MGP Ingredients Inc

NASDAQ:MGPI

Ladies and gentlemen, good day, and welcome to Tata Chemicals Q3 FY '25 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Gavin Desa from CDR India. Thank you, and over to you, sir.

Thank you, Sagar. Good evening, everyone, and thank you for joining us on Tata Chemicals Q3 FY '25 Earnings Conference Call. We have with us today Mr. R. Mukundan, the Managing Director and CEO; and Mr. Nandakumar Tirumalai, the Chief Financial Officer.

Before we begin, I would like to mention that some of the statements made in today's discussions may be forward-looking in nature and may involve risks and uncertainties.

I now invite Mr. Mukundan to begin proceedings of the call. Over to you, Mukundan.

Thanks, Gavin. Good evening, and welcome to everyone. I am joined by my colleague, Mr. Nandakumar Tirumalai. I will start the discussion with a brief overview of our operational highlights across business and geographies. The demand scenario across geographies is as follows: 2 broadly, the Asian markets continue to show growth, particularly China, which has shown robust growth in volume compared to previous year.

U.S. and Western Europe, rest of the world, in fact, led by U.S. and western world is showing a slight decline, reduced demand for flat and container glass. In the short term, the current demand-supply situation, in our view, is likely to persist, while in the long term, it will be stabilizing and balancing out driven by the growth sectors, primarily solar last and the lithium carbonate and other related markets, which are growing at a faster pace.

Supply has certainly increased in this quarter from major exporting countries, including China, U.S. and Turkey. China's exports have been muted and moderated depending on the domestic demand. But clearly, U.S. and Turkey have upped the exports from their units. In fact, part of the exports also has gone to China, which has supported the increased output.

In terms of pricing, China soda ash prices sharply dropped anywhere between 25% to 30%. In India soda ash prices declined compared to last year's same quarter by about 15%, primarily driven by lower priced imports. The domestic prices in Western Europe and U.S. has remained steady. These are, as you know, mainly annual contracts. We expect pricing to remain at a similar level or around the same level, maybe trend a bit lower, at least for the next 3 to 6 months.

Overall, the revenue was down 4% against Q3, largely due to pricing pressure. The performance is -- in India performance lower to previous year, mainly due to lower realization. It was offset by a little bit of higher volume. Imposition of MIP is expected to be sentimentally positive as this will safeguard the domestic price volatility. Our effort plant is on track to go into full utilization of capacity. U.S. overall sales volumes were higher. However, prices were lower than Q3 '24. U.S. exports to Southeast Asian countries, Indonesia, Malaysia and Thailand increased significantly. U.K. had low volume. Pricing was slightly better. We also took an exceptional charge of INR 70 crores during...

[Technical Difficulty]

INR 70 crores consisting of estimated expenses related to employee termination benefits the decommissioning of the plant as we seize the operation of soda ash production at our Lostock site. Our 70,000 [indiscernible] plant has been commissioned in U.K. We've also -- as I mentioned, the cessation of Lostock plant in Northwich is underway.

Kenya saw lower volumes, however, prices remained steady during the quarter. Rallis results were lower due to continued weakness of export demand and intense domestic market.

In conclusion, while overall, our volumes have trended to be better than previous year, especially in India and U.S. and they will continue to remain so for the next quarter 2, there is a pricing pressure, which is impacting our margin structure even though costs have come down. We also do believe that the current prices are below cash cost in China and would -- is actually unsustainable beyond certain point.

Our focus is on increasing our sales volume through customer engagement as new capacities have come onstream in India, especially, and these are available to sell in the market. We will focus on cost rationalization and optimization as well as we will calibrate our CapEx now going forward to suit the market conditions.

With this, I hand over -- hand it over back to moderator for Q&A.

[Operator Instructions] Our first question comes from Saurabh Jain from HSBC.

I wanted to seek the clarification. Did I hear it right that there are exports coming out of China now? And if yes, can you quantify the amount and the [regions where it is adopted]?

Sorry, question again?

Saurabh sir, your line was muffled, if you can use the handset mode in case of using the speaker mode, please?

Sure. Sorry, can you hear me better now?

