India offers opportunities for all: TataChem
Feb 27 2013, 21:06 | By CNBC-TV18
Over the last few years, one of India's oldest and most respected business groups, the Tatas, has been appointing a number of young CEOs to head some of its most prominent companies. We have one of them on our show today - Ramakrishnan Mukundan, who was appointed CEO of the Rs 13,000-crore, Tata Chemicals Limited (TCL), in 2009 at the age of 42.
Note: This piece was originally published on Sep 15, 2012
Below is an edited transcript of the interview on CNBC-TV18.
Q: Were you briefed about a plan to have younger executives lead companies across the group?
A: I think the group has gone through a lot of transformational changes and I could'nt tell if there was a grand design because I was part of the process. But now in hindsight, it looks like there was probably a grand plan.
Q: You took over a company in the middle of transforming from a largely commodity company to a consumer-oriented one. Is that that one of your ambitions for the company?
A: I think I would like to add a lot more consumer-oriented products to the table. We certainly believe that we will do well as a we have evolved a formula that works in the market place. So clearly, the transformation is part of an conscious initiative to highlight the company's presence in the public eye. A chemical company is an invisible entity, but we emerged to the fore thanks to a brand called Tata Salt which gave us tremendous consumer presence,
Q: So you realised that Tata Salt was an unique brand?
A: Yes, and we decided to build on that. And the journey has been exciting and the team has worked to get new products off the table. I think the team has learned and is still in a process of learning.
Q: I can understand the move into food which is a bigger market thanks to Tata Salt which is available at all grocery stores. So, your foray into pulses is a natural fit. But what were the synergies in your water purifier brand Swach?
A: It is mainly around technology. I think we found a technical, low cost solution that did not require electricity, water supply and yet purified water. Though the product was thought to be a fit for a consumer-durable company, there were no takers. So we had to take this to the market place ourselves.
Q: So you did actually look around for a consumer-durable company?
A: We debated a lot at that point of time and realised that at the end of the day that when we were selling the water purifier, that what we were actually selling was the replacement cartridge which, like any replacement cartridge, is a non-durable.
Q: How many have you sold?
A: We have sold over a million now in two years and I think we selling about half a million a year. So, we are selling half of our target of selling a million every year.
Q: And how big is the opportunity in the food sector? The packaged food segment has been touted as a big opportunity for a long time. Has the segment attained significant size?
A: We find the sector very interesting - from loose to packaged to processed. We have decided to start with packaging items that are today sold loose and give it an assurance of quality assurance and brand value. So after salt, we have entered the pulses category. It's the single-largest loose product being sold in retail stores today. So our effort is to sort, package it, brand and give it the quality assurance it needs.
Q: But is it getting the traction you estimated?
A: The foray is growing slowly because of the difficulty in establishing a price. Commodity food prices witness regular fluctuations and it is tough to keep changing the price of a packaged product with brand value. So, we want to solve this problem before we expand.
Q: Where do you see Tata Chemicals in 5-10 years? What will it be- a commodity or consumer retail or a technology company?
A: We have always articulated that we will always be a chemicals company. But the proportion of the non-commodity or specialty chemicals and branded products arm has grown over the last six-to-seven years. In 2004, they were about 11%. Seven years later the proportion is at about 22% and in another seven years it will probably double and become 40-50% of the company.
Q: Can you give us a break-up of the growth regarding growth abroad and in India? The company's earns a total revenue of about 40% from overseas. Are you seeing a larger growth of branded products in India or overseas?
A: We understand the Indian consumer so I think we want to focus on the consumer side of the business in India and adjacent markets. I think the Indian diaspora may extend the reach of some of our products into Africa.
Q: Yet 40% of your income comes from abroad. Is there a strategy involved or was it the a quirk of fortune?
A: This is because of our outlook of gaining access to resources to feed the growing Indian market. In the basic chemicals segment, the factors of production are at where the resources are. So our plan was to acquire upstream assets in resources. When we acquired these resources, some additional resources came along, which were not relevant to the Indian market. But that's the way M&A transactions work.
Q: How are your international operations fairing now after the stress on your balance-sheet when you acquired assets initially three-to-four years ago?
A: The Lehman crisis broke just when we acquired the assets and put us through very difficult times. We have spent the last few years trying to set right the balance-sheet and that process continues. In terms of performance, I think our US asset have continued to do well. I think the bounce back we saw in the US is a reflection of the US economy.
