Tata Chemicals Ltd

NSE:TATACHEM

Earnings Call Transcript 2024-Q1

[Operator]

Ladies and gentlemen, good day, and welcome to Tata Chemicals Limited Q1 FY '24 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.

[Gavin Desa]

Thank you, Niko. Good day, everyone, and thank you for joining us on Tata Chemicals Q1 FY '24 Earnings Conference Call.

We have with us today Mr. R. Mukundan, the Managing Director and CEO; Mr. Zarir Langrana, Executive Director; and Mr. Nandakumar Tirumalai, the Chief Financial Officer.

Before we begin, I would like to mention that some statements made in today's discussion 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, Sir.

[Ramakrishnan Mukundan, executive]

Thanks, Gavin. Good morning, and welcome, everyone, to our quarter 1 FY '24 Earnings Call. I'm joined by my colleague, Nandu and Zarir for today's call. I'll start the discussion with key operational highlights across business geographies following which Nandu will walk you through our financial performance for the quarter.

Tata Chemicals at consolidated level has had a higher revenue on account of better realizations, partly impacted by lower volumes. I'll come to that in a minute. There has also been our EBITDA growth driven by higher realizations. There is an impact on PAT and PBT due to higher interest costs and higher tax outflow because many of our entities now don't have the tax sheet which they had because they're all net positive, cumulative positive in terms of tax calculation, especially Magadi and U.S. also, which is now on a higher tax rate.

I will now give an update on soda ash demand supply situation. As you would all know that the China net supply increased in the market, partly driven by, I think, post-COVID slowdown, lower than demand in China. We expected a pretty strong recovery that has not happened. And that slowdown has created a surplus in the market. And added to that was Mongolia capacity, which came on stream maybe about 5 to 6 months sooner than expected. But this was anticipated, but it came earlier. And that, coupled with the lower demand created a demand supply ease in the market.

The rest of the market, the demand was as planned in terms of more or less stable and India also remained stable in general, mainly driven by the sustainability demand coming off in our sector. And -- but the domestic supply were -- in India were largely impacted due to surging imports, which increased by almost double. And we -- Tata Chemicals had to take appropriate steps in the marketplace to ensure it supplies to customers where at the most competitive levels.

Coupled with that, in some parts of the world, there was some delay in purchase decisions, which on the expectation of management of inventory levels, which had gone up due to supply chain constraints in the past, which have now eased and some postponement of purchase which is an expectation of a lower pricing over a period of time. Our overall demand-supply situation remains robust, mainly driven by the growth in the key markets, which we have highlighted before, driven by energy transition, and that will continue to be so.

I'll talk about the near-term challenge, but I think in the medium and long term, it remains still the same as we had given commentary last time.

Moving on to Tata Chemicals' market position. I think we have -- our net sales in India was about 180,000 tonnes. This includes India production and Magadi imports into India, as compared to 185,000 tonnes last year, which is almost 96% of last year. This was despite the impact of 10 days which we had in dispatches in Mithapur due to the Biparjoy cyclone, by which -- because of which there was some slowdown in availability of rakes and trucks. And obviously, for about 3 to 4 days, the district administration had stopped and the rail movements due to safety issues. But, however, we did manage to get to 96% of quantity as last year, putting -- combining TCL sales -- Tata Chemicals sales in India.

Our focus continues to ensure our customers or service and we maintain our position with customers through engagement with them and continue to maintain steady margins with focus on costs, and that focus still continues.

In addition to soda ash business, rest of the other parts of the world, especially U.K. and U.S. performed to our plan. Magadi was partly impacted by certain supply chain issues, which impacted its sales into Southeast Asia. And also, there was an increased pressure of Chinese material availability in that market. That position is being corrected as we speak.

In terms of our specialty products, Rallis overcame a challenging period and was able to restrict the impact on its EBITDA due to better product mix, OpEx control and pricing action and that has been visible in the results which they have declared relative to marketplace they have performed to a plan.

To conclude, we expect the market to remain in the range bound situation with certain supply -- demand-supply situation easing in the short term. And over the medium term, our overall target in terms of positive changes happening on the demand side, which will lead to balanced demand-supply situation medium to long term still remains our base case.

