Last year was a mixed bag for Tata Chemicals, with margins coming under pressure even as the company increased capacity, acquired British Salt in the UK, kicked off a rebranding exercise and entered the packaged pulses market. Tata Chemicals managing director R Mukundan takes us through the ups and downs of the year gone by and the company’s plans for the current year
Tata Chemicals’ financial performance in 2010-11 has been encouraging rather than outstanding. Are you satisfied with these results?
I would say that the results were close to what we had set out to achieve at the beginning of the year. We reported an 8 per cent growth in profit after tax at Rs6.55 billion and turnover of Rs111.02 billion, up 16 per cent from the previous year. The results could have been even better, but we had to face several challenges on account of the rapid input cost increase in the second half of the year, which impacted several of our facilities in India, the UK and Kenya. In terms of operations, we had challenges in the United Kingdom because of the extreme winter. Our plant ran at a very low level for around 30 days and there were minor hiccups in India too due to floods in the area around our Babrala plant in Uttar Pradesh. We expect the current year to be substantially better.
About 40 per cent of Tata Chemicals’ revenues accrue from outside India as of now. How have the international units performed?
We have different growth plans for our different units. The UK unit has just acquired British Salt to grow its portfolio. Tata Chemicals North America, our largest overseas operation, is looking to expand its capacity by 400,000 tonnes; it has also acquired a stake in EPM, a US-based potash company. This has been one of our best-run operations and it had a record-breaking year in terms of production and sales. Next year will be even better; in terms of profits they do over $100 million a year.
What was the rationale behind the British Salt acquisition?
Tata Chemicals has a significant presence in Africa. What has been the company’s experience of doing business in that continent?
What challenges does Tata Chemicals face? Are there any areas of concern?
The challenge for us this year is also in the area of fertilisers. The Indian government has not really been able to move the needle on settling potash fertiliser pricing. This has meant that we are producing from old stock and without any replenishment coming. If the pricing levels are not decided soon, we will face gaps in production.
Another issue is the delay from the Indian government’s side on moving ahead with nutrient-based subsidies; we had thought it would happen during the year and had budgeted for it. So the headwinds are mainly in India. In fact this is the first year we feel that India will have challenges and our overseas units may do better.
Tata Chemicals has forayed of late into branded pulses. What has been the experience so far?
How is Swach performing?
We now have three variants for the product and there is a continuous endeavour to add further enhancements. The current models of Swach do not address impurities such as arsenic and fluoride. We are looking at solutions in this regard; it may take us a year or so to get them.
What was the logic driving the rebranding exercise that the company recently undertook?
Starting April 1, 2011, the Tata Chemicals and Tata group brand marks have started appearing on all our stationery and communication material, site signage, vehicles, work wear, etc.
This is an extremely positive and timely development that brings significant benefits to our businesses. Our theme, ‘Power of One’, is a signal to our stakeholders both internally and in the marketplace that the Tata Chemicals group is bigger and better.
I think one of the things we wanted to achieve is that while it looks like a change of name on the surface, we also wanted to make sure that the underlying processes are fully aligned. What is extremely positive is that all our units are now fully aligned with the Tata Business Excellence Model and the Tata Code of Conduct.
Besides, they now have a common integrated marketing approach to the customer. We are also rolling out an integrated SAP system across all our geographies. By the year-end all our units will have one system and a commonality of process. Additionally, we are looking at common business improvement structures.
We took a long time to start this process so as to ensure there was a buy-in from everyone. There was tremendous energy and enthusiasm from every employee, especially from our overseas units. In terms of our value systems, our international units had a parentage that was similar to that of Tata, so there were no major concerns on that front.
How does Tata Chemicals see itself growing? What are the company’s plans and projections?
British Salt will be the engine of growth for us in the UK; in Magadi, Kenya, it will be operational improvement that will be the contributing factor. In the US we have just completed a project to increase capacity by 100,000 tonnes, which means all our business units will have additional capacity this year. At the same time we expect to see our margins improve because of increased efficiency as also because we have legitimately passed on some of the increase in energy costs to our customers.
In terms of a target, we will continue to follow the objectives set by the group: double the turnover and triple the profits every five years. We have done it in the past and we have the plans on the ground. We just need to keep doing what we do well.
This interview is a part of the cover story of the August 2011 issue of Tata Review in which ten Tata CEOs talk about the past, present and prospects of the companies they head: