We continue to grow in a difficult market
Within months of taking over as Managing Director of Tata Steel (India and South East Asia), TV Narendran has set the ball rolling as far as future growth for the company is concerned. He talks to Tata Review on regulations, the challenges his company faced in the last year, growth prospects for next year, and his focus on making Tata Steel more confident, creative, and collaborative.
For the financial year 2103-14, what would you pick as the highlights for Tata Steel India in terms of both achievements and challenges?
The economic downturn has slowed down businesses in India, particularly in the case of auto and construction industries. But Tata Steel India has, in a difficult market, managed to add a million tons to its capacity in 2013-14, growing by 12-13 percent. We not only gained in terms of market share, but we also increased our volumes, protected our margins (compared to last year), and entered new segments.
Given the tough market conditions, where did the growth come from?
The growth has come from both existing and new products. We have grown our share in the auto industry from last year’s 39-40 percent to 43 percent this year. We reached out to almost 6,000 SME customers, a segment that has traditionally been under-served by steel companies. We have built a network of over 40 distributors to ensure that SMEs get the steel they want. The effort has paid rich dividends as we have sold a significant amount to the SMEs, which contributed to the growth.
n terms of customer-centricity, we have probably done more work in the market than most steel companies in the world. Few companies have achieved the level of innovative work we have done, the new routes we have developed and the engagement we have with our customers. The weaker rupee helped as imports shrank and we were able to step into that space. Over the last year, India has turned from being a net importer to a net exporter of steel, but given the lucrative domestic market, we decided not to focus on exports.
Tell us how the business has grown in South East Asia in the last one year.
TTata Steel Thailand, which is largely focused on the domestic market, has struggled over the past four years due to operational, internal and investments related issues, but this year we expect it to turn around.
NatSteel, which is based in Singapore, has joint ventures and downstream units in China, Vietnam and Australia. It is probably our only overseas business that has never made a loss. The business is self-sufficient and does not need cash infusion for growth. The Australian business, where we were losing money after the 2008 crisis, is being restructured. We exited the Philippines business and are setting up downstream centres in Indonesia and Malaysia.
For the business in China, which has grown significantly, we use the existing assets and leverage the equity we have in the market to sell almost 150,000 tons a month and 2 million tons a year. China is a thin-margin and quality-conscious market, so we have to operate a nimble business that offers good quality.
The Kalinganagar project in Odisha, India, has been one of your biggest projects in recent times. What does it mean for Tata Steel?
We are looking at commissioning the project in the last quarter of 2015. The first phase of the project will create capacity of 3 million tons at an investment of over `250 billion. It’s a massive financial commitment and we need to start production soon.
Kalinganagar has been a huge learning for us. The last time someone did a private sector greenfield steel project in India was in Jamshedpur when the (Tata Group) Founder and his sons did it. So when we went to a new place, in some ways we underestimated the challenges. We assumed that since we had a lot of equity and we went with the right intentions, everyone would welcome us. However, people have their own anxieties and we cannot take them for granted.
So engaging with the community, listening to them, building trust is something that must be done well ahead of the project; it cannot happen alongside.
Is the continued uncertainty in the regulatory environment a cause for concern? How does this affect business and morale?
CEOs in India spend far more time addressing regulatory issues than CEOs in other countries do. To be fair to the regulators, the industry has invited this scrutiny to an extent. There is a need for the industry to look at responsible growth and be good corporate citizens.
In the next two years, the demand for steel in India is expected to grow to about 180-200 million tons. So capacity of an additional 100 million tons has to be built, for which we need to spend approximately $100 billion. Very few countries in the world have both the raw material and the market. India has both. But if we don’t leverage this opportunity to translate the richness below the ground to opportunities above the ground, then we will be missing out. To support this, India’s regulations need to be simple enough to attract investors and tight enough to ensure communities are not exploited.
What are the factors that create optimism for the company despite the regulatory environment and the economic slowdown?
My optimism stems from the fact that Tata Steel has a strong team and a good track record. Besides, the last quarter has been better than the one that preceded it: the construction industry has seen more projects, the auto industry has seen a pick-up. Hopefully, post elections, there will be some stability in the market. Overall, I am optimistic because the right things such as good governance, job creation, growth and corruption, etc are at the centre of the political debate.
How do you see the steel industry performing in the year ahead?
Steel is very closely linked to the GDP. You can assume that the steel consumption growth will be 1.2 or 1.3 times the GDP. I see the GDP in the 4.5 - 6 percent range for at least two years, which means that steel consumption will be at 5-7 percent. In the medium to long-term we need to add capacity to keep up with demand.
Profitability will depend a lot on the cost of raw material, land acquisition, raising funds and many other factors. The depreciation of the rupee is helping us become more competitive.
What can we expect of Tata Steel in India and South East Asia in the next 12 months?
We would like to add a capacity of a million tons every year in India. The capacity at Jamshedpur will touch 10 million tons and the Kalinganagar plant will go live in the last quarter of the year, adding more capacity.
In South East Asia, we will continue to go downstream, setting up facilities in Indonesia, Malaysia and Hong Kong. We are currently at 4 million tons of sales in this region and I would like to take that to five to six million tons. As countries such as Vietnam, the Philippines and Myanmar are still at an early stage of steel consumption, we have huge opportunities to tap. The key is in going about it in an integrated fashion.
If you were to pick your key priorities in the year ahead, what would they be?
My top priority is to get the Kalinganagar project off the ground. We have spent huge amounts of money there, so we hope that we can translate the investments into revenue and profits much faster. The second area is dealing with all the regulatory issues that come our way.
The third area is doing well in challenging situations by not losing sight of customers and markets. People will be a priority too. We are going through a transition, including leadership changes; since a lot of people at the operating level will retire in three years, we are moving people laterally and integrating them into the Tata Steel culture to create an organisation that is confident, creative, collaborative, comfortable with itself.
As we scale up, the centre of gravity will shift from Jamshedpur. How then do we create high levels of employee engagement? We want to create an environment where people can excel. If we do that, the organisation will have enough depth and strength to deal with challenges.
Reproduced with permission of Tata Review