With this, I'd like to add that we remain committed to our expansion plan, which have already been approved by the Board of approximately 300,000 tonnes in India, about 250,000 tonnes in Kenya and about 400,000 tonnes in U.S., about 1 million tonnes, all worldwide capacities put together. In addition, we are scaling up our salt capacities in India. And in U.K., we will be -- by the end of this year, our pharmaceutical grade salt plant will be operational.

We remain focused on managing our margins and cost structures, ensuring debt repayment continues and strengthening cash flows. We continue to deleverage and repay our debt. This quarter, we repaid about $95 million, in U.S., we repaid about $45 million, in Singapore, about $50 million. So we remain committed to ensuring a very balanced approach to marketplace and a very conservative approach to our balance sheet and a very robust approach to our growth plans, and we remain on track as we speak.

With this, I hand over the floor to Nandakumar, who will walk you through our financial performance.

[Nandakumar Tirumalai, executive]

Thank you, Mukundan, and good morning to everyone.

Let me take you through the performance after which we'll go to the Q&A. On the headline numbers, first, for the quarter, our revenues for the quarter was at INR 4,218 crores as against INR 4,000 crores last year's Q1 higher by 6%. Revenue increase was driven by price increase, partly impacted by lower volumes across geographies and contributions being impacted mainly in India and U.K. EBITDA for the quarter was at INR 1,043 crores against, I think INR 1,015 crores last year. And this, in fact, is the all-time high EBITDA ever. The EBITDA margins were lower by 0.7% owing to pricing drops in India and lower volumes.

PAT for the quarter was at INR 578 crores, lower by 10% compared to last year's Q1.

Moving on to each business, starting with India. Revenue for the quarter was at INR 1,135 crores. Soda ash volumes were down by 8%. The prices were lower owing to the price drops taken during the quarter. Salt business continued to perform well and good volumes came there. Bicarb volumes were a bit down compared to last year's Q1.

Moving to U.S. It delivered another very good quarter with revenues and profitability registering healthy growth over last year's Q1. The business continues to benefit from better prices following the newer contracts entered during the beginning of the calendar year.

U.K. business performed well with revenues up by 22% as compared to last year's Q1. EBITDA was 17% for the quarter.

As far as Kenya is concerned, both volumes and prices saw softening, which in turn impacted margins and profits for the quarter.

As far as [ silica and nutra ] is concerned, both the businesses have growth map in front of them, with time and investment, we expect both the segments to crop in good numbers going forward.

Moving on to Rallis, Q1 was one of the most challenging periods the for the agrichemical industry. Crop Care business has been affected by high market inventories, seed price drops and delayed monsoon. Although revenues for Q1 was lower compared to Q1 of last year, margins were largely maintained due to better product mix and good pricing. Our company's long-term strategy remains unchanged, focused on increasing marketing capacity and product portfolio expansion and our marketing -- market reach.

Our cash at the consol level was INR 1,544 crores end of June '23. CapEx for the quarter was [ INR 426 crores ] and net debt was at INR 4,329 crores.

With that, I will close the comments and hand over back to moderator to open up for the Q&A session. Thank you. Gavin, over to you.

[Operator]

[Operator Instructions] Our first question is from the line of Saurabh Jain from HSBC.

[Saurabh Jain, analyst]

My question is that we have seen a decline in volumes on soda ash for all the geographies. While India you alluded to there was an impact of the cyclone, but the rest of the geographies is the impact more because of softness in demand as such in the industry? Or is it more because of any loss to market share to the new capacities that have been coming online? And then what is your outlook on the volume recovery from here on?

[Ramakrishnan Mukundan, executive]

Yes. So let me address this broadly, I think, Saurabh, in India, it is a combination of, I think, partly the cyclone and also because of cyclones and precautionary operational measures taken by us at the plant. So that was the main reason. Until about, I think May, June, -- sorry, April, May, we were pretty much on track. It is towards the end of June here. I think the -- we saw a bigger difference in the numbers.

As far as Kenya is concerned, I think our biggest shift has come in 2 markets, 1 in Thailand, the other 1 in South Africa, where in Thailand, of course, there's a pressure felt from the Chinese imports and some large quantities landing out there. So we had to continue to serve our contracted customers, but we ensured that we -- according to fresh contracts, but going forward we'll have volumes which we could push in that market and engage with customers.

