Interview with J. J. Irani, CEO of Tata Steel (Tisco) with The Free Press Journal (issue dated 26 June, 2000)

Free Press Journal: Are you satisfied with the Tisco’s financial performance?

J. J. Irani: We have closed the financial year 1999-2000 with a50 per cent jump in profit after tax at Rs.422.59 crore over Rs. 282.23 crore recorded the previous year. Tisco has declared an interim dividend of 40 percent for the year.

We registered a 10 per cent increase in turnover from the previous year’s Rs.6274.64 crore to Rs.6890.87 crore of the current year. The performance during the last quarter of the year was strong, with the increased output from the hot strip mill meeting the seasonally high demand when international prices were buoyant compared to earlier in the year.

Tisco posted a 47 per cent increase in earnings per share from Rs.7.67 to Rs.11.26. Sales increased nine percent to 3,210,156 tonne over 2,949,109 tonne in the previous year, the export turnover registering a 16 per cent increase from Rs.636.19 crore to Rs.740.15 crore.

The company completed the sale transaction of the company’s cement division to Lafarge India Ltd, was completed on October 31, 1999. Tata Steel incurred a profit of Rs.125.26 crore from the sale of net assets of the cement division. The company posted a disposable profit of Rs.403.09 crore over Rs.323.79 crore in the previous period. Though Tata Steel’s financial performance has been substantially better than before, and in fact in many ways, represents the best ever performance of the Company, one can never be fully satisfied as one knows that there is always scope for improvement.

FPJ: What are the company’s capex plans during the year and how will this be funded?

J . J. Irani: The company proposed to undertake a capital expenditure of Rs.600 crore in the current fiscal year as against Rs.950 crore spent in the 1992-2000. Tata Steel is in a position to spend a few hundred crores during the coming year – this will be funded predominantly from internal accruals. The expenditure will be directed towards cold rolling mill and completion of Modernisation Phase IV schemes.

We have plans to further reduce the number of employees further by 4,000 to 48,000 during the current year at an estimated expenditure of over Rs.150 crore while increasing the total production of steel from the current level 3.20 to 3.50 million tonnes by the year 2001-2002. The management has also decided to add value to its product mix and gradually reduce the volume of semi-coils from the current 16 per cent to 8 per cent.

 The state-of-the-art, 1.2-million tonne cold rolling mill will start commercial production by end of August this year, which would take a sizable chunk in value added product mix. By the year 2002, HRC and CRC would have a share of 27 and 34 per cent respectively in the total production volume of the plant.

FPJ: Over the past few years, it has been a struggle for integrated steel producers to survive in a free market economy. Can you elaborate on some of the measures Tisco has taken in this regard?

J . J. Irani: Tata Steel has focussed on controlling costs, enriching the product mix and investing in downstream areas,(such as the cold rolling mill) in order to make sure that the company is amongst the most competitive steel producers worldwide.

In fact we are fast emerging as the world’s lowest-cost producer of hot-rolled coils (HRC). The company has now edged close towards Pohang Steel Company (Posco) of South Korea with a cost of $157 per tonne of HRC as against $154 per tonne for Posco.

The international prices of HR coils in March 2000 were around $300-$320 per tonne compared to April 1999 prices of $200-220 per tonne. The company has also tried to control the cost. The cost of production of HR coil has decreased in the last two-three months to around $157 per tonne.

We have also emerged as the cheapest producer of coke, sinter, hot metal and liquid steel. Tisco would be in a position to reduce its costs below Posco’s as the company has its own iron ore mines, coking coal, modern blast furnaces and steel making facilities.

During 1999-2000, the company has been able to reduce its energy consumption and has also improved its labour efficiency. The company would also try and cut its labour strength to 48,000 at the end of March 2001 from the current 52,167. There would be a natural attrition of around 1,500 over the year.

Our focus will be to move up the value chain and exit from selling products that are not remunerative. The company plans to produce 23.5 million tonnes of crude steel for the year 2000-2001. The product-mix for next year will include HR coils (27 per cent), cold rolled coils (34 per cent), longs (29 per cent) and semis ( 8 per cent). Tata Steel would like to exit selling semis as prices are unattractive and the company just about breaks even.

