" We want our efficiency levels to be the best in the world " - Views on News from Equitymaster

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  • Jul 27, 2000 - " We want our efficiency levels to be the best in the world "

" We want our efficiency levels to be the best in the world "

Jul 27, 2000

Mr. R C Nandrajog is a happy man. Tata Steel, where he has served for nearly 35 years and is presently Vice President Finance, has just announced its quarterly results. The results, showing an over 300% growth in profits, came as a positive surprise to investors and analysts alike. Mr. Nandrajog has been with Tisco since 1966, when he joined as a Graduate Trainee. His loyalty surely seems to have paid off! Mr. Nandrajog’s interests include photography and golf. He also is a visiting professor to XLRI.

In a tête-à-tête with Equitymaster.com, Mr. Nandrajog shared his views on the steel sector and the growth initiatives at Tata Steel.

EQM: To what do you attribute the current buoyancy in steel demand?

Mr. Nandrajog: I think the steel demand the world over is increasing mainly because the Southeast Asian economies, which were in a dip since 1997, have bounced back. Steel demand in China too is strong. Within the country, the environment has been favourable. The monsoons have been good over the last decade. Political stability is there and this has benefited the growth index. These factors have contributed to a firming up of steel prices the world over. Another factor that contributed to the buoyancy in prices has been depletion in world steel stock (inventory).

In FY99 we witnessed negative growth in demand. Subsequently, in FY00 the scenario improved with demand improving in the latter half of the year. Presently the outlook for the industry in FY01 is positive.

EQM: Do you see the present trend in steel demand sustaining in coming months?

Mr. Nandrajog: The domestic economy has been positive in the first quarter. But I think the present dip particularly after the interest rates have been pushed up after the bank rate and CRR hike, is only temporary. This is more to contain a run on the Rupee and in my opinion in a month or two these measures could be rolled back.

With regard to stocks, whatever steel we have been producing so far we have been able to sell. Indeed, our production has been rising consistently. Within the country the problem is only prices. When demand slackens, prices fall. And that again is dependent on the overall global consumption. The global capacity at 800 million tonnes is higher than existing demand. So when demand is slack, some plants shut down. But when there is buoyancy, these plants come back on line and this largely governs the steel cycle.

My personal opinion is that for FY01 growth should be maintained if the economy were to maintain its current growth phase. We have seen stagnation for three years. But now its time to grow and we have made investments to leverage on such an opportunity.

EQM: Please shed some light on the current price scenario in the steel sector?

Mr. Nandrajog: I do not anticipate prices to fall significantly. Globally demand is buoyant. Recently we have got information that the stocks of steel that had accumulated in the US are depleting and this has significance as the US is a big economy. China is consuming a lot of steel. India hardly consumes 22 – 24 million tonnes. Therefore as long as global demand is buoyant India does not need to worry if it produces an extra 2 – 3 million tonnes of steel as it can be absorbed in the international markets. However, in case international demand is weak, this 2 – 3 million tonnes extra that India can produce can wreak havoc on steel prices (it would amount to surplus some 10% in domestic markets). Currently, prices are stable.

EQM: Growth seems to be an area of concern. How does the company plan on tackling this issue?

Mr. Nandrajog: Our saleable steel capacity has been increased to 3.3 million tonnes. But with some de-bottlenecking and other productivity measures this can rise to 3.5 million tonnes. Further growth in Jamshedpur is likely to be limited as we are surrounded on all sides and there are other infrastructural constraints. We can maybe go upto 4 million tonnes.

Further growth is possible by either greenfield projects or acquisitions. In the present environment greenfield investment does not make sense. Firstly they require large investments, which exert pressure in terms of higher interest and depreciation, and, secondly, the present pricing scenario does not favour such a project. There is already additional capacity in the sector and this is evident from the consolidation in the sector. So, the option is to acquire and grow.

We, in association with an international company, have already formally expressed our interest for Salem Steel plant. The bid however will be made only after the legalities are studied and the due diligence is conducted. In case of Raymond, we have had no interaction with any party directly associated with the sale. Our Managing Director, J J Irani, has however stated that we are interested in the company’s steel plant, but at a price. And in this case we will first need some help from international companies in terms of production and technology of CRGO.

EQM: What is the next phase of restructuring that Tisco is embarking upon?

Mr. Nandrajog: The Phase V is all about modernizing the mind and the work culture, creating a learning organization, improving service levels and increasing focus on corporate governance. We want our efficiency levels to be the best in the world. We should be able to compete with any plant in the world on the productivity and efficiency front. So that is what is going to be our thrust area. We have invested large amounts in new technology in recent years. About 80% of our plant is under 10 years old. This will benefit us. Service will also be our unique selling proposition.

EQM: Who are the three people that have influenced you the most?

Mr. Nandrajog: In 1980 I first started working with Mr. Ishaat Hussain. I really admired his style of working and he knows his job very well. I have picked up my analytical side from him. Then I have worked directly under Mr. J J Irani for over five years. Being with him has been a continuously learning experience. The third person who really influenced me was my father. He always told me “put yourself in the shoes of the other person”. You need to have performers. A team with only strategists will not click.

EQM: Is there any book that has had a significant influence on you?

Mr. Nandrajog: Mostly I read management books. Presently I am reading a book titled “Who moved my cheese?”

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