Voltas

 I have feelings of satisfaction and fulfillment at the end of a long
 Corporate career, including over four decades with the Tata Group.  I
 have been especially fortunate in interacting closely with several of
 the Tata Greats, among whom Sumant Moolgaonkar and J.R.D.Tata had special influence.
 
 Since I entered a leading U.S. Management School almost fifty years ago, I have been very involved in
management training and have viewed with some amusement the ever-changing mantras of Management Gurus.
Recipes for success of executives and corporations change with almost the same unpredictability and frequency
as fashions in the length of women's skirts or the width of men's ties.  Management practice being a
marketable product needs to be repackaged and given a new look from time to time. I hope I will be forgiven
if I comment on some of the current prescriptions for success.
 
 Shareholder Value
 
 It is obvious that no corporate individual, institution or organisation
 can long survive without producing an economic surplus.  Those who
 contribute resources to an enterprise - capital, labour or any other
 asset - expect a return which over time must at least equal that
 obtainable from alternative uses.  Such return may be contractually fixed or be the residual surplus - the
profit of the owner.  While the
 measurement of this surplus may become more sophisticated and precise
 and bear different names - the concept of profits is surely co-terminus
 with economic activity.
 
 What is alarming is the current insistence of many that the sole and
 exclusive objective of management is the maximization of owners' or
 shareholders' profits, all other considerations being secondary or even
 irrelevant.  To this notion is added the deceptive precision of several
 performance measurement formulae under various names - Economic Value
 Added (EVA), Return On Net Worth (RONW) and the like.
 
 Comparative assessment of management efficiency is, of course, essential.  However we need to be very aware
that profitability is so
 often and so largely dependent on external factors: a significant
 variation in the rate of interest can dramatically alter EVA, particularly in capital intensive activities. 
It is relatively easy to
 have a large and positive EVA in an environment characterized by a Dow
 Jones hovering at 11,000, high consumer confidence and low unemployment; however, even for managements of
equal calibre, a large EVA is more difficult to achieve in a situation of recession, high unemployment and
endless corporate failures.
 
 Also, can the surplus for the shareholders be the only concern of a
 manager and can other stakeholders in the activities of an enterprise
 be considered secondary: employees, customers, the community? The
 assumption that legislation or market forces will protect the interests
 of these groups is contrary to experience.  While seeking to meet
 shareholders' expectations, managements cannot overlook distributive
 justice for employees and for the community.  Employees expect to
 participate in the values they create.  Our fellow countrymen expect to
 benefit from economic growth and their expectations are rising and
 becoming more insistent.  So also, with the growing abundance of capital seeking outlets and the increasing
shortages of knowledge-based and managerially-experienced personnel, the price that capital can command
becomes lower and the values generated by economic activity accrue increasingly to others. 
 
 Core Competencies
 
 Another management consultant warning : do not venture into activities
 about which you know nothing.  Fortunately we have had entrepreneurs and visionaries who have ventured into
uncharted waters and who developed competence in entirely unfamiliar areas or simply in building managements
or in creating investor confidence.  Jamshetji Tata forsook
 his trading background in pursuit of a modem industrial India, in which
 the interest of his shareholders was but one, though an important one,
 of his objectives.  He, his two sons and JRD Tata created national institutions which are as much a tribute
to them as the Companies they
 established.  Fortunately, entrepreneurs continue to flourish and to
 establish major companies.  But for the vision and courage of such persons, the newer industries - plastics,
information technology, biogenetics, cable TV and many more - would not have developed so spectacularly and
even many of the older industries would never have
 flowered.
 
 Nobody suggests proliferation of activities or unrestricted diversification such as resulted from the
licence/permit raj of the
 past.  However with, at last, easy access to the latest technology and
 little hindrance to securing services of specialized personnel from
 anywhere, why should entrepreneurs not venture into new industries and
 activities which they believe to be the most promising.  Exiting and
 entering businesses are surely the hallmark of entrepreneurs -
 discerning opportunities and trends invisible to many others.  Through
 the mechanism of autonomous divisions, subsidiary companies and the like, the competence and technology
appropriate to each of several industries can be nurtured and developed to the critical size when they
 can be spun off.  Tata Industries is quite effectively doing precisely
 this.
 
 Unfortunately Indian law, unlike that of many other countries, does not
 require companies to disclose the profitability of each of their major
 activities and in each significant geographic area; this results in
 investors being unable to discipline managements, who year after year
 continue to pursue pet projects which are unviable, depriving their
 company's shareholders of legitimate profits.
 
 The case made out for quite some years for multi-faceted conglomerates
 was just as convincing and probably as deceptive as the current
 insistence on a single-focus approach.  Today conglomerate and
 diversified have become dirty words though some of the world's most
 respected companies - GE, Hitachi and Siemens - are just that.  Of course, activities and interests
appropriate to a past environment may
 be outdated today : emphasis on manufacturing know-how gives way to
 marketing expertise and systems building to technological excellence.
 But surely that is the function of entrepreneurs and managers : not only to adapt to change but also to be
agents of change.  A company that does not grow, dies.
 