Yes, much better, much better.

Okay. I'm sorry. I wanted to seek a clarification. Did you said that exports of soda ash are now coming out of China? If that is true, then how much is the quantum of the exports and which regions are they kind of...

Yes. So I think China till last quarter remained a net exporter. There is some small quantities which are coming out of China, not a large quantity compared to the quantities which are getting exported from U.S. and Turkey. And largely, these products are going into Southeast Asia.

Okay. And do you also see any synthetic capacities in China kind of coming back online, what are your thoughts over there? Or any closures in plants that you might have seen?

So clearly, I think what is happening in China is exactly what we had said, as the inner Mongolia capacity at Berun comes on stream, that will tend to push the synthetic plant, which is on the costal start to move material out because someone -- somewhere, something has to give. Exactly, as you mentioned, either people start lowering their output or they become unviable.

Already, we have highlighted from all the data sources available, China is today selling at today's market prices, both the processes, [Hou] and Solvay process they use are below cash cost. And we just have to wait and watch how long this is sustainable. We do believe the current prices are unsustainable for China, for domestic and export blended together and especially for exports.

Even from India, these prices are unsustainable for exports today. So I really think this is a point we had to wait and watch.

Okay. Understood. That is helpful. My second question is on the U.K. plant. I think there was a notification that the production of chemicals in that plant has ceased production. So can you clarify, is it only a short-term pause or it is a complete decommissioning. What is the strategy on that plant? And which chemicals, in particular, are impacted because of this? And if you can also quantify the benefit that it is going to flow to the company because of that closure?

Yes. The cessation of that unit, Lostock unit, it's not a complete plant, but what it has ceased is to operate the soda ash unit. There are some other parts of the unit, which will be still running. And for example, delivering some of the chemicals to customers there and those will continue, including the traded imported chemicals -- soda ash, which you are going from U.S. and the U.K. market. Our intention is to maintain our market share in U.K. for heavy ash with material coming in from U.S. And we would continue with production of bicarbonate and production of salt in U.K. It is just that soda ash has been ceased to be produced there.

Okay. So it's like a temporary pause because of adverse economics. And if things improve in future, then you will bring that capacity back live again.

No. The Lostock plant is ceased to operate. And it is unlikely that it is going to start. But other parts will continue. What I mentioned is the bicarb at Winnington and bicarb -- sorry, salt at Middlewich will continue.

[Operator Instructions] The next question comes from Abhijit Akella from Kotak Securities.

Mukund, you've mentioned about calibration of CapEx in light of market conditions. If you could please help us understand what the revised plan might be now. You have previously articulated plans to expand across most of your major geographies?

Yes. In terms of our CapEx, in terms of the, let's say, 400,000 tonnes in U.S. and about 300-odd thousand tonnes in Kenya and 300-odd thousands tonnes in India. When I said calibrate, we are also looking at option of bringing them up in stages. In Kenya, for example, we will be bringing on stream 50,000 tonnes immediately. And then we can bring the capacity out in steps of 50,000 or 100,000 tonnes. So that we are able to bring not -- so that we manage our cash flows better Abhijit, that this is not to do that there's a change in plan. Even in U.S., we are examining is there a 2-step investment option there, which we will come back with specific. But clearly, this is when I said calibration, the target doesn't change, but the we -- there is an opportunity to bring these up in phases. In India, the opportunity is not there, the 300,000-tonne will come as one stream only. Whereas in U.S., it can come in 2 steps; in Kenya, it can come in about 3 to 4 steps.

Got it. And the other one I just had was with regard to any color you might be able to help us with on the progress of the annual contract negotiations in the U.S.

So contracts in U.S. are more or less done. I think the annual contracting is more or less done barring some minor quantities which need to be stitched up. Even in India, I think contracting is for the quarter and some for half year is more or less done. So if you needed the color, the domestic prices I mentioned are either same or maybe $1 -- $0.50 or $1 less than last year, but it's not a big move. So we'll have to see margin structure depending on the gas price.

Right. And the U.S. also [indiscernible] reductions?