In South Africa, there was certainly a certain large amount of consignment, which had landed in the market which delayed some of our customer orders. So it is more a temporary phenomenon as far as Magadi is concerned in the markets, it should catch up over a period of time.

As far as U.S. is concerned, there was no issue of any market issues. It was more related to some pressures we did see at the beginning of the year, which was a spillover in the last quarter where there were supply chain issues with respect to the railroad movement. And that has now more or less corrected. In fact, there's been a change in the leadership and management and they have assured the railroad -- they will fix these issues, and we are seeing improvement in the situation. I would say it is not fully resolved, but it is pretty much on way to getting resolved as far as rail movement is concerned.

So broadly, I think in quarter 1, we would not attribute it largely to market. Our commentary on the market is going forward. And when I said short term, I think that period could range between 9 to 12 months on one hand to stretching as much as 15 to 18 months. We have to see how China demand improves. The overhang of basically the real estate sector pressures, which are being transmitted to the flat glass industry are creating undue pressure on the market, especially with respect to supplies coming on. So there's a mismatch there, which I think if we put in our demand supply model, that continues for anywhere between, let's say, a year to 1.5 years, after which it sort of equates again. So that's the broad market and our operations.

[Saurabh Jain, analyst]

Okay. That is helpful. My second question would be that we are seeing some softness that is pretty evident in the soda ash pricing. Are you seeing any pricing adjustments in the U.S. exports business? And also you lock in the contracts for the domestic part of the U.S. business. But any sort of renegotiation that can happen in those contracts as well for the rest of the year? Any insight would be really helpful.

[Ramakrishnan Mukundan, executive]

Broadly, I think where it is contracted, I think if the erosion is even more sharp than what we see, I think customers will have to get accommodated. I see no reason why we would not do so. At this point of time, the domestic contracts, especially in these markets are still holding. There has been some impact because of some furnace closures because of -- you would know about the Bud Light controversy, which happened, and that has led to some container glass impact because of that controversy where in I think 2 or 3 furnaces had to be closed because of lack of Bud Light. This is the larger selling beer in U.S. So -- but other than that, we haven't seen any major issue.

On the export market, certainly, I think we moved pretty close to the marketplace. So -- especially in Southeast Asia, I think it is a quarterly adjustment. So you would continue to see as we said, partly supported by, let us say, on the price side, partly supported by the cost also easing along the way.

In U.K., it is more or less contracted. The open position for U.K. is more about quarter 4, so we'll have to wait and see how the situation moves, especially in the local context of Europe. I think that is a very different context where I don't see the commentary very similar to the rest of the place. And there, it is more about European market situation where our worry is not so much on the market side, but more on the energy side. We've had a very good set of gas storage numbers, so the gas prices have been benign in the U.K. But we are very watchful. We have gone ahead and done our hedging on energy more or less, so that we don't get impacted during the year. But we'll wait and watch and see how it unfolds in terms of supplies -- energy supplies there.

[Operator]

Sorry to interrupt, Mr. Saurabh Jain, we request you to rejoin the question queue. Our next question is from the line of Arjun Khanna from Kotak Mutual Funds.

[Arjun Khanna, analyst]

Sir, the first one, in terms of CapEx, you've mentioned the next phase. Have you decided about what would be the CapEx amount for this $1 million expansion?

[Ramakrishnan Mukundan, executive]

Yes. So broadly speaking, I think in India, it is already approved and it is already underway. It is -- our last CapEx round finished at about INR 2,900 crores. And this CapEx round we finished at about INR 2,600 odd crores. And of which, I think, INR 1,300 crores is on soda ash, and the balance INR 1,300 crores is on other products. So probably that's the overall money being totally spent.

Now in terms of -- that will give us about 0.3 million tonnes in addition to what we have already -- which is the disclosed number in terms of the soda ash capacity [indiscernible].

As far as Kenya is concerned, it is not going to be a major CapEx. Our numbers are hovering around $20 million to $25 million. And pretty much it is debottlenecking. In U.S., again, I think it probably is closer to about $80 million to $100 million with large amount of element being on process improvement and some debottlenecking [indiscernible].

[Arjun Khanna, analyst]

So just to understand this, you're saying U.S., $100 million for 300,000 tonnes capacity?