 Down Sizing
 
 There is no question about the need to dramatically increase the efficiency and productivity of all economic
enterprises in India, to
 better utilize all resources : material, financial and plant, as much
 as there is the need to enhance employee productivity. No company or
 country can for long survive, particularly in an integrated global economy, if its resources are not used at
efficiency levels comparable
 to those of other countries and companies.  It is unquestionable that
 almost all resources in India - working capital, fixed assets, managerial time, distribution channels and
employees - are inefficiently used though emphasis seems to be given primarily to the generally abysmally low
level of employee productivity. The need to reduce our employee numbers, to ensure discipline in the work
place, to enhance productive efforts are all accepted and need to be vigorously pursued, though the
short-term consequence of these in any industrial organisation may be reduction in employment especially in
industries,
 such as banking, where technology has revolutionized processes.
 Technology has also dramatically reduced the need for shop floor
 employees but they can be retrained or redeployed.  Employment growth
 comes through ancillaries and supporting industries.
 
 It does seem strange to me that successfully down-sizing, which is
 generally a euphemism for reduction in employee numbers, has become a
 matter to boast of or to be proud about rather than to consider it a
 matter of regret and economic compulsion.  Surely the creation of
 additional productive employment should be as much an objective of
 responsible corporate endeavour as the creation of economic surpluses,
 especially in countries such as ours which have no social security and
 high unemployment.  If the world has become more knowledge based, the
 requirement is for an increased number of trained knowledge-oriented
 employees; the obligation of organisations must be to create the
 environment and to establish the institutions which will develop the
 skills and capabilities required in the future.  Since service industries are not only those with the
highest profit and growth potential but also those with generally the highest employment, surely
 our national efforts should be to examine how to increase and develop
 the service industries.  This is without denying that the rigidity of
 our labour laws greatly impedes the growth of employment in organized
 industries and leads to the substitution of labour with capital.
 
 It was precisely because they combined technology and were service-oriented as well as fulfilled national
needs while offering high profit potential, that I encouraged the entry of Voltas into pollution control
equipment, branded processed foods and all aspects of water management (locating, extracting, purifying and
distributing for human and agricultural uses).  However, with a radically altered external environment, and
following current wisdom as well as the preference of Financial Institutions, we decided that Voltas should
now almost wholly focus on air-conditioning, trading in industrial engineering products and the contract
manufacture of White Goods. 
 
 The Voltas Scene
 
 When I relinquished executive responsibilities for Voltas on 31st March
 1994, I confidently believed that the Company's 40-year record of unbroken dividend payments would be
maintained.  I am glad, as I am sure shareholders also are, that after a two-year break Voltas has for
1998-99 declared a modest dividend signifying an end to an unforeseen
 difficult period. Voltas has great inherent strengths : its fine
 reputation, its membership of the Tata Group, its well-tested organisation, its invaluable real estate, its
brand name, a much improved product range for which there is an increasing demand, and much else.
 
 Shareholders will appreciate that unlike other companies in its industries, Voltas has not raised large
funds through frequent capital
 issues at high premia.  The present Net Worth of the Company consists
 largely of earnings retained in the business after payment of reasonable dividends.  No rights issues have
been made for 25 years during which bonus shares were declared on two occasions.  The performance of Voltas
in the past has been favourable in comparison with that of other companies as a glance at the past 15 years
will show.
 
 
 
                                                   Return on
 Year      Earnings              Return on         Net Worth
           per share   Dividend  Capital Emp.     PAT/Own Funds
 
              Rs.         %
 
 1984-85      1.24       10        11.55              4.05
 
 1985-86      2.44       10        14.83              5.63
 
 1986-87      5.36       16        21.25             13.05
 
 1987-88      7.59       22        23.89             22.01
 
 1988-89     11.18       24        19.01             17.96
 
 1989-90      9.15       24        20.69             29.31
 
 1990-91      9.22       27        20.76             24.43
 
 1991-92      7.66       27        17.61             18.88
 
 1992-93      3.26       27        10.93              6.68
 
 1993-94     11.65       30        16.66             25.82
 
 1994-95      6.34       35        10.64             13.19
 
 1995-96      4.58       25         9.69              9.11
 
 1996-97       -          0         6.02             -10.8
 
 1997-98       -          0         7.90             -6.61
 
 1998-99     3.87        12        13.85              8.14
 
 
 
 Shareholders have assurance that the Company will sustain its
 well-earned reputation of providing outstanding products and services
 to its customers, satisfactory returns to shareholders and reasonable
 job security to its employees.  Voltas can, must and will do well in the coming years.  It is with this
confidence that I will soon lay down my Office as Chairman of the Company to devote more time to the several
Foundations and Trusts in which I have been increasingly involved in the past few years.
 
 To all of you, shareholders of Voltas, most of whom have so generously
 supported me with trust and confidence, I send my sincere greetings and
 good wishes.