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.

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.

Operational revamp
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.

More market-friendly
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 detergent.

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 HLL’s Annapurna which has 35 per cent.

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 government’s decision," says MrMenon. The decision on PPL is likely to precede that of NFL.

The Tatas as well as the company’s investors are hoping that
Mr Menon and his team will act as the right catalyst to bring about these changes at Tata Chemicals.