Thachat Viswanath Narendran’s recent appointment as Tata Steel’s first global chief executive and managing director is the pinnacle accomplishment of a career with the company that began nearly three decades back. The timing of the recognition appears just right, with Tata Steel looking to make the most of the positives in the global steel industry.

Mr Narendran, a mechanical engineer by training, speaks here to Christabelle Noronha about Tata Steel and its performance and prospects, his elevation to the top post, and about the Kalinganagar facility. Excerpts from the interview:

What does becoming Tata Steel’s first global chief executive and managing director mean to you, personally and professionally?

First and foremost, it’s a great honour. When I joined Tata Steel 29 years ago, I didn’t really think so far ahead. This is more than a company; it’s an institution. To have the opportunity to lead such an enterprise in India and South East Asia for the last four years was a privilege. To head it globally is an even greater privilege. I’m looking forward to working with a wider cross section of people and doing whatever I can to take Tata Steel forward.

Business has been looking up for Tata Steel. Is this the beginning of a strong run by the company?

The steel business is cyclical. In 2015, when China slowed down a bit, steel exports from the country jumped from about 5 to 10 million tonnes a month. Even though India is the world’s third-largest producer of steel, it does not produce 10 million tonnes a month. The China factor had an enormous impact on the global steel trade and prices fell by up to 50%. Even in those difficult times, Tata Steel was one of the few global steel businesses to make a profit. The situation today is much better, with steel prices climbing back to pre-2015 levels. The recovery has helped us enhance efficiency, manage costs, improve the product mix and build new businesses.

The forecast for the steel industry suggests the worst is behind us. Not just China, but many other economies where steel consumption was shrinking — the United States, Russia and Brazil among them — are all recovering; even Europe is gradually returning to where it was in 2008. Tata Steel will continue to do better in the next few years if the projected demand growth happens.

The merger of Tata Steel’s European operations with ThyssenKrupp is seen as a breakthrough in a journey that began with the Corus acquisition. What are the immediate and long-term benefits in this for Tata Steel?

We have gone through a lot of pain in Europe over the last two-three years. The restructuring there has continued relentlessly and production has been whittled down at our sites in Britain and the Netherlands. We don’t have the comfort in Europe, as we do in India, of having our own raw materials. The challenges there are different.

Different strategies need to be applied to different markets. In a market like India, where steel consumption is growing at 5-6% and with huge infrastructure development in the pipeline, the growth engine must be used to not only protect your market position but also to drive cost efficiencies. Europe, on the other hand, is a mature market where 1-2% growth is considered good. In such a market, consolidation is one way to make the business structurally stronger.

ArcelorMittal and Corus were created through consolidation. The coming together of Tata Steel Europe and ThyssenKrupp is a natural extension of what has been the trend. It puts us in a much stronger position than we would have been individually, and it allows us more opportunities to optimise our supply chain and become a formidable competitor. With world-class facilities, an excellent product mix and the technology focus we have, we will become the second-biggest player in Europe.

“The more you build and expand [in Kalinganagar], the more you can defray expenses and share the fixed cost to improve competitiveness. Kalinganagar is soon going to be more cost-efficient than Jamshedpur, one of the lowest-cost producers of steel in the world.”

The ‘One Tata’ concept has been getting plenty of attention in the group lately. How do you see this collaborative process working out in the Tata Steel context?

It’s a powerful thought. We at Tata Steel are already collaborating with some group companies, but the Chairman’s expectation is that we take this to another level and go beyond what we have done. For instance, we have been tapping the distribution network of Tata Global Beverages in rural Uttar Pradesh (in India) to market our roofing sheets. We are also working with Rallis, which has a fantastic relationship with farmers, to whom we sell our products for fencing, roofs, agricultural implements, etc.

These are two examples of synergy between Tata companies, but I think there are several untapped opportunities. For instance, Tata Steel deals with the house builder. We sell steel to them through our Tiscon brand, but can we get a better share of their related expenditure? Can we extend the relationship to include Voltas and its air conditioners or Trent and its home products?

‘One Tata’ is a concept on which we need to work collectively as well as individually to maximise the strength of the group. A formal structure can certainly bring in a holistic perspective, resulting in better and greater synergies among group companies.

A rationalisation of the Tata Steel portfolio of subsidiaries and associate companies has been spoken about. What is likely to happen on this count?

Portfolio rationalisation at Tata Steel has happened in the past as well, but we are looking at it more sharply now. We are evaluating our subsidiaries and reviewing our portfolio to ascertain the strategic logic to invest. Where is it that we can scale up tangibly and where is it that we are present only for historical or legacy reasons? Which companies can be merged with one another or with Tata Steel? There are multiple frames to be looked at.

