A worker supervises the flow of hot liquid metal as it flows from the blast furnace during the iron smelting process. (Photographer: Krisztian Bocsi/Bloomberg)

Davos WEF 2018: Tata Steel Will Grow Inorganically ‘As Long As It Makes Sense’, Says Chandrasekaran

Tata Steel Ltd. is interested in acquiring stressed assets and will consider expanding inorganically “as long as it makes sense”, according to Tata Sons Ltd. Chairman N Chandrasekaran.

“We are looking at it (stressed assets), the process is on,” Chandrasekaran told BloombergQuint’s Menaka Doshi on the sidelines of the World Economic Forum at Davos, Switzerland. Tata Steel, which is competing with Anil Agarwal's Vedanta Ltd. for Electrosteel Steels Ltd., is looking to increase its bid for the bankrupt steelmaker, three people in the know told BloombergQuint requesting anonymity.

India’s second-largest steelmaker by capacity will significantly focus on the India business once the issues in Europe ended, Chandrasekaran added.

You shouldn’t be surprised if we are doubling our capacity from the current 13 million tonnes.
N Chandrasekaran, Chairman, Tata Sons

The steelmaker has already announced an investment of Rs 23,000 crore for the expansion of its plant in Kalinganagar, Odisha. Tata Steel has sold unprofitable assets in the U.K. and agreed to merge its European operations with Thyssenkrupp AG.

Here are edited excerpts from the interview.

How was your first year at Tata Group?

It has been a good year. We have been able to do a number of things. For the group itself, we have focused on building talent, and we have tried to address core issues. We have put Docomo behind us. We also have divested Tata Teleservices to Bharti and we have moved on to steel with the joint venture with ThyssenKrupp. All these transactions are going on at this point in time. We have removed a lot of cross-holding. We have rolled out a strategic agenda in terms of how to simplify the group and how we can bring the specific focus in terms of certain key verticals like retail, consumer, financial services. There is a lot of work to do but it has been a satisfying year.

How long will it take for Tata Steel to regain the number one position you lost to JSW Steel a few years ago? It now seems like it could take a decade unless you make aggressive bids for stressed assets in steel...

It is not about being number 1 or 2. Tata Steel has a great future. Once this European issue is behind us, there will be a significant focus on the domestic market. We have announced an investment of Rs 23,000 crore for the expansion of Kalinganagar. We are looking at distressed assets and let’s see what the outcome will be. But we are committed to the Tata Steel business. We have seen tremendous opportunities. You shouldn’t be surprised if we are doubling our capacity from the current 13 million tons.

By when? Will most of that be inorganic, beside the Kalinganagar expansion?

At the end of the day, our intent is to grow. There is a great opportunity, but it does not mean that we are racing to this or that. As long as it makes sense, we will do inorganic [expansion]. At this point, you should leave it when I say that we are interested in stressed assets. We are looking at it, the process is on.

What’s the goal for Tata Motors in the commercial vehicle segment, and how quickly do you hope to achieve that market share?

As far as the commercial vehicles segment of Tata Motors is concerned, I am extremely happy with where we are. The progress that we have made this year has been excellent. I come from running a company where we were industry leading in terms of revenues, margins, and profits. I don’t sacrifice one for the other. We are sensible about building our business and let’s wait.

What can we expect in 2018 on retail?

The way to look at our agenda is by themes. The themes are going to be simplification, synergy, and scale, and will play out in every segment. Simplification will mean sometimes holding cross-holding and sometimes consolidating entities, sometimes getting out of some entities. So, it could be any one of those things. But the major verticals are 6-7. We will play these themes across these verticals. So, I can’t sit here and tell you what exactly I will do in retail. Because there are multiple companies and strategies have to be formed for these companies which make sense for these companies, shareholders. So, it is a lot of detail work.

For financial services, is that an acquisition route?

No, we will grow organically. In financial services, we are one of the finest brands. Both our insurance business as well as the NBFC business has huge opportunity to grow.

Why not choose the inorganic route?

These are divisions where we will look at in each of those company’s strategies. I can’t tell you what we will buy. At any point in time, if a big opportunity presents itself, then we will look at it. Inorganic growth is not where one says, tomorrow I have to buy something.

What are you hoping to hear from Prime Minister Modi here in Davos?

Last three years of Prime Minister Modi has been of significant reforms. Most of those reforms are very structural. I believe that all those reforms will play out. We will see significant pick-up in growth rates in the latter part of 2018, and we are already seeing green shoots, whether in commercial vehicles or consumer space.

So you believe that the economy is in recovery mode?

I think it will be a pick-up mode going forward. I would expect the Prime Minister to express his deep commitment for the path of reforms and long-term growth and transparency – all the things which he has been campaigning for the last three years. We expect that he will reinforce so that people can participate in the India growth story which is going to be the biggest growth story for 10-20 years.

How would you describe the working relationship, the overhang of the court case and how concerned you are about the succession of Tata Trust?

In terms of how I feel in my seat, I think I am fully empowered. It is a great platform. It is a phenomenal opportunity to make an impact to the Tata Group and to the larger society and all the things that go with being at the helm of Tata Group. It brings a lot of responsibility because what you decide can affect so many people. So, you need to consult people, to carry the board along with yourself. I am excited, and it has been a great year. There’s no friction at all. There was no interference at all. It is a question of I wanting to reach out to anyone. Sometimes if it feels that a particular board member has knowledge about a particular area, we call the board members. If I have to reach out Mr. Ratan Tata for a particular area and I feel that his view will be critical, then I will reach out to him. Apart from that, it has been a fantastic experience.

Watch the full interview here.