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Tata Steel's product mix, low cost helped in survival: Cyrus Mistry

Tata Steel India's strong brand, cost optimisation and a differentiated product portfolio has helped it survive in a market where producers globally are "underwater", Tata Group Chairman Cyrus Mistry said.

twitter-logo PTI   New Delhi     Last Updated: September 14, 2016  | 12:09 IST
Tata Steel's product mix, low cost helped in survival: Cyrus Mistry
Tata Group Chairman Cyrus Mistry

Tata Steel India's strong brand, cost optimisation and a differentiated product portfolio has helped it survive in a market where producers globally are "underwater", Tata Group Chairman Cyrus Mistry said on Tuesday.

On the Kalinganagar (Odisha) steel plant, he said it is one of the largest greenfield industrial projects undertaken in India in recent years.

"Each of our group companies is charting its own strategy and growth story, with the focus on sustainable, profitable growth," he said in an in-house interview on the company's website.

Each of these companies has identified critical factors that make them sustainable over a longer time horizon, he added.

"If we consider Tata Steel in India, for example, the fact that they are low on the cost curve, produce differentiated products and are a strong brand in the market, has helped them survive in a period when most steel producers globally are underwater," Mistry noted.

Similarly, the main factors underpinning sustainability in each company would be different, he explained.

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Mistry's comments come even as the Mumbai-based steel maker has posted a net loss for the third consecutive quarter in April-June period.

The steel major's consolidated net loss widened 10 times to Rs 3,183 crore in the April-June quarter of 2016-17 compared to Rs 317 crore in the year-ago period.

Similarly, it had posted a consolidated net loss of Rs 3,213.76 crore and Rs 2,127.23 crore for the January-March and October-December quarters of 2015-16, respectively.

On Kalinganagar plant, Mistry said: "This is indeed one of the largest greenfield industrial projects undertaken in India in recent years and includes several engineering firsts for the country's steel industry. About 49,000 workers were mobilised at the peak of construction in 2015."

Further about 50,000 cubic metre per month of concrete was poured for ten consecutive months, possibly the highest in India. Phase 1 of the project, for 3 million tonnes (MT), has been set up at a cost of Rs 25,000 crore, including needed infrastructure for full 6 MT capacity, he added.

"Commercial production has commenced since May 2016 and will reach its rated capacity in 18 months. Tata Steel's Kalinganagar facility has the potential to grow significantly and produce world class and value added products for growth segments of the market," Mistry noted.

He further said: "The experience has taught us a lot in terms of carrying out large-scale, transformative projects."

Mistry said Tata Steel in 2004 decided to set up another steel making facility as part of its long-term strategy to expand in India, which continues to be a growth market for the steel industry.

After reviewing several options, Tata Steel signed an agreement with the Odisha government to build a 6 MT per annum steel plant in Kalinganagar, he added.

The chief of the over USD 100 billion Tata Group said that there were several challenges when Tata Steel started out to establish the integrated steel plant in Kalinganagar.

"There were significant challenges and hurdles in land acquisition and possession of the government-owned land in Kalinganagar for several years," he said.

An independent study in mid-2012 assessed a huge cost overrun and over a year's delay in completion, among multiple issues identified, Mistry revealed.

"Of the total project work, only 11 per cent construction had been completed by then. The first task before me was to strengthen the team leading the project and then put in place clear governance and robust review processes," he said.

To overcome these challenges the firm identified key project risks and measures were put in place to address them and mitigate these risks, he explained.

"A closer working relationship with our principal contractors allowed the early sighting of warnings on likely issues and the finding of solutions," he added.

The apex governance mechanism included setting up a specific board committee dedicated to reviewing the project.

Frequent reviews helped pull back some of the cost and time overruns, Mistry noted.

The Tata Group chief feels India is well placed compared with other markets in terms of growth prospects in multiple sectors. "We must, from that perspective, make full use of the opportunities being thrown up in India," he said.

On Tata Motors, he said the company has always had a pioneering streak in its DNA, from first commercial vehicles that were brought out under Sumant Moolgaokar to India's first indigenously designed and built passenger car, Tata Indica.

"Our journey has just begun, but we can already see the green shoots of a turnaround," Mistry added.

The group's 6-mt steel plant at Kalinganagar in Odisha, he said, faced significant challenges in land acquisition and possession of government-owned land for several years.

"The apex governance mechanism included setting up a specific board committee dedicated to reviewing the project.

Frequent reviews helped pull back some of the cost and time overruns," he said.

Stressing on the need to have organisational speed and agility and an openness to change, he said in the context of turbulent environments, organisational agility is crucial.

"On the risks front, if we are not agile I think we will be left behind," Mistry said.

But care should be taken to have the right composition of teams, which can collaborate and break through hierarchical processes when needed, he suggested.

"Fundamentally, Tata companies need to have robust strategies to deliver sustainable, profitable growth," he said. "Harnessing innovation and technology as differentiators will drive growth, even in the face of change."

According to Mistry, appropriate investments in research and development along with a multi-layered understanding of customers can lead to creation of new industries, products and business models.

Recognising the digital wave, Tatas are incubating three companies -- Tata CLiQ, the e-commerce platform, is an omni- channel marketplace with curated products; Tata iQ, the big data play, uses data analytics; and Tata Digital Health is building the de facto platform for healthcare in India.

To Mistry, his assuming office was more than a "routine" change of guard at the leadership level. "It was a generational change," he opined.

"My initial approach was to adopt a listening mode. A corollary to this development was that we filled the vacuum in the leadership team with a judicious amalgamation of maturing leaders from within the group as well as lateral inductees who brought in fresh perspectives and new knowledge."

To successfully lead the group, instead of relying on the position of chairman as the primary basis of authority, he said he needed to earn trust and respect of all chief executives, boards and external stakeholders.

 

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