[Ramakrishnan Mukundan, executive]

Yes, it is still -- for 400,000 tonnes, it is still being watched out. It could be up or down by another 20%. So the detailed engineering is on its way and largely depends on whether we choose to go ahead with switch fully to gas or not to gas. I think that decision is yet to be made. But otherwise, other elements are more or less in place, addition of [ 13th ] calciner and some element of, let's say, the [ Krona ] purification process, which is being undertaken.

[Arjun Khanna, analyst]

Sure. The second question is, when I look at the stand-alone I see we did an EBIT loss of almost INR 22 crores on INR 51 crores of revenue. Could you help us understand this why such a large EBIT loss given your commentary, you all spoke of the specialty side of it improving?

[Ramakrishnan Mukundan, executive]

Stand-alone, yes. I think in stand-alone, it was more related to our silicon -- we have 2 businesses. Silica business has performed to our plan. It, in fact, had a positive EBITDA number about -- and I think the bigger issue we faced was on the Nellore that's the nutraceutical -- that's fructo-oligosaccharide platform, where the unit had produced in anticipation of an export order last quarter. Since that order is getting delayed, we decided to slow down production and run the unit -- in fact, the unit restarted production only, I think, about 30 days ago and has been running at 50% capacity because their stocks are still with us until that order comes through and that those stocks are shipped, we don't want to produce. That it's a management decision entirely.

[Operator]

Sorry to interrupt Mr. Arjun Khanna, may we request you to rejoin the question queue for follow-up questions. Our next question is from the line of Rohit Nagraj from Centrum Broking.

[Rohit Nagraj, analyst]

So first question is on China. So China is coming back, has it changed in terms of the movement of soda ash across different geographies? And will it likely to stay until this new capacity comes in phases over the next few years?

[Ramakrishnan Mukundan, executive]

So I think the way it would work out, I think is a model which we have to sort of work out here, the way it will work in the short term and in the medium term. In the short term, certainly, the exporters who are manufacturers or close to ports will begin to move the material out of China, which is what is happening. Our own view is that the prices have hit a bottom in terms of the cash breakeven numbers. And if at all, we would see a reflection of logistic cost improvement being passed on to customers, but we don't see a bigger shift out of China in terms of pricing, but volumes will certainly move out because the natural ash will tend to display synthetic ash.

In the medium term, what will likely happen is exactly how it unfolded in U.S. In U.S., there was a combination of synthetic and natural plants. But as national plants came on stream, it completely wiped out the synthetic plants domestically. So we do believe that certain uncompetitive capacities, which are there within China will be challenged. And -- but that process will take time. It is not going to be an immediate issue. So it will unfold over a period of time, and we'll have to keep watching.

But overall, I think it will also be a combination of -- in terms of when the demand supply situation balances out. At that point, I think any further changes in capacity will be put on hold. So our view is that this balancing broadly happens in about 12 to 18 months. After that, I think we will have a better clear picture of how much of -- natural capacity will remain, but how much of synthetic capacity will remain and how will balance out in the overall context.

[Rohit Nagraj, analyst]

All right, sir. Got it. Sir, second question is in terms of demand from user segments, is there any challenge in certain geographies from the downstream demand in particular user segments?

[Ramakrishnan Mukundan, executive]

I think the different geographies have different issues. So let me just highlight. I think as far as China is concerned, I mentioned already, it's the construction sector, which has really been the problematic in terms of the -- our previous model and what is coming through in the current model. And we've had to take some downward adjustments on those numbers. In India, it has been primarily the export market. The dye and chemical sector has not been doing well and that is reflected in some of the export numbers out of India for intermediate chemicals where soda ash is consumed.

Also in India, there has been a sharp fall in caustic soda prices. So silicate market has switched to caustic in the meantime from soda ash. So there's been a switch of use -- that end use actually can switch between caustic and soda ash, and that has created an issue in Indian demand.

As far as Kenya is concerned, it is pretty much all markets are fine. I can't see anything related to market. It was just extra shipments landing up from various markets have led to inventory issue.

In terms of U.S., the big driver in U.S. up till now has been the one big event, which happened in the market, which is the Bud Light controversy on the container glass. As that demand shifts to other bottlers, I think we will see that piece easing over a period of time. The big issue we need to watch out is about interest rate, whether it starts to begin to hurt on housing starts and those elements. We don't -- we remain watchful, but we don't see any big shifts up until now. If there are any, we will bring in to the commentary by next quarter.

