Tatas
to grow through acquisitions: Ratan
‘Image
is being sullied; vested interest groups greatest hurdle
for business’
Business Standard —
September 30, 2002
The 150-year old, Rs 45,000-crore
Tata group is shedding its conservatism and looking
at growing aggressively through mergers and acquisitions,
including in steel, and sees major growth in the group’s
IT and hospitality businesses coming from expansion
outside India.
The group spans seven key sectors
and has 80-odd companies in businesses as diverse as
chemicals, engineering, steel, telecommunications and
IT services. "In all the areas we are in, we will
see growth through acquisitions rather than organic
growth only. In steel also, we are looking at expanding
capacity through acquisitions," group chairman
Ratan Tata told Business Standard in an exclusive
and candid interview.
In recent times, the group has
acquired companies to expand its business portfolio.
It acquired management control at Videsh Sanchar Nigam
(VSNL) and CMC when the government divested part of
its equity in them. Earlier, it acquired the UK-based
company, Tetley, the tea company. Similarly, Tata Consultancy
Services, a division of Tata Sons, is looking at acquiring
IT companies overseas, and Indian Hotels is said to
be on the brink of making an announcement on an overseas
hotels acquisition.
On the succession issue, he said
he would step down from the post of executive chairman
on December 28, 2002, (when he turns 65) but would continue
as non-executive chairman, a post that JRD Tata held
all his life. In other words, nothing would change for
another five years, by which time a successor will have
been identified.
The group sees IT and telecommunications
as the major growth drivers. "We have staked a
great deal of funds and human resources in that. We
will also see investments and no stagnation in the areas
of steel and automobiles in India, where there will
be growth also, both within India and outside,"
he said.
Tata expects a shootout in the
telecommunications industry, with not more than three
operators surviving in the long run. "I think there
will be a shootout, but eventually there will be two
significant players, possibly three. Today there are
many more than that. I think the shootout will be for
the smaller ones who will not be able to survive,"
he said.
Tata also said companies like
Indian Hotels would focus on growing outside India,
but would also grow at home. He noted India was missing
"an enormous opportunity" in the hospitality
and tourism businesses. Singapore had 7 million tourists
and Hawaii 20 million. India could have 5-7 million
tourists a year, he said.
Tata expressed concern at the
domination of vested interest groups in the country’s
policies. The country’s directions and policies are
today dominated by vested interest groups, he said.
They had a much greater impact on policies than they
had in other countries, he added. He carefully clarified
he was referring to vested interest groups within industry.
"That in my view is the greatest hurdle to industry
moving forward," he said.
Referring to the Tata Finance
issue, Tata said the Tata group had got a bad press
and that the group’s image had been sullied. "I
believe that we have been damned for seriously bringing
this thing out into the open," he said.
Tata said India had lost the
opportunity to be the factory to the world, "which
is definitely gravitating towards China". The domestic
costs of manufacturing, power, fuel, and infrastructure
costs and taxes on raw materials, all put together,
create an environment which places domestically manufactured
products at a disadvantage on a global basis.
The group has started looking
at locations around the world which will enable group
companies to become competitive. "We are about
to embark in Tata Steel on taking ferro-chrome ore to
South Africa, refine it and sell it to Japan because
the power costs in South Africa are 50 cents a unit
and in India it's something like five times that. Similarly,
if you look at fertilisers, it is the same. Input costs
are out of sync with what they are in other countries,"
Tata said. He said Tata Steel was competitive only because
it has its own mines. But if the company were to "cost
its ore on the same basis as Posco, we will not be the
lowest-cost producer in the world," Tata said.
On the human resources front,
the Tata group chairman disclosed the group was identifying
100-150 younger people in the group for leadership positions
in the coming years. On Tata Engineering, he said the
company would get a managing director. "Telco will
have a managing director and I realise that is one gap,"
Tata said.
The group's earlier objective
of doubling turnover every four years and profits every
three years had been shelved, he revealed, because of
the economic slowdown. "We were on our way to meeting
those objectives. Then we went into what I call the
demand recession. Many of our major companies like Telco
and Tisco did badly, not at the same time but at different
times. What it led me to do finally was to say that
these objectives were out of sync with what was happening
in the country and that we should focus on improving
our margins, on restructuring individual companies and
put these aside because they had no meaning today."
Tata said that the group's goals
would be reinstated as soon as the economic climate
revived. Tata noted that two group companies are doing
much better. "Tata Engineering has improved its
return on invested capital quite substantially from
what it was two years ago, and to some extent so has
Tata Steel." This, Tata said, would sooner or later
reflect in the group's stock market performance, which
he admitted was poor largely because new economy stocks
were in flavour in the market.
Tata also pointed out that
the group had progressively shifted from commodities
to branded products and services. "There's been
a tremendous shift to branded products as a percentage
of the total since the time we started," he said.
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