As finance director of Tata Sons, Ishaat Hussain is mentor, guide and guru to the chief finance officers (CFOs) of the 93 Tata Group companies. He spoke to Ashwin Tombat and Sujata Agrawal about finance in the era of globalisation, the Group's recent M&As and the new areas on the Tata radar. Excerpts from the interview:

At one time, finance meant just accounts and financial reporting. But with new statutory requirements and corporate governance norms, finance as a corporate discipline has crossed new frontiers…
I must take exception to the first part of your question. I have been in this business for 35 years and throughout my working career, the finance department has been deeply involved with all aspects of the business. What has really changed drastically in the last ten years is the scale and the complexity of doing business, particularly the financial aspects.

You were quoted somewhere recently saying that it is a bigger challenge to find competent finance professionals than finance in today's world.
That is an accurate quote. We need a lot of well trained, qualified people with a high degree of expertise. At present, money for good causes is available in plenty but good people are relatively scarce. Consequently, my main challenge today as a person who facilitates the finance function, is to get quality people and to retain them. We have started a direct recruitment process where all Tata companies — led by Group HR — go to campuses and recruit.

For the Tatas, mergers & acquisitions are the flavour of the season. How do you raise the huge funds required for large M&As?
Pardon me for correcting you, but it would not be correct to say that for the Tatas, mergers & acquisitions are the flavour of the season. The acquisitions made by the Group have been well thought out and are strategic in nature. As regards the funding of these acquisitions, the smaller acquisitions have been financed from the cash flows of the companies. Others have been financed by a mix of equity infusion into the companies as well as debts raised from the capital markets. Incidentally globally, the world is awash with liquidity which is keeping interest rates lower than what they should be at this stage of the business cycle. This factor is responsible for the buoyancy in the mergers and acquisitions market, both domestically and internationally.

Tell us something about Tata Tea's investment in Glaceau — the largest single Indian overseas M&A..
As I mentioned earlier, the Group's acquisitions are driven primarily by strategic considerations. In the case of Tata Tea given the low rate of growth of tea consumption the world over, Tata Tea seeks diversification of its product portfolio and is re-positioning itself as a beverages company. Against this background, you will agree that Glaceau is a logical fit as it is in the rapidly growing vitamin and flavoured water business.

The philosophy of the Tata Group in the '90s was to look at sunrise sectors and the new economy. But it looks as if the old economy has bounced back very strongly…
I have always had a problem with the dichotomy of the economy between the old and the new. The so called old economy is the staple that the world consumes and will continue to consume as long as mankind survives. Products of the new economy on the other hand are principally deployed to improve the productivity of the old economy. In other words, various sectors of the economy are inextricably inter-twined and the distinction between the old and the new is a construct mainly of the capital markets as the valuations attached to the companies in the respective sectors are different. However, it is true that certain parts of the old economy, particularly the commodities sector, are seeing extremely good price realisations and hence, vastly improved profits. The Group with its long history naturally straddles both types of economies and companies in both sectors have done extremely well.

Tata Steel has a huge investment lined up — greenfield projects in Jharkhand, Chattisgarh and Orissa. They are also looking at a steel plant in South Africa. Won't this require a huge amount of funding?
Tata Steel indeed, has announced a fairly aggressive expansion programme to be implemented during the next 5-7 years. Given its good cash flow which I believe, is sustainable, together with its current low financial gearing gives it substantial additional debt capacity, Tata Steel should be able to fund its requirements over this period.

The steel cycle is strong. Don't forget that after 100 to 150 years of industrial revolution, just 20 per cent of the world's people are consuming 80 per cent of the output. The time has come for a larger number of people to enter the system. In other words, I do see steel prices staying at levels where investments will continue to make economic sense.

How about entertainment? Isn't Tata Sky facing a lot of pricing pressure from the competition?
At the mass level, India is an extremely price sensitive market. Where in the world would you get 250 channels for Rs 200? Tata Sky which offers satellite television service provides a distinctly superior product and over time, when people have experienced the service, it would be fair to expect that a reasonable premium pricing strategy can be adopted. Also, one would need to provide some differentiated content. Above all of course, given the price sensitive nature of the India market, control over costs would be a key element of our strategy going forward to have a viable business model.

In future, we hope to bundle products like, B SKY B in the UK, where they have combined internet with satellite television offering. One can even envision a situation particularly given the Group's telecom assets, where we can offer a customer a mobile phone, a walky connection, internet and television — a compelling bundled offering for which the customer will receive only one bill. It could be a very powerful marketing tool.

One thing that has lifted Tata companies is the Tata Business Excellence Model (TBEM), which has been initiated in most Group companies. How much role would you say finance plays in the TBEM process?
The finance person is like a doctor. Ours is a diagnostic role. Good diagnosis is necessary for the right decision to be made. Having made the right decision, the challenge of execution remains and execution is a team effort. TBEM in my view is an ideal tool for ensuring excellence in executives.

Additionally, one of the key tasks of the CFO today is to manage investor relations and this role is particularly important when the business conditions get difficult and the CFO needs to calm the nerves of the nervous investor community.

Some of the challenges of a group CFO must be very different from the challenges of a company CFO.
That is true. My job is to be a friend and advisor, whenever company CFOs need help. Along with my other colleagues in Bombay House, we can take a broader view of things and help them see the bigger picture. My challenge is to provide the resources for the company CFOs to get on with their jobs. I also see the role of Group Finance in creating centres of excellence in areas such as taxation and financial reporting.

Most important of all, the integrity of the systems in the Group should be such that whatever information goes out must be "true and fair". There is a system of corporate assurance under my colleague, Arun Gandhi, executive director, Tata Sons, to ensure systems and controls are of the highest standard. Corporate assurance systems and control are becoming very complex and both Mr Gandhi and I are very conscious of the challenge that this poses for the Group.

Uploaded on February 28, 2007