THE ECONOMIC TIMES
Nidhi Nath Srinivas, ET Bureau
NEW DELHI: Fertiliser manufacturer Zuari Industries is buying into a rock phosphate mine in Latin America through a new joint venture with Japan’s Mitsubishi to create an assured supply of raw material for making di-ammonium phosphate (DAP), a key farm nutrient.
This will be 7,600-crore Zuari’s first acquisition of natural assets overseas, said managing director Suresh Krishnan. The mine’s location and size of the deal will be announced once the purchase agreement is signed, he added.
Zuari will own 30% stake in $45-million MCA Phosphates Pte Ltd while Mitsubishi will hold 70%. The Singapore-based company will be the vehicle for Zuari’s global investment and trading in phosphates and part of its strategy to invest $800 million in phosphatic fertilisers over the next three years. Last week, the Zuari board approved an equity investment of up to $20 million in the joint venture.
“We have a long-standing trading relationship with Mitsubishi. Since they have a good presence in the geographies where we are interested, the joint venture will give us added strength and bolster our international presence,” Krishnan said.
Flagship of the Saroj Poddar-led Adventz Group, Zuari is India’s largest private importer of fertilisers and has joint ventures with OCP of Morocco and ICL of Israel.
India, which consumes 12 million tonnes of phosphatic fertilisers annually, is the world’s largest phosphate importer and depends on foreign suppliers for meeting 90% of its demand. India’s main suppliers of rock phosphate are North African countries such as Morocco, Egypt and Tunisia. However, few mines in these countries are up for sale.
“We bid for a mine in Tunisia but the government did not allocate. In Australia, mines are very far from port, which makes high freight costs a permanent liability. In Morocco, the mines are controlled by the government, and it wants companies to come and add value (set up acid plants),” Krishnan said. This scenario compelled Zuari to expand its search to Latin America.
Krishnan said the mine has enough reserves to last 50 years and is expected to produce enough rock phosphate annually to produce 2 million tonnes of DAP and complex fertilisers. “Half the rock phosphate will come to us.”
The company is planning a new factory on India’s west coast to make phosphoric acid from the rock phosphate shipped from Latin America. It is also setting up a 750-crore, 1-million tonne DAP plant at Karwar in Karnataka. “By 2015, we shall be dealing with 3.5 million tonnes of phosphatic fertiliser. Of this, 2.5 million tonnes shall be produced in our own factories and remaining 1 mt will be imported,” Krishnan said.
Phosphoric acid is derived from rock phosphate, which is not available much in India. It is used with ammonia to produce DAP, a complex fertiliser used as a nutrient across farms in India.
Paradeep Phosphates Ltd, a group company, has been importing rock phosphate, converting it into phosphoric acid to make DAP. Zuari has been importing the acid at its plant in Zuari Nagar in Goa. “Investment in DAP can’t work well without backward integration into rock phosphate,” Krishnan said.
The DAP plant and its backward integration is part of the group’s $2 billion expansion in the next four years that includes plans to spend 5,000 crore on setting up a 1.1 mt urea plant in Belgaum. When implemented, the projects could double group’s turnover to $5 billion in five years.
“There was significant demand destruction. All companies are left with ample stocks and hardly any offtake. Ebitda margins are down to 10%,” Krishnan said.
