Best CEOs: How TV Narendran reshaped and reinvented Tata Steel

tata steel has a glorious past. Established in India in 1907, the company has the distinction of being Asia’s first integrated private steel producer. And with a history spanning over a century, the steel major has come a long way, with its footprint spread across India, Europe and Southeast Asia.

T.V. Narendran, however is not new to Tata Steel. A veteran of nearly 35 years—with the past 10 years as CEO & MD—the IIM Kolkata alumnus knows that he has to constantly be on his toes to be ahead of the curve in an industry that is known to go through periodic up and down cycles. “Our ability to pick up [an] asset, integrate it, turn it around, unlock value, has got honed in the past three years,” he says, sitting in a large conference room at the iconic Bombay House, the headquarters of the Tata group and a building whose own history goes back to 1924. “For us, it was obvious that we have to scale up the business and there was opportunity in India. When we look at Tata Steel as a portfolio of sites or a portfolio of assets, our strongest point is our footprint in India, which in a cyclical industry like ours, had an 18-20 per cent Ebitda margin, even at the lowest point in the cycle,” explains Narendran.

Indeed, the recent financial numbers corroborate this. For instance, in Q3FY23, deliveries of its India business grew seven per cent year-on-year, even as Tata Steel Europe registered a dip of nearly eight per cent.

And with Narendran at the helm, the firm’s production in India has also grown manifold, even as it plans to nearly double its production capacity to 40 million tonnes (MT) by 2030, from the 21-22 MT it produces currently. More importantly, Narendran is confident that the higher production capacity can be achieved purely through proper execution, and from its existing sites.

This assumes significance as the past few years have seen the steel major making regular acquisitions—first of Bhushan Steel in 2018, then Usha Martin in 2019, and finally Odisha-based Neelachal Ispat Nigam in 2022. “Our existing footprint allows us to grow to 40-45 MT in the existing sites. We want to go to 40 MT by 2030… [It] is very doable for us,” says Narendran, who took over the reins of the company when its capacity in India was less than 8 MT. It was 7.94 MT in FY13, the fiscal before Narendran took charge.

Incidentally, Narendran’s strategy of pivoting towards India is clearly visible in the graph of the company’s production capacity spread across India and overseas. (See chart Steeling for the Future). For instance, Tata Steel’s acquisition in 2007 of Corus Group added a capacity of 18 MT, of which the UK accounted for 10 MT, while its India production capacity at the time was merely at 4-5 MT. The UK’s production has fallen to 3 MT while India produces 21-22 MT annually.

Corus’s Netherlands plant, meanwhile, always produced around 7 MT of steel annually and it “has always been profitable and doesn’t need support from India”, says Narendran. Within India as well, Tata Steel’s site at Kalinganagar and the acquired assets of Bhushan Steel and Neelachal Ispat Nigam—both in Odisha—have the potential to more than double the steelmaker’s capacity as per demand and the execution strategy of the company. “We have always been saying how we can make Tata Steel structurally, culturally and financially future-ready. The structural part is getting addressed like this. And that’s why we feel that as India grows, we can grow without having to borrow more,” says Narendran, adding that the company’s cash flows will be sufficient to fund its growth, and make it structurally and financially future-ready.

Analysts, meanwhile, believe that Narendran—the winner in the Super Large category of the BT-PwC India’s Best CEOs ranking this year—has chosen the right strategy for Tata Steel and now the execution part has to play out well for the company, to take it to the next phase of growth and expansion. “Tata Steel has created a solid platform that can take them to 40-45 mtpa [MT per annum] capacity in India, without any need for land acquisition, basic clearances and new water source,” says Vipul Prasad, Founder & CEO of Magadh Capital Advisors. Adding that the company has done well on expanding the capacity and product mix at Kalinganagar, Prasad explains that Neelachal and Tata Steel BSL (Bhushan Steel) can take care of the company’s growth plans for the next 8-10 years, when combined with the brownfield opportunities at the Kalinganagar plant.

“Solid infrastructure and strong raw material availability in the region will ensure that Tata’s steel hub in Odisha will be amongst the largest and most profitable, globally,” he says, while highlighting that the company has also managed to reduce debt on its balance sheet, despite its aggressive focus on organic as well as inorganic growth.

In a similar context, Aditya Welekar, Senior Research Analyst at Axis Securities, says that during the commodity up-cycle, Tata Steel maintained disciplined capex and generated positive free cash flows that it used to deleverage its balance sheet. “Tata Steel achieved massive deleveraging between FY20 and FY22, and the company’s net debt has come down from the peak of around Rs 1 lakh crore in FY20 to Rs 51,049 crore in March 2022. So, to Tata Steel’s credit, it used the strong steel prices to repair its balance sheet by using disciplined capex outflow and good working capital management,” he says.

