Green light for growth
May 2008 | Sujata Agrawal

Homi Khusrokhan, managing director, Tata Chemicals, answers some crucial questions on where the company is headed and how it expects to achieve its goals

New acquisitions, new focus areas, new challenges —Tata Chemicals (TCL) has a lot on its hands as it charts an ambitious growth path. The company recently completed its acquisition of the US-based General Chemical Industrial Products, which brings with it mining leases to much-coveted deposits of natural soda ash in the American state of Wyoming. Back home, Khet Se, its joint venture with Ireland’s Total Produce Plc is gearing up to roll out a chain of retail outlets for fresh farm produce. Meanwhile, the TCL Innovation Centre, established in Pune in 2006, is all set to make the most of opportunities in biotechnology, nanotechnology and more.

The person guiding TCL at this critical juncture, managing director Homi Khusrokhan, says there’s plenty of reason for cheer, but also a whole lot of hard work ahead. Speaking here with Sujata Agrawal, he answers some crucial questions on where the company is headed and how it expects to achieve its goals.

Another big acquisition, more awards and a jump in revenues — 2007-08 has been a significant year for TCL. What, in your opinion, have been the most satisfying achievements during this period?
The high point of the year was the General Chemicals acquisition, which we completed on January 31, coincidently the first anniversary of the Corus acquisition. This was hugely satisfying, especially because of the smoothness and speed with which the deal was completed.

As for awards, I often say TCL is a compulsive collector of corporate awards. Last year we set our sights on something which is the Holy Grail for many Tata companies: the JRD QV Award. That achievement became a defining moment in the history of the company and was certainly one of the most rewarding experiences of last year.

Our revenues are galloping along, but I do have a concern and that is the alarming pace at which commodity prices are rising. There seems to be no end to the spike and I really wonder how and when some amount of stability can be restored.

In which areas can the company get better? Where does it lag behind?
The quest for improvement is neverending. Today we are far better off than we were at the start of this millennium. Our revenues have grown by over 41 per cent in the last five years and profits have gone up by 37 per cent.

We have entered two new businesses, biofuels and fresh produce. We are trying to make a difference in the agricultural space by being more than just a company producing and selling fertilisers — the business has been renamed ‘crop nutrition’. Additionally, our innovation centre has become a crucible for some great new ideas.

The task ahead for TCL is clear: we need to build on the successes of the past and drive our growth rate further up. The inclines have got steeper.

Foreign acquisitions have been a running theme for TCL in the recent past. What are the company’s long-term ambitions, in terms of revenues and operations, from its international operations?
There comes a time in the history of companies when they stop thinking in traditional compartments such as domestic and international. I believe we have crossed that point in our chemicals business, where 64 per cent of revenues in the current year are from our international operations. The vision we have is not to be the largest soda ash company in the world, but the world’s premier soda ash company. That means having the best people, the best processes, the best customers and, of course, giving the best possible returns to our stakeholders.

What about the outlook on operations in India? How does this square with the company’s globalisation ambitions?
India will always be important to us and its importance will grow as our economy grows. However, for any global player the mindset must be to have a business model that does not differentiate on the basis of nationality, but on the basis of value creation and other measures of business success.

Resources must be put behind the most remunerative businesses. As time passes, market access will become more and more barrier free and businesses will have to reconstruct themselves to ensure that they optimise global opportunities while forgetting about local ambitions.

What’s the plan for India’s rural market, especially in the context of the crisis in Indian agriculture?
There is a huge problem that is developing in agriculture in India. We don’t seem to realise that our industrial growth will be unsustainable unless we fix some of the problems plaguing rural India.

The problem starts with land, its productivity and the use it is being put to. Over the last 15 years, there has been no appreciable increase in the area under cultivation, let alone irrigated land. Agricultural productivity has fallen, soil quality has deteriorated and repeated population migration from rural areas is severely straining our urban infrastructure.

