NOVEMBER 9, 2003
 Cover Story
 BT 500
 Personal Finance
 The Other 500
 Back of the Book

Gates Against Malaria
Bill Gates, who claims
to watch the efficiency
of each dollar he spends, has put down $168 million to
combat malaria.

Age Discrimination
The UAE wants to kick
all expats above 60 out
of their jobs. A fine
start to the IMF/ World Bank meet in Dubai, eh?

More Net Specials
Business Today,  October 26, 2003
The New & Improved Tata Twins
Everything, including their names, now Tata Motors and Tata Steel, has changed. As for performance, phew!
COMEBACK TIME: The Tata twins, Tata Steel and Tata Motors, have moved up the BT 500 ranking

In 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 Great Contract Manufacturing Story
The BT 500's #1 Manager

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.

» INTERNAL EFFICIENCES: Tata Steel and Tata Motors, both, focussed on improving productivity and re-engineering operations
» REDUCING 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
» MARKET 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 Senegal
» THE PLATFORM APPROACH: Tata Motors moved into an aggressive platform sharing mode, helping cut costs and time to market
» VALUE-ADDED PRODUCTS : Tata Steel tinkered with its product mix to increase the contribution of value-added offerings to overall revenues

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.

The Great Contract Manufacturing Story
It's happening in India. Just ask Solectron Centum.

Singled out: Solectron is the only listed company providing EMS in India

It 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.

The BT 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

You 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.