Yes. When I spoke about $1 -- $0.50 to a $1 reduction, that is mainly the U.S. market. It's a blended number. So the -- and in India, the pricing is more or less steady as we speak.

The next question comes from the line of Vivek Rajamani from Morgan Stanley.

Hello. Can you hear me?

Yes, I can hear you. Go ahead. Vivek, go ahead.

Yes, sorry. Sir, just a couple of clarifications. On the U.S., I think you've mentioned that there was a production outage, which potentially explains the sequential drop in volumes. Could you also give us a sense of what the cost impact was, which impacted your EBITDA because of the same?

So see, Vivek, actually, we have 2 large shutdowns in a year. And usually, this should have happened in quarter 2, we pushed it to quarter 3 and mainly to ensure that we're able to -- we supplied to customers even when the pricing was a bit higher.

Now as far as the quarter 2 is concerned, let me just say, including quarter 4, our annual number should be ahead of the previous year number. So we are on track to sort of deliver volumes, which are more or there or thereabouts. There will be no change in the volume as what we delivered last year. In terms of the maintenance cost, the quarters where there is a maintenance shutdown like this quarter. Usually, it is about INR 30-odd crores of cost impact for the sustenance shutdowns.

INR 30 crores. Got it, sir. And when you say that in terms of volumes, you should be above last year. Just to clarify, is this ongoing activity now over? Or is there some spill over into Q4?

No, no, it's not it's over. And I think it was -- mid-quarter, we took the shutdown.

Sure, sir. And just a last clarification for the question that was asked by the previous participant. You mentioned the U.S. contract in terms of the ASP it's broadly unchanged, but your margins would be determined based on the gas pricing. If you just -- if you could just elaborate a bit more on the margin part, that will be super helpful.

It should more or less remain flat, Vivek, I wouldn't want to sort of -- our team is still going through the process of hedging. We expect, if at all, a squeeze of $0.50 to $1 not more than that per tonne as far as the domestic sales are concerned.

The next question comes from Sumant Kumar from Motilal Oswal.

So sir, considering your competitor numbers reported today and they have shown a good operating performance. But it's for our soda ash India business looks muted despite volume growth in salt and soda ash. So is this because of some -- we are selling more on contractual basis or we have a lower export sales?

No. If you really look at the EBITDA number for the quarter, it is almost similar to previous quarter as far as the TCL is concerned. And compared to previous year, it is down by INR 108 crores, the EBITDA, largely driven by the increase in employee benefits by 12% and freight cost by 16%.

Sir I'm talking about India business?

I'm talking only about it. Yes. So compared to India business, if you compare to previous year, the same quarter, we had INR 206 crores of EBITDA. This year, we got INR 209 crores of EBITDA. It's almost at par compared to previous years. In fact, India business has improved from the EBITDA, which it had previous quarter, INR 144 crores was the previous quarter EBITDA. This quarter, EBITDA is up INR 209 crores. It's almost INR 60-odd crores more than -- INR 65 crores more than last year -- last -- previous quarter, immediate previous quarter.

So when we see the overall scenario, cost scenario for India business in energy cost and any other cost and that is not -- that is mostly stable. And our volume has also increased in soda ash and salt, but still we are showing muted numbers. So is there -- you are talking about the employee costs have increased for us?

No, no. In fact, when I said EBITDA, EBITDA includes all the employee costs, everything. So in fact, from the previous quarter of INR 144 crores, it has gone to INR 209 crores, and from previous year, the same quarter, it was INR 206 crores EBITDA. So that takes care of everything. Rest is all issues related to JV income, other income and all that and also the interest cost because we have also moved into India -- the debt from Singapore has moved into India as we speak.

The next question comes from Arjun Khanna from Kotak Mahindra Asset Management.

Sir, the first question is just to understand the CapEx going forward. So when we had announced CapEx, we said that if we don't see 20% IRR, we won't go ahead given where prices are at this point in time. I'm kind of curious why we're going ahead with the CapEx is given that it seems that a 20% IRR seems difficult at this point in time. The second part is if you could give us the time lines. So while we have done the first phase of CapEx for U.S., Kenya and India, what are the time lines for the expansion of 400,000 and 300,000, 300,000 in salt?