[Operator]

Mr. Rohit Nagraj, may we request you to rejoin the question queue for follow-up questions. Our next question is from the line of Abhijit Akella from Kotak Securities.

[Abhijit Akella, analyst]

Just a couple. One is on the Inner Mongolia soda ash expansion. Is it actually 1.5 million tonnes that has come on stream so far? And I believe the projection by the producer was to ramp up to 5 million tonnes by December of this year. So do you see them on track for that sort of time line? Or would you expect that to be significantly delayed?

[Ramakrishnan Mukundan, executive]

So as far as Berun is concerned, we think by the next year, at least 3 million will be there. That is what our modeling states. We have not used any number. I think the 1.5 million tonnes has been slightly ahead of what -- about 3 months ahead in our schedule versus what has actually happened on the ground. And so I think by next year -- we had modeled [ 3 million ] and we are also watching the speed with which the streams come on stream. So we will remain vigilant. As of now, we know that [ 1.5 million tonnes ] will come on stream, which is about 50% of what they had to -- our model was to say.

[Abhijit Akella, analyst]

Sir, just to clarify, this 3 million by next year is by end of CY '24, like December or sometime earlier in the year?

[Ramakrishnan Mukundan, executive]

I think during next year, it probably is going to average around 3 million. So that is what our numbers -- our model has modeled on and we retain that model.

[Abhijit Akella, analyst]

Understood. That's helpful. And just the other thing I just wanted to check is I know you've alluded to this a few times in the past, but just to sort of maybe try to get an update, if any. With regard to the Tata Group's EV battery plan, is there any sort of involvement that Tata Chemicals might have any capacity over the, let's say, next 2, 3 years or so?

[Ramakrishnan Mukundan, executive]

So as mentioned, even during AGM, we continue to work on the chemical side of the battery requirement together. If there are any opportunities which come up, we will certainly make those announcements as and when required. So we continue to work with all Tata companies in terms of their chemical requirement. And wherever there is a match and wherever there is capability match, we would engage and -- so this also falls in the same bucket.

[Operator]

Mr. Abhijit, may we request you to rejoin the question queue, please. Our next question is from the line of Vivek Rajamani from Morgan Stanley.

[Vivek Rajamani, analyst]

Just from a cost perspective, I just wanted to understand what is the biggest driver of the higher costs that we saw in U.K. And secondly, in relation, if you could just talk about how we should think about costs going forward? And what kind of levers are available at your end to really optimize costs over the next few quarters?

[Ramakrishnan Mukundan, executive]

So Vivek, the costs have more or less stabilized now. We don't anticipate any fixed price in cost. As far as U.K. is concerned, I think we had the benefit of lower hedging which we benefited during last year. And now it is the current hedging rate. So what you see this quarter will continue in -- we anticipate should continue. But -- and we have also hedged it, but we remain watchful on the European energy cost side. And really, that's the outline.

We also have in U.K., for example, a surplus power capacity, which we wheel power into the grid. And that really depends on the spark spread and that impacts the cost element, which we take the net cost into our calculation. So whenever wind energy is very high, our stock spread reduces, and that increases the net energy cost for us because we are not able to wheel power into the grid. So it is only these 2 combinations, it's going to remain range bound, I think, right across all of our units and trending to go down in some geographies like India and U.S. because that softness remains.

The counter to that, Vivek, is if the world demand increases, especially coming out of China, these prices will probably hold will not fall any further.

[Vivek Rajamani, analyst]

Just to clarify, I think the last time you mentioned that you do have some high-cost inventories that you're going to be unwinding progressively. Would it be fair to say that going forward, any cost benefit would just be a function of these energy prices or is there anything that you could do specifically to further optimize costs?

[Ramakrishnan Mukundan, executive]

Yes. I think what you would see the reduction in costs, some of them would be the unwinding of the inventory levels because at any given point of time, we have 3 to 4 months inventory as that winds down, the cost at which it is spread into the plant will be lower. But market costs are not changing too much. I will just leave it as they are. So it is mostly driven off of our inventory numbers.

[Operator]

May we request you to rejoin the queue, Mr. Rajamani. Our next question is from the line of Sumant Kumar from Motilal Oswal.