 We are constrained to sell some tonnage of semis as it does not have adequate finishing facilities. We would also be interested in acquiring some finishing facilities.

The company is also on the lookout for acquisitions to generate future growth. The existing plant was running at peak capacity and the company is not interested in building a new plant.

We would be interested in the steel unit of Raymond Ltd., with collaboration of a foreign partner as the company itself does not have the expertise. Raymond is interested in selling off its steel division which produces special grade steel. However the price would be a key consideration in any such acquisition.

FPJ: What is the progress on company’s plans to hive off its IT division to IBM. We heard you are planning to outsource your IT requirements from them afterwards?

J . J. Irani: We have had a long-standing association with IBM through a joint venture from which the group exited last year as part of an ongoing group restructuring. The matter is in an advanced stage of discussion with IBM. We expect higher levels of service at lower costs after the deal goes through. Though we had set a deadline of March 31, 2000 for concluding the sale of the division, the deadline has now been extended so as to get the "best value from the new arrangement".

The final decision would hinge on the price at which we would be able to outsource our IT requirements. The company’s software division has around 300 employees, and an internal valuation has put the division’s worth at around Rs.200 crore.

FPJ: With e-commerce fast gathering momentum, what are your plans on this segment?

J . J. Irani: An old economy can always be turned into a new economy provided the authority has a vision to create a knowledge-based management system and build a performance ethic among the employees. An old economy plant like Tata Steel has now turned into a world class manufacturing base only through dedicated measures like technology upgradation, operating cost reduction and improving the scale of economy so that the products fetch certain premiums in prices at the market place.

In the last one decade, a sum of Rs.10,000 crore was spent at the Jamshedpur plant to sharpen every aspect of operations, including drastic reduction of manpower from 78,000 to 52,000 as on March 31, 2000. Our e-commerce plans are in fact the Phase-V of modernisation strategies. This would not involve the expenditure of huge sums of money to create physical assets. Instead it would take on the far difficult task of empowering people with knowledge of e-commerce and performance ethic in order to meet the challenges and opportunities of the future.

Tata Steel has set up a separate team to look into the opportunities of developing an e-commerce business of its own or should it be beneficial to have a tie-up with other firms, which peddle steel on the Internet. In addition, the company is taking initiative to venture into expansion of its mining business to coal, chrome ore and titanium metals and in this context, discussions are being initiated with the Orissa government to have joint venture activities with the state owned corporations.

FPJ: How will the commissioning of the Rs.1,600-crore CR mill change Tisco’s product mix in coming years. Which are the main market segments, the company is eying at and can you elaborate on the company’s gameplans?

J . J. Irani: The new CR mill is Tisco’s platform for ushering in the millennium or "Steelennium". Certainly, the pressures for change were obvious.

Consider this: 80 per cent of the approximately four million tonne CR market in India is fed by imports. And since hot-rolled (HR) products are intermediaries, our profitability depends on CR prices. We realised that to be competitive, we had to produce the CR products that consumers were demanding.

Behind the attractive packaging of the new CR mill is a growth strategy that rests on three Cs – cost, customers and change. Translated, this implies that branding and customer intimacy, riding on knowledge management and low-cost operations. It will enable Tata Steel to consolidate its position in the domestic market as well as to compete globally. Now, with the CR mill’s commissioning, 1.2 million of HR production will be fed to the CR mill, reducing our presence in the commercial HR market.

Within the CR mill, in five years, 60 per cent of product mix will be auto-grade while the balance will be white goods and construction application products with a small percentage going into galvanised corrugated (GC) sheets and piped. We expect to achieve operating profits in the first year itself with net profits coming in from year two. The larger gameplan is to integrate the one-lakh tonne CR facility on the west coast that Tata Steel acquired from Tata SSL last year.

Once the Jamshedpur mill has stabilised production, the company will merge both the east and west facilities under a single profit centre.Besides, in keeping with Tata Steel’s millennium vision statement, redrafted last year, under which we aim to become the lowest-cost steel producer in the world powered by a dominantly high-value product matrix, the HR and CR operations are being integrated as well.