How T.V. Narendran Took the Inorganic Route to Grow Tata Steel

Tata Steel is valued at nearly Rs 1.5 lakh crore. The stock has gained around 67 per cent in the last one year (till February 28) even as the benchmark Sensex rose less than 13 per cent. The company has a rich history of over 110 years and is one of the world’s most geographically diversified steel producers with more than 65,000 employees. Managing such a diverse entity—in terms of structure and culture—is no easy task and MD & CEO T.V. Narendran has been doing it for a little over seven years. 

During that time, Tata Steel has gone from producing 7.94 million tonnes of steel in FY13, the fiscal before Narendran took over, to 28.54 million tonnes in FY21. And he has emerged as the winner in the Metals & Mining category of the BT-PwC India’s Best CEOs ranking. For the MBA from IIM Calcutta, managing Tata Steel has been all about getting the strategy right, especially when some of its acquisitions did not bear the desired results. “Strategy is an iterative process; you debate with multiple people, your leadership team, your board, your chairman, and then it emerges,” says Narendran. Indeed, or what else could explain—if analysts are to be believed—his move of looking inwards to improve the capacity in India rather than in the overseas markets. 

Tata Steel acquired Corus in 2007 and at that time, the Indian business was 5 million tonnes while Corus was 18 million tonnes. Narendran, who has been at the helm since November 2013, knew that he had to make the company “structurally, culturally and financially future-ready”. “It was very clear we needed to grow in India, because the India business, even in the worst of times, added 20 per cent EBITDA margin and was always cash positive. India was only 20 per cent of the overall revenue and we said we needed to get that up,” he says. Part of his strategy as CEO was to exit or shrink the assets that were not adding value and sucking a lot of capital. For instance, Tata Steel sold its stake in NatSteel Holdings last year for $172 million, slightly lower than what it paid to buy the company in 2004. 

The impact can be gauged from the fact that Tata Steel’s net profit grew at a CAGR of 48.32 per cent for the three-year period till March 31, 2021. Through a series of decisions with an aim to drive efficiencies and make the size more sustainable, Narendran has brought Tata Steel to a stage wherein the India business is currently at 20 million tonnes and well on its journey towards 25 million tonnes while the European business has stayed at 10 million tonnes. 

Incidentally, India accounted for 86 per cent of the overall EBITDA in FY21, touching a record Rs 21,952 crore. In the same fiscal, EBITDA for Tata Steel Europe was in the red at Rs 618 crore, as per the company’s earnings presentation. One of the highlights of his stint has been the inorganic growth that Tata Steel has seen in the domestic market. It acquired Bhushan Steel in 2018 and followed it up with the acquisition of Usha Martin in 2019. “When the Bhushan [Steel] acquisition came, that was an immediate opportunity for us to grow even faster in India... Even after 10 years of signing an MoU in Odisha, we were producing 3 million tonnes. And there was an opportunity to bid for and get 5 million tonnes overnight,” says Narendran, who is used to facing queries on the perceived high price he paid for all the acquisitions. For Narendran, the learning came from the failed attempt to acquire Electrosteel Steels in 2018, when the company lost to Vedanta. He realised Tata Steel hadn’t put in its best bid. “So, when we went for Bhushan Steel we were clear that we had to bet a number, which we should not regret,” he says. Narendran paid a little over Rs 35,000 crore for Bhushan Steel and while many in the industry felt that he paid a bit too much, the results have silenced the critics. 

“As the last 3-4 years have shown, we have unlocked value and taken it from 3 million tonnes to 5 million tonnes and pretty much paid back all the debt that we had. And today we are where we are,” he says. Narendran’s acquisition acumen was on display recently when subsidiary Tata Steel Long Products bought Odisha-based Neelachal Ispat Nigam for `12,100 crore. Some analysts felt that paying that much for a 1-million tonne plant didn’t make sense. “We did not value (Neelachal) in terms of a 1-million tonne steel plant... What we were looking at was the 2,500-acre plot of land, where we could go up to 10 million tonnes. Then it also has 100 million tonnes of iron ore. There are a lot of reasons why this was an asset we didn’t want to lose,” he explains. 

The Tata Steel boss seems to have convinced the analyst community of his acumen and foresight. “He took leadership of Tata Steel when it was struggling... He brought the focus back to India. He was involved in setting up of greenfield capacities at Kalinganagar and that has come out as a game changer... [the company has] more than doubled the capacity in India, which is highly profitable,” says Rakesh Arora, Managing Partner, Go India Advisors. Ask Narendran where he sees the company in the next five years and he says, “Hopefully [as] the most respected and valuable steel company in the world.