|COMEBACK TIME: The Tata twins, Tata Steel
and Tata Motors, have moved up the BT 500 ranking
2001, Tata Motors, then Tata Engineering, reported a net loss of
some Rs 500 crore, its first ever in 57 years. And 1999 was the
last year any Tata company made it to the top 10 of BT 500, a failure
of sorts for a group which boasted #1 (TISCO) and #3 (TELCO) in
the first ever BT 500 (1992, and both companies remained in the
top 10 till 1998; TELCO even figured in 1999). The Tata twins, it
appeared, were going the way of their old world brethren such as
Century, Grasim, and Hindalco that had lost their position in the
honours list to aggressive new entrants like Ranbaxy, Dr.Reddy's,
Wipro, and Infosys: 2001's BT 500 had TISCO clocking in at #20,
TELCO, at #33. Today, Tata Motors is back in black (and how) with
a net profit of Rs 300 crore (for 2002-03); Tata Steel increased
its net profit in 2002-03, a staggering 396 per cent to Rs 1,012.31
crore. And both companies have climbed up the rankings, Tata Steel
to #13, and Tata Motors to #14.
One explanation for the revival in the fortunes
of the Tata twins is the return to favour of manufacturing behemoths
(at least, some of them). After all, Grasim and Hindalco have moved
up the rankings too. Another is the general economic upturn. International
steel prices are on the rise, and have been for some time. And improved
economic conditions have translated into a growing demand for commercial
vehicles and passenger cars. Still, both factors can stake claim
to only part of the credit for the return of the two Tata companies.
That's true for Grasim and Hindalco too. The two companies (both
belong to the Aditya Birla Group) have prepared themselves to face
the future by restructuring their operations and by acquiring other
companies and manufacturing facilities. And Tata Motors and Tata
Steel have done so on the strength of what are probably the two
best examples of turnaround strategies in recent times.
The Tata Motors turnaround is unique because
it is only now, when all is well and the company is profitable,
that it is moving into its second phase. That's because the company
decided that its turnaround would encompass short-term and long-term
growth strategies. The most obvious short-term strategy was to focus
on internal efficiencies. "Our turnaround initiatives during the
past two years were focused on aggressive cost reduction, right-sizing
the organisation, financial restructuring, gains in volume and marketshare,
re-engineering processes, organisational transformation, and launching
new products," explains Praveen Kadle, Executive Director (Finance),
Tata Motors. Every bit helped. Over the past two years, Tata Motors
has cut costs by Rs 960 crore; 65 per cent of these gains came from
reduction in the cost of raw materials, and 25 per cent from that
of interest. The company's 2002-03 balance sheet shows a net negative
working capital (that's a good thing), for the first time, ever.
Thanks to these, Tata Motors can today break even if it churns out
commercial vehicles at 31 per cent of its capacity (and manages
to sell them all), and cars at 48 per cent of its capacity. Two
years ago, the corresponding proportions were 45 per cent and 95
per cent. The company also moved into the platform-sharing mode,
an approach where models share the manufacturing system (including
key components), thereby reducing cost, as well as time to market.
The Indigo sedan, for instance, shares its platform with Indica.
|THE NUTS & BOLTS
| » INTERNAL
EFFICIENCES: Tata Steel and Tata Motors, both, focussed
on improving productivity and re-engineering operations
COSTS : Both companies have focused on reducing input
and interest costs and working capital cycles. Tata Motors actually
has a net negative working capital requirement
DEVELOPMENT : Looking at markets without India was
an integral part of the turnaround strategies at both companies.
Tata Steel has exports of over Rs 1,300 crore, and Tata Motors
has a global strategy that spans Europe, South-East Asia and
THE PLATFORM APPROACH: Tata Motors moved into an
aggressive platform sharing mode, helping cut costs and time
PRODUCTS : Tata Steel tinkered with its product mix
to increase the contribution of value-added offerings to overall
Its house set in order, Tata Motors is now
looking at tapping the global market and launching next generation
vehicles. "The international markets mitigate risk and provide
a growth opportunity," says Kadle. Already, Tata Motors has
an agreement with UK's MG Rover to export cars to Europe under the
latter's marque. It is in the process of putting down an assembly
unit at Senegal. And it is exploring the possibilities of building
an auto component or vehicle assembly plant in Thailand as a bridge
into the South-East Asian markets.
Like Tata Motors, Tata Steel too focused on
reducing costs (it has improved labour productivity to 254 tonnes
of steel per man year, up from 209 in June 2002, reduced interest
costs by 19 per cent since March 2001, and brought down the total
working capital requirement by a little over 10 per cent), but the
company's turnaround strategy revolved around moving into high-end
products and customer-orientation. Today, the company is among the
lowest cost steel operations in the world; its cost of manufacture
is only marginally higher than that of industry standard Pohang
Steel, a Korean steel major. The cost advantage has helped Tata
Steel grow its business, in India and elsewhere. In 2002-03, its
exports stood at Rs 1,313.24 crore, up from Rs 580.75 crore the
previous year. This manufacturing success could explain why Tata
Steel's Managing Director B. Muthuraman was in China as part of
Confederation of Indian Industry's Made in India show at the time
this article went to press.
By March 2004, hot rolled steel will account
for 35 per cent of Tata Steel's revenues, down from 44 per cent
in March 2002. Cold rolled steel will account for 23 per cent, up
from 18 per cent, and galvanised steel, 10 per cent, up from 5 per
cent. Better still, the company's effort at branding in what has
traditionally been a commodities industry has begun to pay off.
