In 5-7 years, our business picture will be very different

Heading into its 75th year of operations, Tata Chemicals has drawn up a new roadmap, which will see the company expand its farm and consumer businesses in a significant manner over the next five years. Tata Chemicals’ flagship soda ash business is emerging out of a rough period in Europe and Kenya, with teams addressing the reconfiguration of the business. While the chemicals business is taking these difficult but necessary steps, new growth will come from the two potentially powerful businesses of farm inputs and food and nourishment products, says managing director R Mukundan, as he talks to Gayatri Kamath about the new manoeuvres expected in the years ahead.

Tata Chemicals is fairly diversified in its businesses. Where does the company stand as compared to its peers?
Tata Chemicals is a leader in most of its chosen areas of business: it’s the world’s second largest soda ash company; it covers over 100 million households in the consumer products category; it leads the branded salt market with a market share over 60 percent and is one of the category leaders in the business of pulses and water purifiers.

Tata Chemicals (including Rallis and Metahelix) continues its deep engagement with the Indian farming community, unmatched and unparalleled by any other Indian competitor. We service over 10 million farmers, covering about 85 percent of India’s arable land. We have about 800-odd of our own stores selling farm inputs and we expect this figure to touch 1,200 stores by the end of the year.

Nutraceuticals, the new business line developed by our innovation centre, will soon go into commercial production.

So heading into its 75th year of operations, the company is looking at positioning itself less as a chemicals company and more as a holistic provider of products and services that are based on science.

What is the strategic direction that the company plans to take in the long-term?
The chemicals business is now a mature business. Going forward, we have identified the food and nourishment platform and the farm input platform as two key pillars for growth. These will primarily be based in India, but there is an export potential for the farm input business, especially in Africa, South East Asia and Latin America. And for this we are working closely with Tata International. Our innovation centres will develop speciality products focused on these two platforms.

It’s been a tough year for the company. What are the main factors affecting the soda ash business?
It’s the UK and Kenya businesses that are facing tough times; the Indian and US businesses are doing fine due to their competitive cost position. The soda ash market demand is growing steadily at 3-4 percent. The major issues are with our cost structures in the UK and Kenya, where we are struggling with high energy costs which are making these businesses structurally weak.

How has the company handled these issues?
We restructured the UK business by closing the Winnington soda ash facility. Close to Rs9 billion has been written off (including the impact of Netherlands and UK closures), and the aftermath of the restructuring may continue for a couple of quarters. The Kenya business is examining its reconfiguration options this financial year.

We will need to manage key costs, such as energy and fuel, and make our processes much more efficient and effective. We have a programme of lean Six Sigma that is being executed in all our plants. The positive impact of these steps will be felt in our businesses soon.

What is the way ahead for the soda ash business?
We are happy with our market position and the customer relationships we have established. We are addressing the cost competitiveness issue in the UK and Kenya. Although there’s no immediate plan for capital investment in soda ash, we are investing in enlarging the product portfolio to include higher value-added products such as sodium bicarbonate products for use in the pharma, animal nutrition and flue gas treatment industries.

Coming to the agri business, how has the market responded to TCL’s high-value fertilisers? What are the prospects in this business?
The agri segment has been one of the best performers in the Indian economy. The company continues to benefit from the shift of the Indian farmer towards higher technology and higher productivity, which implies greater use of high quality seeds, crop nutrition and crop protection chemicals. We intend to intensify our investments in this business by investing Rs5 billion over the next two years.

We would, however, consciously stay away from products where government subsidies are involved, and, keeping this in mind, we have decided to not invest in the commodity segment of the agri business. The company also pulled out from the Gabon fertiliser project, which was in line with this thinking. We will increase our investments in high-tech products such as specialty fertilisers, herbicides, weedicides and high grade seeds. We see the agri business growing from it s current size of Rs80 billion to about Rs150 billion in the next few years.

TCL’s line of food and nourishment products is growing rapidly with I-Shakti dals, besan etc. What is the vision for this business? What are the new products planned?

The vision is to deliver nutritious products that are branded and packaged for quality and convenience. We are well positioned to roll out these products through our existing Tata Salt distribution network that touches 120 million households. The consumer business has tripled in the last three years and has crossed the Rs11 billion mark. Our expectations are that it will more than triple in the next five years. We currently have a mix of basic foods (like dals) and complementary value-added products (such as besan, a flour made from a dal). We are looking at options to expand the portfolio in basic and ready-to-cook segments.