Our farmers lack market access and good price discovery for their produce, the food supply chain is inefficient, the inputs they get are defective, often substandard, and, even where availability is good, there is lack of knowledge about modern farm practices. Our government seems obsessed with keeping the prices of fertilisers low, little realising that helping farmers create greater value for their produce by better and perhaps greater use of the right fertilisers is more important. In my view, the political backlash of non-availability of fertilisers is far worse than the imagined objection to price increases. But we are in an election year and conventional thinking, I’m afraid, will prevail at this point of time.

We are currently doing a pilot project related to procuring fresh produce for our first retail distribution centre, where we are attempting to play our role differently and co-create value with the farmer. It is an ambitious new model that we are trying to implement. If it works we hope to make it an example of how our businesses in the agricultural space can be developed differently in the years ahead.

It has been reported that TCL is morphing from a chemicals and fertilisers company into one that operates across the agricultural spectrum, and that about one-third of its revenues will come from new businesses in the next five years. What’s the logic here?
I believe that in the next five years TCL could be a very different company. However, our vision is not restricted only to the agricultural spectrum. Several years ago Prasad Menon [the former managing director of TCL and currently the managing director of Tata Power] had embarked on a path of trying to create new businesses so that we as a company had a third pillar, as large and as fast growing as its two other businesses — chemicals (which included the food additive business, now renamed consumer products division) and fertilisers.

In fact, I joined the board of TCL [in 2004] to help him in that quest. We co-developed a vision where over a period of time we wanted the company to be less capital intensive (more knowledge-intensive), use cleaner, greener and more sustainable manufacturing processes and also do things that improve the quality of life by addressing the issues of the world’s dwindling natural resources – energy, water, land, etc.

Imagine a three-circle Venn diagram, where the three circles are chemistry, agriculture and technology. The central area, where the circles overlap, was where we saw the area of focus for us in terms of new growth opportunities. The biofuels business, for instance, sits squarely in that space. We superimposed a ‘green’ screen for new product selection, in addition to the normal screens we employ for selecting new businesses that improve the quality of life. This was the origin and logic of what we are trying to achieve.

TCL has been betting big on innovation of late. What are the expectations on this front?
I think it would be a bit immodest to say we are big on innovation today. We have made a start and I have a good feeling about the way we are going. Perhaps intuitively, we were drawn towards two very interesting technologies, biotechnology and nanotechnology, and the area in which they interface with each other. Once we have our new innovation centre constructed at Pirangut, near Pune in western India, we will have a whole spectrum of new product ideas to choose from.

What we have today is a small team of scientists, but they are highly innovative, well directed and, most importantly, passionate about their work.

What do you see as the greatest threat and the greatest opportunity for the company over the next two years?
The greatest threat today is the current world economic scenario, where every single commodity appears to be in short supply, demand keeps rising, and prices are being driven to unprecedented levels. While we are well insulated in the two industries in which we operate — which have actually been beneficiaries of the demand-supply imbalance — what worries me is our ability to adapt quickly to change when it does come.

Our greatest opportunity today is the growing prosperity of the developing world. We are reasonably well positioned now to take advantage of this trend. Also, if we succeed in building a presence in businesses that are cleaner, greener and more sustainable, and are early entrants in this space, there will be plenty of new business opportunities — and these will grow as the world becomes more conscious of the need for sustainability. There is an opportunity
here far larger than the threat perceived by some.

Can TCL continue to do well even if India’s growth begins to slow down? What about the possible effects of a global recession on the company?
As I have said earlier, our horizon is now global and the world is our canvas. One of the greatest advantages of operating beyond the shores of any one country is the ability to spread one’s risks. An India slowdown, therefore, does not worry me. A global recession, of course, is a concern but the consequences will depend on the severity and length of the recession.

How do you see TCL evolving over the coming five years, in revenues, operations, global spread and products?
We will see the emergence of a new TCL over the next five years, of that I am certain. While the chemical business will be global and we will be known as a global company, in the agribusiness area we will be domestically focused. Differentiation and a concern for development will, I feel, distinguish us from the rest of the players.