[Sumant Kumar, analyst]

My question is regarding U.S. business. So we have seen in domestic market sales of U.S. in last 2 quarters, there is a volume decline and export is doing good. So can you talk about the last 2 quarters, is there any slowdown of the demand of soda ash in particularly domestic U.S. market?

The second is after easing off of the supply chain, and we are selling into the neighboring country and exporting to -- from U.S. to other markets. So is there any pressure in the demand side also? And thirdly, for U.S. also, what is the contractual -- contract mix of 6 months and quarter and year for the U.S. business?

[Ramakrishnan Mukundan, executive]

So U.S., mostly domestic would be -- Sumant would be annual calendar contracts. So they will be contracted right up to December. On the export side, part of them are annual, part of them are quarterly. Those which are going to -- some parts of customers in South America would be annual and some -- rest of them would be quarterly. So that's the mix in this. And in terms of the specific domestic volumes, really, we shipped to manage our margins and customer orders, except for some bit of railroad issues and container glass issues, we haven't seen any major shift. And also some part of the shift would be towards the material going towards Mexico. So I would not read anything beyond that.

[Sumant Kumar, analyst]

Okay. So when you talk about some mix yields for the quarterly contract. So do you expect some softness in the realization in entire U.S. business?

[Ramakrishnan Mukundan, executive]

Not -- on the export side, I would say -- on the domestic side, certainly, we're going to wait for the new year contracts to be signed, where they settle. I think that's quarter 4 issue, which also is true for U.K. On the export side, I think it is mostly getting reset every quarter. So you would continue to see shifts as the market numbers shifts.

[Sumant Kumar, analyst]

Okay. Because you are at the lifetime EBITDA per tonne in Q1 FY '24, so do you think there will be a normalization of EBITDA per tonne from here onwards?

[Ramakrishnan Mukundan, executive]

Yes. I think if you look at it, the export side, as I said, there will be certain shifts which will be happening, but it will still be better than last year.

[Operator]

Mr. Sumant Kumar, may we request you to rejoin the question queue. Our next question -- [Operator Instructions] our next question is from the line of Tejas Sheth from Nippon Asset Management.

[Tejas Sheth, analyst]

Just on the 1 million tonne addition in the capacity of soda ash, what would be the time line of these?

[Ramakrishnan Mukundan, executive]

So these are under execution. So normally, they would come on stream over the next 36 months. Our current plan, which is to take soda ash capacity in India to a 1 million tonnes. That part is -- should be finishing by -- that 2.3 lakh tonnes, which is in the presentation sent to you as well as most of it should come on stream by September, and we expect our key boilers to come on stream. And partly it may spill over into some -- month of October or so. So -- what is in the fact should be more or else done by then. And the 1 million tonnes in addition to that, which is [ 300,000 in India, 400,000 in U.S. and 250,000-odd ] in Kenya. That is underway, and that should come in about 36 months.

[Tejas Sheth, analyst]

Okay. Okay. And sir, balance, INR 1,300 crores, which we are spending, which will be towards which products? And what will be the time line completion on those?

[Ramakrishnan Mukundan, executive]

Yes. So I said that approximately INR 2,600 crores in India, so it is INR 1,300 crores in soda ash, which is towards the -- broadly towards the soda ash and salt and some bicarbonate. So it is in the core products only. And all these numbers which I said, they are all for that 1 million tonne largely.

[Tejas Sheth, analyst]

Okay. Okay. Okay. And on the EV battery comment which you made that we are working with the group companies on the chemical side of it. It's only on the sodium and battery side or we're even working on the lithium-ion side?

[Ramakrishnan Mukundan, executive]

There are chemicals, which all companies use. So we continue to engage with them wherever our chemicals can go or we have an opportunity to produce them because they would be manufacturing at scale, capacity will be created for them. We'll engage with them. And to the extent that we can have a profitable viable pathway to implement, we will implement them. It is not related to sodium or those chemistries that are...

[Operator]

Sorry to interrupt Mr. Sheth, may we request you to rejoin the queue, please. Our next question is from the line of S. Ramesh from Nirmal Bang Equities.

[S. Ramesh, analyst]

Sir can we have some numbers in terms of what was the global consumption in first quarter and the available production in the world and how you see this demand supply balance holding in terms of numbers, say, in the next 1 year?