Yes. In terms of -- you're absolutely right. In terms of the -- which is what we said we'll calibrate it. What has come on stream, we will sort of run it to full capacity. What is going ahead is the Kenya of 50,000 tonnes as we speak. And we also fundamentally don't take a short-term view. We will calibrate it to cash flows, but we don't take a short-term view.

If we do believe that in the medium term, these are going to trend upwards, which is what our belief is, we will bring it on stream in a calibrated manner, which is not bunch them together, but bring them out in phases. That is what we are doing. And these are -- in addition to that, our CapEx mostly is brownfield. So for us, every rupee contribution we earn, the fixed losses are already covered. So it flows straight into the bottom line. So for us, it is -- the returns will still be good. And we will keep a watch on the return, as you mentioned that if the returns don't track what we committed, we will make sure we either optimize the CapEx or we phase out or we wait for better visibility.

Sir, could you help us with the time lines of U.S., Kenya and India in terms of -- is it a 3-year period where we expect this CapEx to be done through? I understand there would be in phases, but what is the time line for this 1 million tonne expansion?

So we had initially planned exactly what you mentioned, 3 years. So depending on how we phase it, it may go into 4 years, but we'll come back to specifics because it's also brownfield. It allows us to bring CapEx on stream, earn the cash flow and then use the cash flow, which we want to do the further expansion.

Sure. Sir, just on the debt part of it, net debt is up almost INR 900-odd crores. We had earlier stated that we are looking at paying down debt. Since then, that continues to move up. So how do we look at this point in time in terms of calibration with CapEx? So what kind of peak that do we envision at this point in time?

Yes. Arjun, Nandu here. So on the debt part, Arjun, you look at it, it's gone up compared to March '24, mainly on the working capital debt by long-term debt is intact. In fact, we moved from Singapore to India, the debtor. So mostly working capital debt was the timing issue. And that should, over a point in time, come down as we have the inventory because you also have higher inventory in end of December ending [as it get repeated that,] that debt comes. So more of a timing issue of working capital. Long-term debt is -- if you see last year, we are again repaying in both Kenya and U.S. So long-term debt is lower than what we had earlier, but now short-term debt has gone up.

Also, just wanted to highlight this point that if you disaggregate the debt, there is debt which is sitting in U.K. And U.K., as you know, we have already sort of ceased the soda ash unit. So U.K. is now going to run only 2 profitable lines of bicarb and salt. We do expect the U.K. to pay down its debt on its own on the bases of the cash earnings it's going to have. India, as I mentioned, we'll calibrate the earnings in such a way that we are able to also manage parallelly certain deleveraging of the debt we had moved from Singapore to India because we believe that's the right approach to do.

And U.S., again, I think we will keep an eye on the debt very clearly. What you need to take out where the CapEx is more or less done, no major CapEx are going to come immediately except for the GBP 60 million, which we had said we will fund, but that is going to be very value adding because it's only in the bicarbonate and salt business. So U.K. more or less should be able to manage its debt. We'll come back with this peak debt in the next quarter.

Sir, final question is just as a carry forward of this, we have created inventories. We see production much higher than sales. Given that the market remains tepid, just curious why we're setting up additional inventories when we are not expecting much growth in the overall volume?

Yes. So firstly, I think as far as the U.S. is concerned, the inventory is mainly because it has moved into the next quarter. They missed 2 shipments, the sailing the boats just about moved into the next month. So it is really a timing issue. The inventory buildup in India, we are very sure that we'll be able to calibrate that to manage it at a reasonable level. .

Certainly, we had to test our plant. For example, the soda ash plant, the commissioned capacity was 1 million tonne. So we actually ran and proved the plant who can deliver 1 million tonne. And this quarter, it produced, I think, 251,000 tonnes, thus proving the capability of the plant. But we are under no longer any pressure. So we'll calibrate the output and the sales in alignment as far as India is concern.

The next question comes from Ankur Periwal from Axis Capital.

A few shorter ones. First, on the India operations, year-on-year, while we have seen an improvement in EBITDA, which is largely led by the volume metric growth. We are expecting this higher volumes to sustain as well as the pricing-led pressure, which probably the full impact of the price decline is already there in this Q3 or Q4 can see further price decline?

