An experiment with new change agents
The chemistry is clearly changing at Tata Chemicals. For starters,
the exit of Mr Manu Seth from the Tata Chemicals board in
August 2000 gave way to chemical industry veteran Mr Prasad
Menon coming in as managing director, and Mr R Gopalakrishnan
from the Tata Sons board as executive director. This comes
at a time when the company is also attempting to transform
itself from a mere manufacturing company to a service-oriented,
competent player in the marketplace.
Financial Express February
Like most of its peers in the Tata Group, Tata Chemicals
too was labouring under the burden of the past. The company
is the largest producer of synthetic soda ash with its completely
integrated plant at Mithapur, which also produces nearly 300,000
tonnes of vacuum evaporated sodium chloride (common salt)
as a byproduct. Also gypsum (another byproduct) is used to
make half a million tonnes of cement. What the company, however,
lacked was marketing skills to support its manufacturing strengths.
With a soda ash capacity of 8 lakh tonnes per annum and a
nearly 60 per cent market share, there was a sense of complacency.
With falling import duties, Tata Chemicals was not armoured
to withstand imports from the US, and what perhaps acted as
a catalyst is its largest consumer Nirma, setting up its own
42,000-tonne soda ash capacity. As a result, the market share
dropped to 42 per cent.
In the branded salt business, too, Tata Chemicals faced stiff
competition from Hindustan Lever, who used their distribution
network to launch the Annapurna brand across India. Tata Salt,
despite being the first player in the branded salt market,
lost a sizeable share to the Annapurna and the Captain Cook
brands, largely due to its inexperience as an FMCG player.
In fertilisers also, despite suffering many initial glitches,
its urea plant of 7.5 lakh tonne capacity at Babrala, Uttar
Pradesh, is one of the most technologically advanced, cost
efficient manufacturing facilities in the country. However,
price controls and a cost-plus regime does not help much.
The fertiliser policy that shields inefficient players by
allocating subsidies based on plants, has not helped either.
Result: Profits had dwindled from Rs 288.63crore in 1998-99
to Rs164.95crore in 2000-01 and return on capital employed
had slipped from 17.41 to 11.26 during the same period.
Clearly, a constructive effort was the call of the day. "We
realised that we had inherent manufacturing strengths, but
we had to enhance our operational efficiencies to become a
formidable player and we have made significant progress in
that direction," says Mr Menon.
To enhance its operations, the company, with the help of McKinsey,
has chalked a four-pronged strategy: restructure the marketing
team, focus on the customer, streamline supply chain management
and cut costs to improve margins, and look out for alliances
and partnerships to grow in new markets.
"We want to become the lowest cost producer of synthetic
soda ash," says Mr Mukundan, vice-president (strategy
and business development). As the first step towards achieving
that goal, the company had launched a programme called Action
500, which was essentially to bring the variable cost of production
down by Rs 500 per tonne. Currently, the cost of production
is around Rs 3,800 to Rs 4,000 per tonne.
Having achieved that, the next step is a project called Manthan,
designed by McKinsey, which will be a continuous effort to
improve working capital and inventory management and rationalise
costs. "With Manthan we have set no targets, the idea
is not to (merely) accept what is existing but continuously
strive to achieve higher cost reductions across all functions,"
says Mr Mukundan.
"What will perhaps stand the company in good stead in
the long run is its recent focus on marketing," says
an industry expert. Mr Kapil Mehan, vice-president (sales
and marketing) who joined the company five years ago, had
to virtually set up a marketing team, currently at 30. That,
in a way, provided the much needed fillip to a non-existing
function at Tata Chemicals. To market soda ash, the company
has not only widened its distribution network but has also
set up dedicated client servicing teams for its top few customers.
The company has also set up a separate marketing team to handle
the table salt business. "Marketing salt is a totally
different ball game and needs the strengths of an FMCG company,"
says Mr Mehan. Earlier, the company had sold off its detergent
brand Tata Shudh to Jyoti Laboratories, because it did not
have the relevant expertise to market an FMCG product like
Also, with Tata Shudh, Tata Chemicals was competing with
its own customers, since the largest consumers of soda ash
are detergent companies. "It was difficult to get into
that cutthroat competition with our own customers; philosophically
that business did not suit us," says Mr Mehan.
Today, the company is also toying with the idea of launching
a cheaper crushed salt under the brand Samundar. The test
marketing is underway and this is likely to boost its salt
business further. Already with an estimated 37 per cent market
share, it is ahead of HLLs Annapurna which has 35 per
On the fertiliser front, the Tata Kisan Kendras (TKKs) have
provided the plank to reach out to customers. "We have
realised that to increase our urea sales we have to reach
out to the farmers directly," says Mr Menon. The TKKs
are set up in areas where the company has a dominant presence,
and farmers are advised on cropping patterns and the use of
pesticides and seeds. These centres also sell everything from
fertilisers to Tata Salt, and modern farm machinery is offered
on hire. "These are meant to provide complete farm solutions
to the farmers," says Mr Menon.
"These initiatives are in line with a long-term strategy
of brand-building," says an analyst. The company will
benefit from eventual price decontrol due to superior margins
and a firm relationship with its customers.
Even in its cement business, the company has revamped its
marketing strategy. While it was marketed by ACC, the company
now markets its own produce. Tata Chemicals was scouting for
a buyer for its cement unit, but due to its size it has been
unable to do so. "We have an open mind as far as cement
is concerned. We will either sell it or rope in a partner
to take the capacity up to one million tonnes," says
Mr Menon. Meanwhile, the company is marketing its cement business
under the purity plank and trying to get it back in the black.
What is perhaps encouraging is that in the third quarter
of this fiscal, despite taking a Rs 20 crore cut in its top
line on account of the energy norms, the company has posted
a 26 per cent increase in bottom line ."We are confident
of a stable future because of the measures we have initiated
within the organisation," says Mr Menon.
The company has also revamped its human resource policies,
by implementing an emolument scheme, based on performance.
The company has also reduced the number of layers within each
department to avoid procedural delays in any function.
To reward its shareholders, Tata Chemicals has launched a
buyback option, for which the total outgo is expected to be
around Rs 125crore. Tata Chemicals has also realised that
while it is important to get the basics right, so is looking
for greener pastures. In its second phase of engagement, McKinsey
has been given the mandate to chalk out areas of growth for
the company. The company is also in talks with the government
to pick up a stake in National Fertilizers Limited (NFL) and
Paradip Phosphates Limited (PPL). "We have completed
the due diligence and are waiting for the governments
decision," says MrMenon. The decision on PPL is likely
to precede that of NFL.
The Tatas as well as the companys investors are hoping
that Mr Menon and his team will act as the right catalyst
to bring about these changes at Tata Chemicals.