[Ramakrishnan Mukundan, executive]

So I won't give you a quarter, but I'll give you the annual number. I think our net -- broadly, I think our net addition in the model of the new capacity coming on stream was about 2.2 million tonnes or so that has been -- we think we underestimated that by 1 million tonnes. And the demand fall, which has really driven off what has happened in China largely, has been almost close to about 1 million tonnes. So the overall overhang is about 2 million tonnes right now, so 2 million tones to 2.5 million tonnes as we speak. So I will speak in terms of net numbers in the model, doesn't take specific numbers.

[S. Ramesh, analyst]

Okay. So the next thought is then when do you see this overhang of supply getting absorbed by new demand, especially the solar glass and you said it's about 1 to 1.5 years for the construction market in China to improve. So -- if that remains soft, do we see the solar panel addition and lithium carbonate growth absorbing this?

[Ramakrishnan Mukundan, executive]

It is everything. It is not just that element alone, but it is all of it.

[S. Ramesh, analyst]

Okay. So that means we need to see underlying fundamental demand across all the sectors improved before this supply overhang can be absorbed. Is that way of correct understanding of this?

[Ramakrishnan Mukundan, executive]

So the issue -- drivers are very different across markets. So as I mentioned, in China, it mainly seems to be driven off the construction, real estate and the whole element around it. And in -- where there is a slowdown. Rest of the segments are not seeing that kind of a slowdown. In India, for example, it is mostly led by the export surplus, which our exporters are seeing, especially into Europe for dyes [indiscernible] and other chemicals. And also the switching of the demand for -- from caustic -- to caustic and silicate sector broadly, I mean there's been a bit of a switch there.

The caustic switch as well as the export demand, we have to watch the market as we go. And the other one on the construction side, we have to really keep focusing on the Chinese government policies with respect to interest rates, funding and all that. And rest of the world, again, I just want to say Europe and the U.S. and in other parts of the world, certainly, the heightened interest rates, if they continue to harden more, I think that will put pressure again on the housing and housing sector, which again flows back into the flat glass. So we need to watch this, whether we are at the end of the interest rate cycle or it is going to continue to be hardening even more.

[S. Ramesh, analyst]

Okay. So coming to the U.K. business, so in terms of the growth from the pharma grade bicarbonate and in other initiatives that you're taking on energy, do you think that will improve the EBITDA performance of U.K. say, in FY '25 and going forward?

[Ramakrishnan Mukundan, executive]

Yes. I think that, that remains on track, and that will continue to be the positive driver, and it will continue to -- the baseline EBITDA, which we used to sort of track in the U.K. for about GBP 25 million. That would move up by at least GBP 10 million to GBP 15 million. That is the broad change in shipments in that.

[Operator]

Mr. Ramesh, may we request you to rejoin the question queue, please. Our next question is from the line of Saket Kapoor from Kapoor & Co.

[Saket Kapoor, analyst]

Sir, firstly, if you could allude again what would be the normalized margin for our U.K. business? I think the per-tonne margin was guided towards -- from this quarter onwards -- this quarter itself. So these numbers are the ones which we should continue in for the year as a whole, analyze them? Or what should be the margin profile for the U.K. business?

[Ramakrishnan Mukundan, executive]

For which business, sorry?

[Saket Kapoor, analyst]

Yes, for the U.K. business, we were informed that we were moving into per-tonne margin from Q1, the reported quarter.

[Ramakrishnan Mukundan, executive]

Yes. So I think if you just look at the per tonne margin structure, I think in the contracted -- which most of it is contracted in soda ash that would track the Q1 broadly. And quarter 4, we will have to still go through the certain margin structure because the contract is closed for first 3 quarters.

[Saket Kapoor, analyst]

So these will be the normal reported margins. This Q1 numbers are the ones which we can annualize because these are very lower set of numbers for the U.K. segment -- U.K. geography.

[Ramakrishnan Mukundan, executive]

It is the same, but this should probably track the number as we move forward because this is a contracted number. This reflects the contracted number.