I don't see an issue on price decline, but certainly, the volumes will be more -- sales volume more than Q3 and Q4. And sequentially, I think in India, we will be able to place more material in the market because we have the capability to place them.

And also the material which will come out of Kenya is likely to be a purer material in the sense that its security levels will match applications, which we have not yet sold. So that 50,000 tonnes also should find markets both in India and Southeast Asia out of Kenya. And Indian market will be fully serviced through our production from Mithapur, which is now on stream.

Sure. And pricing usage should be largely stable Q-on-Q?

It has not moved much in the sense that at least this seems to be moving horizontally around that plus or minus minor movements, but we haven't seen either move up or a move down.

Sure. Second bit on the Chinese capacity inner Mongolia. Last quarter, we had highlighted there were quality issues and had some issues in terms of the production ramp-up given that they are still continuing to be net exporters for the last quarter as well. How is the situation there in terms of ramp-up? It's fully ramped up now? Or there is still scope to increase it further?

No, I think it's ramped up to the extent they can. And we are not fully clear about the overcoming of the quality issues. It will be going to applications, which can accept that quality. But the real issue is that the synthetic ash plants are selling below cash cost at the current price, $180, which is the current price. I think they need to sort of increase partly $30 more in our view. So we need to sort of watch out for how long this sustains.

Next question comes from S. Ramesh from Nirmal Bang Equities.

So in the Indian Mithapur soda ash expansion, can you share the capacity utilization for soda ash and bicarbonate expansion capacity in the 3Q? And what is the utilization you will expect in 4Q?

Yes. I think our capacity currently is about 250 per quarter. And if you look at this, the gross production and split it into bicarbonate and soda ash and dense and light ash, we should be running close to 235,000 to 240,000 tonnes. So pretty much that should give you the range of utilization, about [Technical Difficulty]

And what was it 3Q?

We had actually produced fully. We had produced to the extent of 251. That was up to capacity, it ran. It actually ran at full load, which is why the inventories went up to almost 20,000, 30,000 tonnes.

Okay. So that figure includes the bicarb production?

Yes, we only declared the gross production, correct. Production figures is gross. The sales figure is met.

Okay. So in terms of the run rate on depreciation and finance costs, how do you think that will move compared to 3Q? Will it be similar or there will be any increase in 4Q and then for FY '26 once the entire capitalization is done?

It will be similar for the Q4 as of now because the debt is expected to be remaining same. So we don't expect any increase in Q4 compared to Q3.

And the same for depreciation?

Also because, again, capitalize the whole thing in end of Q2 or Q3. So this will not change too much for Q4.

Okay. So in terms of the 15% decline in prices, you mentioned in India, has your listed -- list price being reduced, because we haven't seen that in your website. So -- or is it more in terms of discounts? How has it worked out, what is the current realization for soda ash from your plant?

We said 15% is on import offerings. It is not really -- now then they are dollar prices, right, 15%. Now dollar itself is depreciated. So that should provide some color. So if you back calculate that in rupees with all the duties put together, that would have already taken care of about 7% or 8% of that 15%, as far as the imports are concerned, in rupee terms. Our rupee number, as I said, is more or less stable and hasn't moved much. But this fall is on the import prices.

Okay. So in terms of the latest that we hear from Canada kind of block imports of alcohol from U.S., do you think that will have any impact on the U.S. container glass amount for alcoholic beverages because last time when there was a disruption in [indiscernible] production, there was a similar disruption in container glass demand. How do you see that impacting your container glass demand in U.S.?

So our domestic sales into container glass actually is fairly low. Our sales are mostly into chemical applications where we -- and to flat glass. So we haven't -- we don't see that as a big issue for us. We'll see the exact impact, but we are less impacted because our exposure is low.

The next question comes from Rohit Nagraj from B&K Securities.

First question is on the U.K. soda ash plant, which is likely to be seizing to exist. So it has got a capacity of 400,000 tonnes. Effectively from this quarter onwards, that entire capacity will not be available and which also means that the 1 million tonnes we are targeting to add, about 400,000 tonnes just to replenish the soda ash capacity of U.K., which is going out.

