Tata Chemicals was characterised by substantial volumes on Thursday and the scrip was near its day's peak of Rs 67.50.

In fact, it was placed at Rs 67, up 2.6% over its previous day's close on BSE. Volumes on the counter touched 200,000 shares.

The stock's performance has been upward of late though volatility market the counter over the last few weeks on alternate bouts of buying and selling. The volatility was the after-effects of a merger announcement of Hindustan Lever Chemicals with Tata Chemicals. From a recent low of Rs 57.85 on 14 February 2003, the scrip has surged 15.8% in the last few trading sessions to the current Rs 67.

A reduction in freight rates on soda ash in the Railway Budget presented to Parliament on Wednesday has prompted the scrip higher today. Freight rates on soda ash have been cut by 6.7% to Rs 57.88 from Rs 62.01 for 100 Kg for a distance of 700 kilometres . The rate will become effective from 1 April 2003. TCL is a leading soda ash maker in the country.

TCL is also likely to benefit from reduction in freight rates on naptha and furnace oil. Naptha and furnace oil are are important igredients in the production of fertilisers. However, gains from this may be watered down if the government reduces subsidy by a corresponding amount. There has been no change in the freight rates on urea. TCL is a leading manufacture of urea in the country. HLCL is presently engaged only in the nitrogenous fertiliser business, manufacturing diammonium phosphate and SSP .

As per the ratio of merger worked out by the valuers, five TCL shares will be allotted for every two equity shares of HLCL. HLCL has a low equity base of Rs 13.79 crore while TCL has a high equity base of Rs 180.72 crore (Rs 1.8 billion). The merger will lead to a substantial dilution of equity by about Rs 34 crore. The post-merger expanded equity of TCL will be about Rs 215 crore (Rs 2.15 billion) from current Rs 180.72 crore (Rs 1.8 billion).

The merger is expected to benefit TCL in the fertilizers segment. TCL 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. Tata Chemicals sells fertilizer in UP, Haryana & Punjab.

Soda ash goes into the manufacture of detergents. TCL supplies soda ash to a host of other user industries (besides detergent) like glass making, chemicals and silicates. TCL is a leading player in the soda ash segment with an installed capacity of 875,000 tonnes per annum, accounting for 42% of India's soda ash capacity. TCL manufactures several variants of soda ash such as soda ash light, medium dense, dense, granular and soda ash fused. The company has a nationwide distribution network mainly concentrated in the northern and western India. These areas account for the highest consumption of soda ash in the country.

The soda ash industry has been growing at 5-6% over the last three years mainly on growing demand from detergent and glass manufacturers. Glass, especially that used for construction purposes, is expected to significantly enhance demand for soda ash.

BSE code: 500770