[Saket Kapoor, analyst]

Okay. Sir, on the import part of the story for the Indian market, sir, what have been the imports in the country for the last quarter. And sir, also you mentioned about that generally, we have seen that when there is a natural capacity coming up in the regions, the chemical process when the other capacity generally went down. So what is the current split between the same in China? And also on -- what is the incremental demand from solar? I think so annual, the per day capacity -- or the per day production of solar panel is 1 lakh per tonne that has reported somewhere in China. So if you could sum up these 3 points.

[Ramakrishnan Mukundan, executive]

Yes. The point about synthetic versus natural in the regional or what I would call in the country markets where it is, I think it will play out, and that's largely a function of overall domestic demand and domestic supply and how much surplus needs to travel out, because exports are generally less remunerative than domestic sales. So -- and that will play out specific to China. But today, it remains the largest producer and largest consumer, accounting for almost 30 million tonnes of demand and 30 million tonnes of supply.

On that 30 million tones, I think, overall, while by next year-end, at least 3 million tonnes will be on stream. We expect another -- market estimation is that it will go up to about 5 million tonnes of natural ash coming out of Inner Mongolia. That effectively is about close to 17%, 18% of the domestic demand. So that's a large overhang. And we do anticipate some kind of rebalancing to happen there internally. And time line for which I think we can't estimate and if the demand bounces back in China and it moves in a robust manner, I think the impact on the synthetic will be less.

I think that is the difficult part why we are not giving any specific guidance on that piece, at least on our model, we are not able to model that. The second piece in terms of soda ash demand into solar glass, broadly, I think you can take 20%. If someone opens a 1,000 tonnes per day plant, he will need 200 tonnes per day of soda ash. That's a broad thumb rule, which one can use.

[Operator]

Mr. Saket Kapoor, may we request you to rejoin the queue, please. We have a follow-up question from the line of S. Ramesh from Nirmal Bang Equities.

[S. Ramesh, analyst]

In the nutraceutical segment, has production resumed normally and they're able to operate a normal run rate, do we expect that to show profits over the rest of FY '24, and do you see the India Specialties business contributing to our earnings in the India business over FY '25?

[Ramakrishnan Mukundan, executive]

Yes. So I won't go that far. I will just remain in the current situation. Current situation of our utilization actually is below what we had last year. It is running at about 50% because we are holding inventory and which we need to sort of address by getting -- contracting export orders, which our teams are working. In terms of silica, I think it is not so much related to market. We are running the plant at about 85% or 90% capacity. It is almost nearly full because if you account for switches in product grade and all that is the rate at which it needs to run. Where we need more additional plant what we are doing is to take up the capacity. By October, I think we will be fully aligned to the tire and rubber business, and we would take the capacities to 13,000 tonnes.

And we are in the planning phase of adding another 10,000 tonnes of capacity there. It's more capacity issue and silica is certainly profitable and a steadier business today for us. That's where we are.

[Operator]

We move to our next question. Our next question is from the line of Manikantha Garre from Franklin Templeton India.

[Manikantha Garre, analyst]

A couple of questions from my side. The first one is with respect to your other comment that in China in the medium term to long term, we may see the capacity shift from synthetic to natural processing. In that context, I wanted to understand, are you seeing that reverse in the Inner Mongolia area are as high as what we have got in the U.S. because you've to what they've offered in the U.S., I'm just wondering [indiscernible] number with respect to that results there. That's the first question, sir.

[Ramakrishnan Mukundan, executive]

We couldn't hear clearly. Can you repeat that again?

[Manikantha Garre, analyst]

So I was asking about your earlier comments. Am I audible now?

[Ramakrishnan Mukundan, executive]

You are audible, but it's not very clear. Can you speak slowly?

[Operator]

The line for Mr. Garre has dropped. Ladies and gentlemen, that brings us to the end of our question-and-answer session. I would now like to hand the conference over to the management for closing comments.

[Ramakrishnan Mukundan, executive]

Thank you, everyone, for this -- participating in the conference call. As we mentioned that the quarter 1 has been delivered well, considering the market conditions. We remain watchful for rest of the year. And the only thing we continue to do is to engage with our customers and ensure we have agile response to marketplace and ensure our costs and margins are held tightly. At the same time, our medium-term and long-term strategy in terms of bringing on stream additional capacity remains on track. And we will navigate this period with agility to ensure that we have a more robust balance sheet, more higher level of customer engagement in the relevant markets and ensure that our profitability and contribution continue to improve.

[Operator]

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