Facing a souring international market, Tata Steel has now realised that India is a better place to expand its capacity and as a result, it is shifting its focus there, Welekar says. He adds that the company will grow its Indian capacity from 21 mtpa to 40 mtpa by 2030 and cut its European footprint, since it has been flashing red.

But this, in Narendran’s own words, is taking care of the structural and financial aspect of the company. What about the cultural bit in a company that is known to boast of staffers spanning generations of families?

“[The] cultural transformation of Tata Steel has multiple elements. It’s not just about the culture, but about the way we work and the things that we focus on. To me, it is about planting seeds and when you plant the seeds, it takes a while to grow. If you plant the seed in time, then it will grow at the right time,” explains Narendran. According to him, the two highlights of the journey of making Tata Steel a culturally strong outfit has been its thrust on digital transformation—which also helped the company a lot during the pandemic—and sustainability.

“Because we went the whole hog and spent a fair amount of money building the digital infrastructure, when Covid-19 hit us, we had no problems in shifting to work from home or work from anywhere, and the business went on,” he says, adding that the company’s focus on sustainability started around six to eight years ago, when the management realised that it was an existential issue. The initiative required the board members, union members and leadership to go through a training and sensitisation programme.

Alongside that, Narendran has also focussed on making Tata Steel a more attractive organisation for the younger demographic by stressing on elements like gender diversity, inclusion and also policies for the LGBTQ+ community. “A lot of our policies were stuck in that old world… the husband is working, so it’s for the wife rather than spouse. Questions were asked about why only spouse, why not partners. So, we allowed all that. Why not paternity leave, so we allowed paternity leave. We also have adoption leave now,” says Narendran, adding that many of the policies were changed to make them more contemporarily relevant for today, and the process continues.

Moreover, the company has put in place women-only shifts and also has around a hundred transgender people working in its mining locations and plants. “It is not just about changing the policy and recruiting women or transgender people but also making sure that the infrastructure is there, the facilities are there. All this is also part of the cultural transformation at Tata Steel,” he says.

Narendran is also working on making the company more agile and has put in place “bureaucracy busters”, given the various legacy issues that exist in a typical century-old organisation. With the understanding that the company has been around for a long time, due to which processes tend to turn more bureaucratic, Narendran explains that the company has instituted teams that identify projects where they take action to mitigate bureaucratic processes and mindsets.

“We do a lot of work on agility… You disrupt the status quo. It’s more about saying that while we are proud of our past, what of the past [do] you want to discard? What of the past you want to strengthen, what of the past you want to preserve,” he says.

Incidentally, the changes being brought in at Tata Steel are leading to visible benefits for it, with the steel producer getting increasing recognitions within the group for its efforts as well.

For instance, Narendran is quick to point out an initiative called Tata InnoVista, which is a “platform for recognising and celebrating innovations of the companies at the group level”. “Around five to six years back, we were hardly getting any awards. Today, 30 per cent of the awards in the Tata group come to Tata Steel. If you look at the number of patents that Tata Steel has got in the last five to six years, it is huge,” he says.

Under Narendran, the company is also working with a lot of start-ups on issues related to climate change and carbon emissions, among other things. “That’s part of the journey of driving more innovation in the company. How do we plug into this start-up ecosystem? How do you become more agile? How do you become more innovative? How can you bring more breakthrough thinking in the organisation? How can you have more diversity in the organisation? All these are elements for making Tata Steel future-ready from a cultural point of view,” he says.

Interestingly, business is not the only challenge that occupies Narendran’s mindspace, whose interests outside work include playing the drums and listening to The Beatles, among other bands, and pursuits.

For a leader who values feedback, he narrates a conversation he had with the younger employees of the company at his frequent breakfasts with them. A few years ago, when he was in the midst of one such breakfast, a simple question made him ponder upon the pioneering initiatives that the company needed to take or had been taken. “I have these breakfast meetings with youngsters and one of them said to me that everything that you described as pioneering happened 100 years back… what are you doing today, which is pioneering? And I remember going back to the then CHRO, saying that was a very valid point. What are we doing today, which is pioneering?”

Incidentally, Narendran says that he derives inspiration from a quote of Vijay Govindarajan, a renowned expert on strategy and innovation, and currently the Coxe Distinguished Professor at Dartmouth’s Tuck School of Business.

“He once said that ‘a company that only talks about its past has no future’. When you have been around for a long time, there is a lot to be proud of... But as leadership, you have to be thinking of the future, so that in the future, there’s a past they can be proud of,” says Narendran, adding that the company is trying to create an organisational culture where thinking about the future is not just within the purview of the CEO, the leadership or the strategy team.

“[It is] pretty much the responsibility of everyone in the organisation, particularly if you are the leader of your team. You just need to think,” he says.

@ashishrukhaiyar, @krishnagopalan