevant for the global soda ash business because they will be growing only to the extent of what their demand is.

Third, which is again very important, is that a major growth in the soda ash production is not likely to happen in the next two-three years – up to 2025-27. Soda ash production is going to come whereas the demand led by solar and solar numbers are quite high. Currently, India only produces solar energy of around 55 GW.

The government has a plan for 100 GW in the next one year and the government also has a plan up to 2030 of approximately 300 GW. Soda ash demand in this industry or this business alone will be approximately around 45 to 50 lakh tonnes by 2030 which translates into around 4.5 lakh to 5 lakh tonnes per year. Second, lithium carbonate is becoming a big requirement for EV vehicles. There is also good demand for soda ash.

I would say that going forward in the medium to long term, soda ash demand is going to be firm and the prices are likely to be firm also. Of course, the small dip which has happened in this quarter may continue for another quarter. We have taken a price correction of around 2.5% to 3%. I do not see any major drop going forward from here. In my view, prices will remain firm or balanced to firm, going forward.

Concern in the market is that unlike a lot of other commodities, our soda ash prices are nearing the top of the cycle. So, soda ash prices are not nearing the top of the cycle?
I would say that prices are going to be firm from here because no new supply is being seen in the next two to three years whereas the demand will keep on growing. In solar, a lot of big corporate houses have announced huge solar investments in India. That will lead to the spurt in the soda ash demand and firmness in prices as well.

What is your current order book and what is the visibility going forward, considering that demand may not have picked up right now? Do you see that happening in a year from now?
A couple of investments on solar panels have been announced and next year – 2023-2024 – all investments in the different quarters will materialise and that will give a demand push. My estimation is next year probably the demand growth will not be less than 7% to 8% whereas in India also, no new plant or new capacity or new addition in the Brownfield has been announced. Obviously that will lead to a kind of firmness in the prices.

The Morgan Stanley report says they see upside risk in Tata Chemicals to the prices starting C1Q23 (first quarter of calendar year 2023). That means forget mandi, forget downcycle, forget decline, they have seen a upside risk. Is there a possibility that soda ash prices could go up and surprise us?
I definitely see price firmness going forward and of course, how much that will be depends on how the growth takes place and how much time it takes. But yes, I agree that the prices are going to be on the upward side.

What happens to the unorganised players? Right now, there are two large players in India – GHCL and Tata Chemicals. How is the unorganised market moving? What is happening to the import and do you see if prices remain firm, import could also happen?
There are two things; if you look at in the Indian space, there are three major players or four players now, Nirma, of course is not a listed company but they are also a major player in soda ash.

Second, is RSPL, a new entrant which has come two years back. So there are four major players and of course there are two smaller players as well. In terms of the global scenario, other than China, in the US, Europe etc there is a firmness in their demand and therefore the likelihood of soda ash getting exported from those countries to India probably are little. But of course to the extent of the demand which is required for India, some exports will continue to happen in India.

In China, there is some softness at this point of time but in the medium term, that also will get irrelevant for the Indian market. Therefore overall, import will continue, however not to a large number.

What is the outlook on your volumes largely on the back of the plant shutdown in Q3, has that been impacted and any steps that you are taking in order to protect your margins, can you give us any sort of number?
I had already said in my quarterly call that annual shutdown is an industry norm which happens to every industry of soda ash which generally we used to do once in a year. Now we have started doing it once every 18 months. That has happened in October and obviously that will have some impact on the volume of production. Even the raw material prices are softening and energy prices are softening. We do not see any major dip in our margins going forward.

Since you did talk about margins what is the outlook on raw material costs, energy costs and thereby the margins visibility that you have at your hand right now?
At this point of time, energy prices are very volatile. So predicting what the margin will be is difficult. However, currently I would say that it looks to be on a positive territory.

What is the last word on the demerger of textile and soda ash? When should we expect it this year, next year, next financial year?
This should happen this year on December 20. The NCLT meeting is there and hopefully that will get approved and after that, it takes only a few processes and hopefully by April 1, the new company will get listed also.

One of the most important raw materials for any soda ash company is coal. The prices are volatile. In the last three months, prices have come down despite old coking coal which you had imported for the quarter gone by. You had reported record margins. Now that you will be importing new coal at a much lower price, will that lead to margin expansion?
I do not think in the next two quarters we will maintain some of the inventories. We will not see too much upside in the next two quarters, but in 2023-24, margin expansion could be seen.