Business Today Net Special

They Also Make Steel

It doesn't matter who pays the shareholder his cheque, as long as it keeps coming and gets better every time. Or so thinks steel major, Tata Steel, whose new Managing Director B. Muthuraman is now talking of investing in basic telecom services. Will steel and telecom jell?

By Roshni Jayakar

B. Muthuraman, MD, Tata Steel

For ninety-four years, Tata Steel produced only steel. It reinvested the profits made, into modernisation of plants. In the process, the company emerged as the lowest cost producer of hot rolled coils. Cost reduction measures, together with increase in sales, led to bulging of cash registers of the company. With reserves to the tune of Rs 4380.46 crore, and profits going up every year to touch Rs 553.44 crore in 2000-2001--- and steel not offering a window of opportunity for making large capital investments ---- what does Tata Steel do? It diversifies.

The company has identified telecom as the primary area for future investments. Why telecom? It is a high growth area -- a business that has lot of potential in India. Telecom helps in adding quickly to shareholder's value. It is a new economy area, giving greater returns than steel that is perceived as commodity business. So, the company can get better valuations on the stockmarket. Interestingly, a study conducted by McKinsey & Co. had identified 50 investment opportunities for Tata Steel of which telecom was one.

Company sources insist that Tata steel's foray into telecom is not on its own, but will have the backing of telecom initiatives taken by the Rs 36,000 crore Tata group. For instance, Tata Steel, along with Tata Power, was part of the consortium of companies led by Tata Industries that filed an expression of intent with the Government of India for the acquisition of its stake in Videsh Sanchar Nigam Ltd (VSNL) a few months ago.

This clearly points to the fact that Tata Steel is not planning to follow the Mannesman model, where the German steel giant made foray into telecom with positive results. But what is clear is that Tata Steel is not willing to be considered a mere steel manufacturer. Even when he was the MD-designate a few months ago, B Muthuraman--the company's new head honcho--told BT that one of his challenges was to change the mindset of his people--to make the organisation alive to new opportunities.

Tatas have identified telecom as one of the growth areas where they have already invested around Rs 1,500 crore in Andhra Pradesh's basic cellular services. Tata Teleservices, promoted by Tata Industries took letters of intent for 15 basic service licences, but picked up only for four states -- Delhi, Gujarat, Tamil Nadu and Karnataka. The Tata Group is reportedly, yet to decide which licences will be given to Tata Steel and how much investment would be required for the project.

There are other value-pockets in Tata Group. Tata Telecom provides total communication solutions to enterprises; Tata Cellular a leading cellular provider in Andhra Pradesh, merged with Birla AT &T to form BATATA and later with BPL, Tata internet services is leading group's foray into internet and Tata Power is doing the same in broadband and telecom infrastructure. Tata's strategy here seems to be of spreading of risk. But to realise better value from all the telecom investments, a better strategy for the group could be to bundle its various value-pockets in telecom business into one company. And that company could be Tata Steel.

To hedge its risks, Tata Steel has applied for mining lease in Tamil Nadu for titanium extraction, and will be signing a MoU soon. It is also said to be looking at two alternatives: Australia and South Africa.

The company is surely living up to the line-- `We also make steel.'

Issue Contents Write to us Subscription Syndication