Yes. I think that's one of the issues we are looking in U.S. because the unit which feeds into the U.K. market is actually U.S. They will get about -- and their is a dense in light ash split. So we do see that they are now contracted out about 150,000 tonnes annually into the U.K. market itself from existing customers. So this is continuing to serve the existing customers, which we have in U.K. So obviously, they have a market space available to at least take care of, if not, I would say, 400,000 tonnes, which we planned in U.S., at least half the number, which is why I said initially that we are trying to calibrate the market expansion in such a way that we also derisk ourselves from any variations in the market price.

Fair enough. And second question on the specialty products front. So we've seen that this segment has barely able to make any money at the EBIT level. So any specific reasons for the same?

This quarter is actually a weaker quarter for Rallis, which is why the amount is usually lower. And if you come to stand-alone, I think as far as we are concerned, this quarter, in fact, for the last 2 months, the market orders, which we are fulfilling are closer to about 80%, 85% of the production capacity. So we will come back with specific numbers for both Nutra and silica in the fourth quarter, where we should be producing to the fullest output of these 2 plants.

Next question comes from Nitesh Dhoot from Dolat Capital.

So my question is on the amendments to the emission trading scheme, ETS, in EU will likely lead to lower Turkish soda ash imports and benefit the local manufacturers. So Turkey players are also mentioned about an impact on the contract negotiations for 2025. So how should one read this in the context of Tata Chem shutting down the plant. And as a follow-up, is this I mean an incremental question there. Is it likely to put further pressure on the Indian industry as Turkey imports will likely increase significantly into India?

Yes. So I think as far as Europe is concerned, I think their emission trading scheme and its impact on -- to protect the domestic industry, the CBAM, which they've done. Natural soda ash still would be a lower carbon footprint than synthetic soda ash in many ways. And it is -- for Turkey, the natural market will continue to be Europe. That doesn't change the basics of the discussion in terms of what makes sense. And that's where I would stop it. And the logistic costs in India and Asia. I think they have to come through Suez, they have to come through a Red Sea. So there are other issues in this market. What they will naturally try to push the product is to Western Europe and whatever is the over, let's say, some also if it does happen, it will find on to the Eastern Seaboard of South America.

Nitesh, sir, does that answer your questions. The next question comes from Saket Kapoor from Kapoor Company.

Firstly, with the introduction of the minimum import price, the threshold level of 20,000-odd level per tonne, how does this suffice a lot of this import issue, which you have alluded to in terms of the same flowing from China and other geographies into the country and thereby supporting our margins and also to improved levels of -- utilization levels for the Indian operations?

I think it provides the floor. And secondly, as we said it is also sentimental in some ways because the MIP, as we speak today, is actually lower than the current prices at which we are contracting, and we are not seeing our sales price were touching that number. What is more important is that the antidumping investigations have started. And I think that process will move in parallel. So while this has been imposed is a quick measure to ensure it doesn't go below a threshold price, the real numbers would come out when the ATD investigations are over, which is already underway.

Okay. So you are mentioning that the realizations are currently higher than the MIP mentioned?

Yes, the current realizations for Indian manufacturers, domestically higher than MIP in any case. So it has provided a floor. It has provided a psychological barrier. But I think in reality, the imposing of antidumping duties is a permanent measure, which will protect the -- improve the situation, which is -- whose process is underway as we speak.

Okay. And when can we hear more about it in the [annual]?

I have no definite time frame, but this is up to authorities to investigate. It usually takes anywhere between 4 to 6 months of investigations.

The next question comes from [Mithil Bhuva from Unlisted India.com].

Yes, sir. On the U.S. front, EBITDA margins can we say that the new normal is like 15%, which used to be 20% before. Even after the coal prices have come down actually. So the new EBITDA margins in soda ash business is around 15%?

Yes. This being a futuristic number, we can't comment on that as of now in this call.

Okay. But has it come down actually, what is the expectation of the management -- it used to 20% before right now after the new capacities are from? Is it going to be 15% only.

