In 2013, when TV Narendran was named the new managing director of Tata Steel's Indian operations, Cyrus Mistry — then a year into his appointment as chairman of Tata Sons — was trying to shake off the old guard’s grip over the company.
B Muthuraman, who had been managing director back in the aughts and was its vice-chairman in 2013, had turned Tata Steel, a company with a single three-million-tonne plant in Jamshedpur in 2001, into a global steelmaker to be reckoned with. Tata Steel had plants spread across southeast Asia (primarily NatSteel Holdings) and Europe and the UK (the $13 billion Corus acquisition), and miscellaneous other units across the globe.
But Muthuraman was due to retire the following year and his protege HM Nerurkar, Tata Steel’s MD in 2013, was leaving soon as well. Corus had by then morphed from a prestige purchase into a millstone around the neck of whoever came next — billion-dollar impairments of the asset value on its books had just begun.
A balanced leader
In 2013, Narendran was 48 years old.
“He doesn’t have a flamboyant personality; he’s specific and balanced in what he says,” a former industry counterpart of Narendran told Moneycontrol.
He went on to explain how his style of working is very different from his predecessor Muthuraman, “He (Narendran) was quite diligent in establishing good relationships with senior members of his teams.”
“Naren had to take the bull by the horns on Corus right after he was appointed. And while he was doing that, global metal prices crashed. With the turnaround in Tata Steel, he has let his work speak, instead of seeking the limelight for himself,” he added.
In 2017, Narendran was elevated to global CEO and, according to some news reports, may also be elevated to a board seat at Tata Sons.
There’s good reason for this. Under Narendran, Tata Steel has come a long way from its 2013 avatar, when it seemed to be in danger of sinking under the weight of its ambitions. Today, its nine-month reported profit for FY22 is Rs 31,914 crore, edging out the group’s reigning cash cow, Tata Consultancy Services. In the previous fiscal year, Tata Steel had reported its highest-ever operating profit. Today, its global capacity stands at over 32 million tonnes of steel per annum.
Surging metal prices and cheap iron ore from captive mines have kept profits stable in India while Tata Steel Europe, a trimmed and downsized version of the old Corus, is generating enough positive cash flow to not be a drain on its parent anymore. On February 11, The Times of India reported speculation that Narendran might soon be elevated to the board of Tata Sons.
“I’ve always found Narendran polite and attentive, and always very responsive. Since taking over as CEO and interacting with various national and international organisations, he has grown and blossomed into a person with a pleasing, quiet confidence,” OP Bhatt, former chairman of State Bank of India, and now an independent director on Tata Steel’s board, told Moneycontrol. “Under his leadership the Tata Steel Group is at an all-time high,” he said.
Bhatt was interim chairman at Tata Steel in the period between Mistry’s dramatic ouster and the current chairman N Chandransekaran’s appointment.
“An important thing about his leadership is his concern for people; whether it’s preventing accidents and loss of life or when there is recruitment, promotions or downsizing,” Bhatt added. “The downsizing he had to implement in the Netherlands and the UK was fair and responsible. Tata Steel wasn’t stingy with time or with money. It lived the Tata values. In the UK, he enabled a £2 billion fix for the deficit in pensions by negotiating a deal the unions supported. This is conscious capitalism in practice,” Bhatt said.
Playing hardball when required
One of the few times that Narendran made a business disagreement public was in the summer of 2020, when he abruptly stepped down as president of the Indian Steel Association (ISA), months shy of his two-year term’s expiry. The ISA is a trade body that represents the interests of the country’s largest primarily steel producers — SAIL, RINL, JSW, JSPL, Tata Steel and AM/NS India — to the Union and State governments on common prices and policies. Tata Steel disputed proposed changes to the mining policy, which put older firms with captive iron ore mines on long leases at a disadvantage.
“After Dilip Oommen (CEO of AM/NS India) took over as president of ISA, he and I smoothed things over and created an atmosphere where the parties could be reconciled,” said Bhaskar Chatterjee, former chief executive officer of ISA. “As an association we wanted to present a united front. We respected the fact that whereas business decisions would be competitive in nature, as members of ISA we needed to reconcile our differences and work on a common agenda and platform."
In cyclical commodity businesses such as steel, accessing cheap funds and maintaining enough elbow room to survive the inevitable downturn is as important as keeping the blast furnaces running. At Tata Steel, this falls on Koushik Chatterjee.
Back in 2013, the two caught the media’s attention in the race for CEO. Chatterjee, in fact, had been rumoured to be ahead in the shortlist, till Mistry’s surprise announcement of Narendran.
“Naren and Koushik have been working together for a long time,” Bhatt said, about the two at the helm of Tata Steel. “Their relationship is even stronger after both interviewed for the roles of CEO. Their roles are clearly defined and have a lot of synergy. Naren travels to plants in Jamshedpur, Kalingangar and overseas while Koushik not only is the key finance person but also provides the anchor role.”
The duo have made two serious attempts to find a solution to the remaining European plants — Port Talbot in the UK and Ijmuiden steelworks in the Netherlands. First, a merger with Germany’s thyssenkrupp fell through, as did a later sale of only the Ijmuiden plant to Swedish steelmaker SSAB AB.
Acquisition spree in India
While they continue to right operations overseas, both Narendran and Chatterjee have doubled down on acquisitions in India.
In 2018, Tata Steel bought Bhushan Steel through the bankruptcy process for Rs 35,200 crore and folded it within the company as Tata Steel BSL.
In 2019, a subsidiary, Tata Sponge Iron, bought another bankrupt firm, Usha Martin, one of the largest wire rope manufacturers globally, for over Rs 4,500 crore.
This January, another subsidiary, Tata Steel Long Products, agreed to buy a 93.71 percent stake in state-owned Neelachal Ispat Nigam Ltd (NINL) for Rs 12,100 crore.
Stock analysts have called the price of these acquisitions into question, especially in the case of NINL, which comes at an acquisition cost of nearly $1,700 per tonne of steel against a replacement cost calculated to be half as much. Tata Steel argues that NINL gives it access to cheap captive iron ore and land banks for expansion near its existing Kalinganagar plant. It will also have synergies with infrastructure already built in the area, all contributing towards the company’s goal to build over 40 million tonnes of steelmaking capacity in India by 2030.
“Under Narendran and Chatterjee, Tata Steel has maintained focus on debt reduction even as they make pricey acquisitions. Their capital expenditure at Kalinganagar and Jamshedpur has remained low-intensity as well,” Amit Dixit, Director, Institutional Equities, Edelweiss Securities, said. “When steel prices fall next, which they will in the coming months, Tata Steel is better positioned to maintain operational profitability compared to its peers and we’re likely to see the return on equity increase.”
It is not, however, sufficient anymore for businesses to simply grow. The younger generation of consumers and investors is demanding climate accountability, and decarbonisation of fossil fuel-drenched industries like metal making. Tata Steel’s next test of leadership will be in ensuring emission-neutral growth, in tune with the conscious capitalism of the coming decades.