In 2002-03, 22 per cent of Tata steel's revenues came from branded
products. "Tata Steel is riding the wave of the commodity price
cycle," says Devesh Kumar, the head of equities at I-Sec, a
Mumbai brokerage firm, "but more than that, their decision
to focus on value-added products and extract higher yields from
existing capacities has been appreciated by the stockmarket."
Expectedly, Tata Steel figures in the buy list of most fund managers.
Can the Tata twins ever re-enter the top 10
of BT 500? Going by their recent performance, the answer to that
question would have to be yes. Watch this space in October 2004.
Contract Manufacturing Story
It's happening in India. Just ask Solectron
|Singled out: Solectron is the only listed
company providing EMS in India
is ranked #485 in BT 500. It boasts sales of Rs 22 crore and profits
of a mere Rs 68 lakh (in 2002-03). If it seems odd that BT should
single out such a company for attention, blame it on what Solectron
Centum stands for. The company is the only listed electronics contract
manufacturer in India. Contract manufacturing in the hi-tech industry
is a norm globally, although it is just beginning in India. And
if Indian hardware companies hope to stamp their mark on the domestic
and international markets, they can only do it with the assistance
of the likes of Solectron.
The presence of three global contract manufacturing
(the technical term is electronics manufacturing services, or EMS)
majors, Flextronics, Solectron, and Jabil in India is, as Apparao
Mallavarapu, the Managing Director of Solectron Centum, puts it,
accidental. "We became part of the Solectron family when the
company acquired C-MAC Centum. Flextronics came into India when
it acquired the erstwhile pager manufacturing unit of Motorola,
and Jabil Circuits, when it acquired a Philips unit; it will take
a serious effort for India to make a mark in the manufacturing sector".
Solectron Centum itself ventured into EMS just
recently. Apparao believes that there is a glut in EMS capacities
globally and that "multinationals will not invest in manufacturing
capacities just for the heck of it". Still, the growing Indian
market has a lure all its own. As Solectron Centum's CFO K.S. Desikan
points out, "A few lakh cellular phones are sold in India every
month; there are no manufacturing capacities; if there was a good
EMS provider, companies may actually consider manufacturing in India."
That's a reasonable assumption. In the first six months of this
year, over 10 million Indians joined the mobile revolution. That's
no small number.
500's #1 Manager
On the strength of building #7 and #11
on this year's listing, it has to be Deepak Parekh.
|Growth manager: Parekh has put the HDFC
brand on a slew of smart-diversifications
must have an interesting story to tell and a potential to grow."
That's Deepak S. Parekh's formula for building a successful company
that also happens to be a market favourite-the link isn't always
as direct as it should be. Parekh has the locus standi to proffer
such success-secrets. When he signed on with HDFC, a company founded
by his uncle H.T. Parekh in 1978, the housing finance company was
in its infancy. Today, he is the chairman of a Rs 2,975- crore behemoth
that is #7 in BT's list of India's most valuable companies. Better
still, the 59-year-old Parekh has put the HDFC brand on a slew of
smart diversifications. There's HDFC Bank (#11 on the BT list),
a life insurance company promoted along with Standard Life, a general
insurance company that is a joint venture (JV) with Chubb, an asset
management company (again, promoted along with Standard Life), a
brokerage firm that is a JV with Chase, a credit information bureau
in which Dun and Bradstreet and SBI are partners, even a BPO JV
with TCS. If regulations permit, Parekh would like to "have
HDFC Holdings listed on the stock exchange and own 100 per cent
of the housing finance company, the bank, the insurance company,
and the AMC". He adds that this would be similar to the structure
of "HSBC Holdings or Citicorp", both of which are listed
on NYSE. Were regulations to allow the creation of HDFC Holdings,
it would be a contender for the top spot in the BT 500 listing,
but that is the realm of the hypothetical. On terra firma, HDFC,
the company that Parekh chairs continues to do well.
India has an estimated housing shortage of
some 19.6 million homes. Despite that, it isn't easy for a housing
finance company such as HDFC to succeed (its approvals and disbursals
have grown at a CAGR of 30 per cent over the past five years and
it boasts a gross NPA of less than 1 per cent). Parkeh believes
the company's key differentiator is its emphasis on organisation
building. "You have to have good and honest people who have
the charisma to attract and retain the best talent." He himself
fits the criteria: in the past decade, a period when the retail
finance business in India was booming (it still is), HDFC did not
lose senior executives, at least not in any significant number.
With characteristic Gujarati grit (and thrift),
Parekh has built the HDFC brand around productive employees and
satisfied customers. Schemes and repayment mechanisms have been
changed, and changed again, and again, to keep pace with the requirements
of customers. And HDFC (and the various firms it has promoted) has
used technology to redefine quality of service. It is this emphasis
on technology that has helped HDFC Bank cut cost of transactions
and become a retail-banking powerhouse in just around a decade.
The success of the HDFC family, and his networking
skills- Parekh is an expert at pumping the Rolodex and is a fixture
at most corporate dos in Mumbai-have bestowed Parekh with a larger
than life image. The government consults him at moments of crisis.
Still, as evident from his holding company idea, he gets his jollies
from enhancing market value. That, and his own estimate that HDFC
will grow at 25 per cent over the coming decade, should be music
to the ears of shareholders.