In the 1990s, Tata Steel in India had seven subsidiaries; today it has 35. There definitely is scope to rationalise and optimise. We have exited from businesses in the past, but we will do it with a sharper focus and greater urgency now so that we can simplify our structure and make it more impactful.

The Kalinganagar facility has begun to pay off in spades for Tata Steel. How will the proposed capacity expansion at the plant help Tata Steel?

Kalinganagar started under difficult circumstances a decade ago, but the team there has done outstanding work with the greenfield project. It wasn’t easy, considering we have had violence on the site, people were threatened and mobs had taken over parts of the facility. It’s much more peaceful now than what all of us had got used to seeing.

Kalinganagar has been a remarkable story for Tata Steel. Within a year of its commissioning, we were at almost full capacity utilisation, and now we have just had our board approve a 230-billion expansion at the facility (from 3 to 8 million tonnes per annum). This is a 3,000-acre site; the more you build and expand, the more you can defray expenses and share the fixed cost to improve competitiveness. Kalinganagar is soon going to be more cost-efficient than Jamshedpur, one of the lowest-cost producers of steel in the world.

Government spending, rather than private investments, is what’s sustaining the steel industry in India now. Why is that, and what’s the upshot here for Tata Steel?

Fundamentally, India has been a consumption-led economy with underinvestment in the infrastructure sector. It’s only recently that there has been focus on investment in infrastructure. This is a boon for the industry because infrastructure is steel-intensive. However, the fact that most of the investment is by government and not private enterprise is a matter of concern. If the Indian economy does well, capital expenditure by the private sector is inevitable. Meanwhile, government spending is essential if you want the economy to get better.

Everybody seems to have an opinion on the Indian economy and its prospects in the coming months and years. What’s your take on this, and how has the introduction of GST changed the equation for Tata Steel?

I’m always optimistic about India and I believe 5-7% annual growth is on the cards. I don’t think the economy is ready to grow at 7-9%; there are too many bottlenecks because the utilisation of infrastructure has outpaced our ability to create it. Every airport in India, for instance, is congested. Similarly, despite the construction of more roads we have to put up with chock-a-block traffic. Infrastructure expenditure must rise if India is to progress.

Demonetisation and GST have encouraged a shift from the informal to the formal economy, and Tata Steel has always been in the formal sector. Across the board, things are looking up. Several sectors, among them automotive, construction and electrical equipment, are showing positive signs. Steel consumption is an indicator of how the economy is faring.

Tata Steel has been striving to extract more out of the retail and small- and medium-sized business categories. What sort of success have you found in these segments?

The B2C (or business-to-consumer) segment is one of our pioneering initiatives over the last 15 years. Some of our biggest brands are in this segment and we now want to take this to another level by developing new products and solutions that cater to consumer conveniences.

Nearly 5% of the money a house builder spends is on exteriors, where we have had immense success with Tata Tiscon. We can leverage this relationship further by selling doors and windows that look like wood but are made of steel. We also see an opportunity to sell modular furniture and have started a side range in this business, and we have in the pipeline products such as gates and grills. The 5% spend can be increased to 20-25% through these offerings.

The small businesses initiative started about five years back. Although the market was sluggish initially, we realised at the time that the consumer goods segment accounted for 50-60% of steel consumption. This typically happened through smaller companies and factories that never dealt with us directly but only through traders, who gave them what they had rather than what they wanted. We saw a huge opportunity and decided to build a distribution network in this segment.

Will there be more retail outlets?

We have a network of 10,000 dealers spread across almost the entire country. However, as volumes grow we will need to spread our distribution network. Our Pravesh doors [steel doors with a wooden finish] is a 500-billion business today and we are booking 10,000 doors a month. We also have smart city solutions like bus stands, garbage bins and solar panels. Services and solutions comprise 2% of our business as of now and we want to take this to 20%; B2C is 20% and we want to make this 30%.

You have been quoted as saying, “Mining is a tough business. I spend 60-70% of my time on mining issues.” Is it worth the effort, for Tata Steel and for you?

Yes, it’s a significant part of the value that we create. We always look at Tata Steel as a steel company, but it’s also one of the largest mining companies in India and we have been mining for almost 100 years. That said, mining attracts a lot of regulatory oversight, with polices being created constantly at the centre and in the states. This can be cumbersome but mining has brought us a lot of value; it’s one reason we have remained competitive for so long.

The challenge is going to be post-2030, when the mines will be put up for auction. We will have to bid for them at that point, which means the cost of holding a lease will increase. Tata Steel must be future ready for an era where we will be paying more for raw materials than we traditionally have. The focus on driving cost-efficiencies at Tata Steel is to see how margins can be maintained even if raw materials are procured at market prices. The mining business does take a lot of my time, but it is totally worth it.