The Magadi (in Kenya) asset had technical problems which have been sorted out, but Africa continues to be an ongoing challenge.
Q: Could you describe your experience in Africa which is being heraled as the next India? How big is the opportunity? Have we lost out on that opportunity to China?
A: Nobody can deny that Africa is an opportunity. And I think companies in India are well-suited to go to Africa because the conditions are similar. However, the markets in Africa are highly spread out and that presents a huge logistic challenge.
But as long as one is aware of the fact that there will be inventory pile-ups and delays in movement of material, I think difficulties are about the same as you would face in India.
Q: You headed the company's foreign operations when the Lehman crisis hit and it hasn't been easy since then because the crisis hardened commodity prices and caused huge fluctuations in foreign currency. How has all of this affected you?
A: I think that course of events has substantially affected the financial performance of the company because it has increased the cost of the acquisition and put pressure on the entities were being acquired. The debt in the books in the form of unhedged loans is huge. Last year we took a Rs 250-crore hit on our P&L. So these things tend to impact the profits of the company substantially.
Q: What do you mean when you say you are in the process of deleveraing your balance-sheet?
A: We will deleverage the standalone balance-sheet and try to take it a level that we are comfortable with.
Q: Will that mean equity infusion?
A: The infusion is going to be through two or three processes. The company is deleveraging on its own by ploughing back the profits. Second, we are moving the debt out of India because it was incurred on assets acquired outside the country.
Q: How tough is it to operate in the fertiliser sector which is your core business?
A: I don't think its tough. In my view, though the policies are framed on sound principles, they are changed frequently and becomes difficult for us to keep up.
Q: So the decision on nutrient-based subsidies isn't implemented fully?
A: Yes. The subsidy is in potash and phosphate, but not in urea. The half-hearted implementation leads to several imbalances in the market place.
Q: So how much has government policy affected your planning process or your overseas initiatives?
A: We did not move out of the country because of the policy environment. We invested overseas for access to upstream resources as that would make us more competitive. As far as the policy environment is concerned, I think that the delay in subsidy payments remains one of the key irritants of the policy environment. So we provide for a slightly higher level of working capital and nothing else.
The government is very keen to make sure that this entire framework of fertiliser policy is more transparent. I remain a policy optimist.
Q: So is the whole venture into retail a move to reduce risks of the chemical business?
A: Our foray into retail was a quirk of fate. I think if we did not have the fortune of having Tata Salt, we would have probably not viewed the sector so keenly. The popularity of Tata Salt resulted in the creation of a great distribution network. All we're doing now is just feed products to the distribution network.
Q: What kind of products?
A: We have moved beyond fertiliser. We now have pesticides and we just bought a seed company. This now enables us to offer the farmer a whole suite of products. We are also trying to provide technology that will aid the farmer.
Q: How much money do you spend on research?
A: I wish we could spend more. Indian companies are constrained by the size of their P&L accounts and balance-sheets. We have spent close to about Rs 100 crore in building our Pune centre and we have got another center in Aligarh.
Our acquisition, Metahelix, is clearly a research-based company. Annually we maybe spending close to Rs 25-30 crore. Our aim is to focus attention on just three technologies.
Q: What are your plans for the company?
A: I think we would like to continue to be leaders in a few sectors and in India we would certainly like to be one of the leading companies. In addition, we are trying to be known as the most innovative company.
Q: How does Rallis fit? How do you leverage a company like Rallis?
A: Rallis completes our portfolio of solutions that we offer to the Indian farmer. In addition, Rallis also was the first entry into specialty chemicals.
Q: How do manage working with managers who are older than you?
A: It is for the board to decide who sits on the chair. Being at the helm carries the responsibility of creating a pipeline of successors. Another aspect that should dispel fear or insecurity is the large amount of opportunities that are thrown up as the company is growing. The challenge is if the company doesn't grow and the people do.
Q: What is the rate that you have been growing at?
A: In the last ten years, our shareholder returns have grown at 30% and profits at 25-28%.
Q: So it does not matter as as long as you are growing fast enough?
A: The Indian market is going to continue to grow at 5.5-6%. At the end of the day, if you are a good company, you can grow at 8-9%. And that is a good enough to keep everybody engaged.
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