This quarter also is a question of mix. So each quarter, the whole mix might change depending upon the customer mix. So one can't really comment on quarter-on-quarter that margin is going to remain. So therefore, I'm saying going forward, what margin are going to keep. We really can't comment on this on quarter numbers. It could be different. In case the mix changes, it may have a higher EBITDA or lower EBITDA, but I can't comment on future numbers based on this 1 quarter numbers.

And how does Tata Chemicals plan to decommoditize, like the management and space has said that they will decommoditize Tata Chemicals. How do you plan to do it? Any comment on that?

No, I said, we'll also move businesses into more noncyclical. So in fact, we've added disproportionate capacity in bicarb and salt, which we will continue to do, and also grow the soda ash to the extent we can enter segments through brownfield expansions.

Okay. Any other area of chemicals that we are planning...

Progressing our both nutraceuticals and silica business, those are the 2 we are focused on.

The next question comes from Arjun Khanna from Kotak Mahindra Asset Management.

Just from the Lostock side, so we did write off on the plant and equipment. Now we have taken a provision for employee costs. Do we see further expenses maybe for a cleanup of the site, et cetera, in the future?

Actually, that is right. So what I would say Arjun is that when we took an impairment on the asset and impairment is a testing which you have to do, whether you run the unit or cease the operation. The ceasing the operation decision has happened only now, and this is the cost to cease operations, our best estimate as we speak today. We expect it is likely to remain in this range. If it's slightly lower, we will release some money for P&L. If it's slightly more, it will go into the P&L. But this is our best estimate in terms of employee benefits for termination of their services. This is what it is going to take us to close the site in a safe manner.

So it includes both the cost, Arjun, in terms of the employee as well as the total costs in the INR 70 crores.

Sure. So we do not envisage a major incremental expense post this?

Not a major, if at all, there will be some minor movements depending on actual expenses incurred with our best estimate.

Sure. Sir, the second on the specialty, you did delve on it. But if I look at the standalone, we see that margins are close to it even though we are operating at 85%, so either the pricing is extremely low or we are very inefficient at current scale. Could you help us understand what's happening here, given on a sequential basis, margins have actually come off even on a year-on-year basis as utilizations are increasing.

Yes. So I think you're right in the sense that if we don't increase the scale, at least double the capacity, over a period of time because the utilities there have been set up for almost double the capacity. It is going to move along. We didn't want to add additional capacity till we proved that the current capacity could be fully used because otherwise you will have a much higher idle capacity. I think now that we are inching towards, we will move forward with what we call as balance equipment, which will be added to this unit to increase output for the market.

So has that decision been taken? And what are the time lines?

It is moving forward, and we will come with specific number by the next quarter on exactly what is going to be the phasing. It may still be in 2 steps because we can add entire 5,000 in 1 step or we can add it in 2 steps of 2000 and 3000. And we are working -- that's the plan today. The plan is just to add 1 -- do it in 2 steps rather than in 1 step immediately.

Ladies and gentlemen, we will take that as a last question for today. I now hand the conference over to the management for closing comments.

Thank you, and thank you for joining the call today. And as we spoke from the last call to this call, I think the markets have remained range bound at a lower pricing scenario, largely driven off the supply-demand imbalance, which is existing today. We do expect that over a period of time, the current pricing, which are unsustainable, some changes will certainly happen. We can't comment on the timing. So we have already highlighted that this level is likely to continue for 3 to 6 months at least.

In terms of the growth in market, we do believe that India is well positioned to continue to grow. Asia is well positioned to grow. The U.S. and Western European markets are flat or Western Europe is slightly degrowing. However we do expect that U.S. would move forward because it continues to grow as an economy at a good rate going forward.

In terms of our approach, we have been very clear about our -- ensuring that we are able to run sustainable units. With that decision, we have taken the cessation of our U.K. plant. And as I mentioned that while we work -- our growth ambition has not changed, we are only calibrating the growth ambition in line to make sure our cash flows match with the capital needed for investment. And at the same time, we are able to deleverage in a meaningful way every quarter, every year going forward. Thank you all, and see you next time.

Thank you. On behalf of Tata Chemicals Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.