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The Rediff Business Interview/Sir Jamshed Irani

'A lot will depend on the Budget... We don't want protection. What we want is a stimulation of demand'

Tata Steel will announce its annual results on Thursday. Rated for years as India's No 1 company, the flagship enterprise of the Tatas (claim analysts) is likely to put out a dismal balance sheet this year. Reflecting the overall stagnation in the Indian economy and its general drift. How does Jamshed Irani, managing director -- and, now, Sir Jamshed after his knighthood -- see the future of Tata Steel and its businesses? How does he hope to cope with the new industrial environment of modern India and put his company back at the top? Pritish Nandy spoke to him to find out.

There is a general impression all round that Tata Steel will announce very poor results this year. Why is this? What has gone wrong?

Well, the results will be out on Thursday and I don't think they will be looked upon as very poor particularly after all the newspaper reports I have recently read on SAIL. No, they will not be very poor but the financials will certainly be down compared to last year because of the lower and lower realisations we are getting for our products.

Why? Are your products obsolete?

See, steel today -- on an item-by-item basis, that is comparing the same item last year with this year -- shows a much lower price realisation. That is, item for item, we are getting less money for our steel today than what we were getting, say, a year or even two years earlier. Though we have kept costs under control, this has obviously squeezed our margins. This is not a small figure. On an average, it could be around Rs 1,000 per tonne compared to last year, which itself was low compared to the previous year.

How do you see the coming year? The year we are into.

A lot will depend on the Budget we get in the next few days. We don't want protection. Certainly not. What we want is a stimulation of demand in industry, in the economy so that, hopefully, more steel is consumed. One reason why there has been low realisation is that new capacities have come in but the anticipated increase in usage has not happened. In fact, last year the country used slightly less steel than it had used the previous year! So the excess capacity that was put in by the private sector, including us, anticipating an increase in demand, has not materialised. The usage has come down. The output has increased.

Why don't you increase exports to take care of this gap?

Last year we exported a record quantity. Over three million tonnes. This year the target is even higher. But the international market, which was very good for some time because of the boom in the United States and Europe, has again hit a road block because of the South East Asian crisis.

How much did Tata Steel export last year?

Almost half a million tonnes. Higher than the previous year. Quite a bit of it -- about 25 per cent -- went to South East Asia. Some more went to South Korea. This year, South Korea has turned a net exporter! And the South East Asian countries, as you know, are not taking anything in. So we are now targeting more on Europe and our traditional markets in the Middle East and the eastern part of Africa.

Has the usage of steel increased worldwide?

Yes, last year it peaked after many years of slack growth. In 1997, there was you could say a sudden rise of almost 50 million tonnes in steel produced and consumed.

What drove this sudden rise?

The boom in the United States.

Then why is steel considered a sunset industry in the developed world?

Because capacities all over the world have already been built up. These capacities have saturated consumption. They have satiated the demand. There is very little growth in demand now because most countries of the world have reached a stage where they will keep on using what they have been using for the past few years. There will be no growth.

Where did the 50 million tonnes come from then?

These 50 million tonnes were produced with capacities that had been languishing. Capacities in the CIS countries, which were completely outdated and were not being used.

Who consumed these 50 million incremental tonnes? America? Or did they export it?

The United States and Canada consumed most of it. One more big market that is now emerging is Latin America. You see the markets of the USA, Europe and Japan are now satiated. The US, per head, consumes more than 20 times the steel that India uses. Their consumption is 400 kg per head per year and it has satiated at this level. In India, we are still languishing at 20 kg. Even China has reached 80 kg. If India were to reach 80 kg per head per year, we would be using four times the steel we are now using.

Do you see greater potential for exports to China despite our political conflicts?

Yes, certainly. We were exporting to China. Even though they were producing almost 100 million tonnes, China was still importing a lot. But apparently their ports and their infrastructure has got choked right now. So they import in spurts. At the beginning of last year, they were importing a lot and we ourselves exported a lot of steel to them. But, since then, that market too has got choked…

Where do you see Tata Steel growing in the next two or three years?

I think we have to concentrate on value-added materials which are not made on a run-of-the-mill basis. We are now expanding into more sophisticated products like hot-rolled coils followed by cold rolling of those coils and that is where our investments over the next two or three years will be going. We are doubling the capacity of our hot-rolled coils by the end of this year, from 1 million to 2 million. More than 50 per cent of that will be cold-rolled in our own plant. That cold-roll plant is now being put together.

And you expect that to reinforce your margins and put Tata Steel back on velvet?

Definitely.

By adding value.

Yes, definitely. The hot-rolled coil itself has a much higher margin than the other products we have been making historically. We will slowly shut down the older mills. They are uneconomic, overmanned. Their productivity was low and the profitability has gone. They have to be replaced by newer mills which are now coming up.

What are the other areas you are shutting down? What are the other areas you are diversifying into?

We are no longer in structurals, in merchant products, in rail mill products, in heavy plates. We are going to concentrate on three major products: hot-rolled coils, flat products which require far greater sophistication to produce, bars and rods for the engineering industry, materials for the forging industry. These are going to be our key focus areas.

Any new area of diversification?

We have gone into chrome ferro alloy manufacture. Here our core strength is that we have a deposit of chrome ore which we are exploiting. And certainly we are looking at opportunities overseas. We are discussing with various companies but nothing has fructified uptil now.

Acquisitions?

No, not acquisitions. Joint ventures maybe. Our strength is our technology, our expertise. In India, our raw material base also. This we cannot take outside India. But our expertise we can.

Which parts of the world are you looking at?

Africa mainly. South Africa, Middle East, Saudi Arabia and so on.

What is the dip in profits you expect this year?

Wait till Thursday. You'll know.

Will there be a rise in turnover?

Yes, certainly.

Volumes?

Our operating units have hit production records in almost all major areas. Like the output of crude steel, the output of finished steel. We have also hit records in marketing, sales in terms of tonnages. We have never sold as much as we have done last year.

What does it look like in terms of percentages?

Ten per cent more in India. Three per cent more overseas. Average: nine per cent compared to the year before. Even though the usage of steel in this country, last year, actually went down.

How much down?

About half a per cent. But we sold much more. And more than that, we have not built up any inventories. We produced more and we sold everything. But, in doing so, we had to give rebates, we had to give credit, and our realisations were considerably below what we got last year. And last year itself was below what we realised in 1995-96. So the price for the same item of steel has progressively gone down from 1995 to 1996 to 1997. This is what has hit our profits.

Otherwise, Tata Steel has done extremely well, I would say, and will continue to do so this year. I am not worried about that.

Are you worried about Russi Mody's campaign against you in Jamshedpur? His attempts to form a new union, to bring the Trinamul Congress out there and make life difficult for Tata Steel. I believe he sat on a dharna there last week.

He has done much more than just sit on a dharna out there. But that is not something which bothers us. We are busy with our work. What he does is of no concern, no interest to Tata Steel. As far as I am concerned, it is business as usual.

Interviews