What is new in the Tata Swach business? Are you looking at markets outside India?
In the water purifiers business, the market reception has been excellent and we have sold over 1.1 million units. We now have a complete range of products, starting from the high-end reverse osmosis (RO) purifiers at Rs17,000, to the basic filter purifiers around Rs1,000. We are, in fact, the only brand in the sub-Rs1,000 category catering to the low-income segment. In the past three years, we have purified close to 7,500 million litres of drinking water. There is export potential in this business, but India will continue to be our main market.

What will be the impact of the changing demographics of India on Tata Chemicals in terms of the marketplace, talent pool, customer base, etc?
We believe that there are two broad trends where we need to focus as India moves to a $3 trillion economy with a large youth population. The first trend is rapid urbanisation, which will drive consumers towards packaged and branded products from loose products. This represents an area of tremendous market opportunity for us in food and nourishment. Urbanisation will also create a pressure in rural India to move away from labour-intensive practices to practices involving greater mechanisation and technology. This means that companies like ours that supply products for higher productivity will stand to benefit substantially.

The second trend will be generating employment for the youth of the country. We believe that we need to play a key role in that space too, especially in skilling future agriculturists.

The climate change bogey raises its head with increasing frequency. Given that Unilever is a big client, has the Unilever policy on supply chain sustainability impacted Tata Chemicals in any way?

We work with several entities like the UN Global Compact, Carbon Disclosure Project, Global Reporting Initiative, etc. We have a strong sustainability commitment which is in line with the Tata group policy on sustainability. Hence, for us, partnering with customers like Unilever and Procter & Gamble has been a pleasant task. At Tata Chemicals, sustainability is reviewed at the highest level in the board. The actions are cascaded down the line and our internal systems are well embedded. The Unilever partnership just reaffirmed that we were on the right track.

The Tata way of working implies a strong focus on aspects such as innovation, sustainability, customer-centricity, employee engagement, etc. How does the company embed these concepts in its operations?
These are integral to our business. Take customer-centricity. We have a diverse range of customers, from multinationals like Unilever to housewives and farmers. And we are committed to delivering what’s best for them. In our farm input business, we have walked away from selling unsafe red-triangle products well ahead of regulations and laws. This is based on our customer insight as well as our sustainability policy.

The market for Briskarb for flue gas treatment grew out of the tightening of emission control norms. Our Swach water purifier does not use electricity. These are all green products. Our innovation and sustainability focus is our strength. We have four R&D and innovation centres that create products for the farm and consumer products businesses.

How does your company use new technologies or new media in its operations?
We see IT as the enabler to improving and simplifying our customer delivery and employee processes. The company has invested in e-enabling our work processes and we are in the process of digitising them in a smartphone-friendly way. We have created a Centre for Process Excellence and Consolidation (CPEC). Over a period of time, this centre will manage all the back-end processes of the company. We have started with the finance and accounts function and soon other support functions will migrate there. CPEC is completely outsourced and Tata Consultancy Services is managing this for us. It’s not about cost but about increasing efficiencies and effectiveness.

When it comes to social media and digitisation, we are at an early stage. We have formed a small core team to see how we can adapt our marketing and employee engagement processes to social media. As a start, our new Tata Salt campaign, with Mary Kom as the brand ambassador, is being promoted on social media.

How difficult is it to maintain softer values like sustainability, ethics, responsible citizenry and integrity in the world of hard numbers?
Companies have to deliver hard numbers, but this cannot be at the cost of values. We believe that if you have high levels of integrity and corporate responsibility, the delivery of hard numbers becomes easier. We have found that employees and consumers are motivated, and the community is highly supportive. A lot of our brand equity rests on these pillars.

Going into its 75th anniversary, what lies ahead for Tata Chemicals?
As we embark on the new financial year, hopefully the impact of the restructuring of the UK business should be behind us and the reconfiguration exercise for the Magadi business will be under way. We will be able to renew and recharge the company and bring it back to healthy performance.

The chemicals business is now a mature business; the farm business is in the early adolesence stage; and the food and nourishment business is in its infancy. There is an increased realisation that we are an enterprise with three distinct businesses and business models and each one will need its own space to grow. The farm business and the food and nourishment business are the two segments that will need to be nurtured for the future growth for the company.

In five-seven years, the Tata Chemicals business landscape will be very different, with all our businesses probably of similar impact and size. We will be less of a chemicals company, and more of a business that’s serving society through science.