Ratan Tata is being showered with awards these days. He’s Business Standard’s CEO of the Year. A Kerala state government company has honoured him. With many Tata group companies going great guns, that’s to be expected. But Tata is modest – he will only go so far as to state that his strategies for group companies were not wrong but attributes much of the turnaround at several Tata companies to the upturn in the economy. Excerpts from a half an hour interview at his Bombay House office:

Q: In an interview to Business Standard, you’d suggested that the stock markets had been undervaluing shares of Tata companies. Tata Steel then hadn’t got out of the woods, the Tata Finance controversy was at its height. But today Tata Steel is doing extremely well, Tata Motors is making profits and the stock markets have re-rated many Tata company shares. Have your strategies been vindicated? 

A: To a great extent, yes. Let me put it more modestly. I think that the strategies haven’t been wrong. I don’t think that everything that has happened is due to them.The economy has made a major contribution to what has happened to the Tatas. Yes, we’ve done several things (a) which were part of the strategy and (b) also as a result of being under stress when times were bad. I don’t want to belittle what the management of these companies did. But we set some goals, some criteria. We did put pressure on the group and I think the group responded. 

Q: Is the Tata group’s performance sustainable? Will group companies keep delivering these numbers? 

A: If we go strictly on the basis of supply and demand, or rather demand, undoubtedly a downturn will take its toll on demand. When Tata Motors went into the red, every one blamed the car activities. This was not fair or correct. What really happened was that the market for commercial vehicles shrank by about 40 per cent. We did not lose market share but the market shrank. With it our numbers came down and we went below the break-even point. 

If there is another downturn – as there will be in business cycles – we may see the same phenomenon. We hope to hedge that by expanding our markets beyond the shores of India. We are looking at establishing new markets. The other thing that we have done is to go for improving the overall efficiency of our units so that our break-even points are lower. 

Q: Can you insulate the Tata group from the vagaries of the economy?

A: Of course it is not possible to insulate yourself from economic cycles. But how you manage the situation is important too. Where it gets difficult to manage is when you have 74 per cent market share, as we had in the case of Tata Motors, and the market shrinks by 40 per cent. There just is nowhere to turn. Even if you retain your market share, you are not able to retain your numbers because the whole market shrinks. So we have to try and insulate ourselves from downturns by finding new markets.

Q: Tata Tea acquired Tetley some years ago. Tata Motors is in the process of acquiring the Daewoo unit in Korea. When will others like TCS, Tata Steel, Indian Hotels and Tata Chemicals start going global?

A: Tata Steel is looking at various options in different countries in steel and in minerals associated with steel. Other companies will look at operations outside India as and when they find them. It is not something that one should madly pursue just to do it. They will have to consider how they do it. It may be an acquisition, a joint venture, it may even be establishing new entities in those countries. 

Q: How far away from this are these companies?

A: Tata Motors, Tata Steel, Indian Hotels and TCS have active plans for establishing some thing or the other abroad. 

Q: Is Tata Steel looking to acquire Chapter 11 companies in the US?

A: Taking over a Chapter 11 company is not a great thing. Chapter 11 is actually a protection against creditors and Chapter 12 or 13 is the real bankruptcy provision. To come out of Chapter 11, you need to restructure the company. But usually it has a lot of liabilities. So unless such a company were very strategically placed, it’s not what we would be doing. 

Q: Are group companies seeking a presence in the US market or the Chinese market?

A: Other than TCS, most of our companies are not looking at the US as a market. We are looking at the African continent or southeast Asia.

Q: Is the time now finally ripe for a TCS IPO? The group’s traditional argument as we understand it was that the last time there was a bull run it didn’t want to hit the market because the TCS share price could crash if the market went down and investors could feel let down. Is there a similar fear right now? 

A: I don’t think we are looking at the same kind of euphoria that we saw a few years ago, with the dotcom industry and tech stocks going through the roof. There was often a joke that if you added the word technology to your company’s name, your stock prices would go up. We’re not in that kind of mood today. The market today appears to be looking at the bottomlines of companies rather than eyeballs. Yes, the market is buoyant but I don’t think it’s euphoric.

Q: Is the TCS IPO on or off?

A: (Smiles). You’re not going to draw me into that k ind of an answer. 

Q: Is there concern about the state of the market?

A: There isn’t concern about the state of the market. The market today reflects an assessment of each company. So the market is much more realistic than it was. 

Q: If we may ask you very bluntly, are you saying that the IPO is not off?

A: Let me answer you the following way. If we feel that the market is right for an IPO, we will do it. If we feel if it isn’t, we won’t.

Q: Do you have further thoughts on group strategy, particularly in telecom? In a unified licensing regime, does it make sense to have two separate companies for GSM and CDMA? 

A: I think there are two separate levels of involvement. Tata Teleservices is a company which we own and manage and we are focusing our investment on CDMA. Idea (Cellular) is a company where we have a one-third financial stake. We do not manage the company. It’s an entity into which we merged our GSM operations from Andhra, which is how we acquired the one-third stake.

You ought not to look at it as a strategic move that we’re in both spaces. We have to be in one on a financial basis but our real play in telecom is Tata Teleservices. I’d say ultimately our growth is in the CDMA space.

Q: Is a Tata Teleservices IPO in the offing?

A: We need to have some performance under our belt.

Q: Are you unhappy with its performance?

A: No, no. But we’re still to start. We’ve just gone all-India. We’re not there as yet. 

Q: You have brought in two executive directors from outside. Will we see more such appointments in future?

A: It’s a continuous process. You are talking about Tata Sons. But the two are also part of the group executive office. You may have people come in from Tata Sons to the group executive office. We may have people who go out of that into line management and new people coming into the group executive office. I don’t think you should read too much into that. Clearly Tata Son’s board today is a much smaller board than it used to be. We do need more directors.

A: Is the Tata Finance crisis over?

A: The crisis is over. We have sold many of the assets of the company. Some of the businesses of the company are gravitating towards being just an auto finance company. It will move closer to Tata Motors. 

Q: Tata Sons wanted to pick up a 10 per cent stake in UTI Bank. Don’t you want to position Tata Finance as a finance company? 

A: Tata Finance also tried to get a bank licence. We had big plans for Tata Finance. Tata Sons has enabled Tata Finance to honour all its commitments. But under no circumstances should that be mistaken for Tata Finance recovering every thing. Tata Sons may have given close to Rs 700 crore to Tata Finance to rectify all the errors. So it’s unlikely that we would have the same plans for Tata Finance which we had before all this happened. We are still cleaning up Tata Finance and not coming back from the ashes as an aggressive player. But it does not mean that we will not look at a bank. 

Q: Where do you see the Tata group in two years’ time? Do you see more of the restrucuring being over, companies being far more profitable? 

A: I certainly see the companies being more profitable. Restructuring will never stop. There may well be some acquisitions and some divestments also. In two years, the weightage of communications and IT companies within the group will increase. There will be a much greater contribution from this business to the group than what we have today.