One day, many years ago, when I was business editor of The Times of India, I was making notes on the Tata group. I thought the group was in far too many industries to be able to become globally competitive in any one of them. So I made a list of companies I felt the group should exit. A friend, who is a well-known commentator on the stock markets, whose column I had introduced in the paper, happened to drop in, and I showed him my notes.
He was aghast. One of the companies I felt the Tata group should exit was Tisco, the steel-maker. He thought I was crazy, although I also said that it was unlikely that that would happen -- or happen soon anyway. But there were other shocks for him. He read my notes and cried, "You mean the Tatas should sell Tata Oil Mills? How can you say that?" I said, why not? If they have to focus in areas like infotech and automotive, they need to build strength there. They have to give up something.
In less than two months of that the Tatas had sold Tomco to Hindustan Lever.
Retain ACC or sell it?
I had also felt at the time that the Tata group should focus on cement, which could have been turned into a much bigger business than ACC represented then. It had to happen, given the large number of cement companies there were (and still are today). That hasn't happened. Nor has Tisco been sold. The point is not that I was right or wrong about individual businesses.
Since I was not privy to the internal thinking of the group, and since I didn't go public with my suggestion, it didn't really matter. The point I was making to my friend then was that the Tata Group needed to focus - very badly. Now look at what's happened. The Tatas have practically exited cement by selling over half of their stake 14 per cent stake in ACC to Gujarat Ambuja Cements. Does it make sense? It does.
The Tatas should, in fact, have sold their entire 14 per cent stake to Gujarat Ambuja. If the group was not committed enough to the cement business to invest more in it, to expand ACC's market share through new plants and through acquisitions, it would be walking on a treadmill. In a market in which rivals are expanding aggressively, that can result in a bad fall. Grasim Industries, India Cements, Gujarat Ambuja Cements, Larsen & Toubro -- the other big players -- have become aggressive acquirers.
In comparison, ACC has been standing still. You can be sure the cement industry will see more acquisitions, and, if ACC was not going to become an acquirer, it may as well as become an acquired while the going was good.
A question of priorities
So why didn't the Tatas go around acquiring other cement plants to add to ACC's capacity? I haven't asked Ratan Tata that. But it's clear that his, and his group's, priorities are different. If the group has to strengthen its position in automobiles, in information technology, in tea and coffee -- areas in which group companies are at the top -- the group must give up something else.
Acquiring Tetley of the UK was no easy thing, and running it successfully will be even less easy. Consider the Tetley takeover, or the launch of the Indica small car, and it's clear that Tata group chairman Ratan Tata has the guts to compete. In fact, actions like the disposal of Tomco and ACC also requires guts. And the story will not end here. If you consider that the divestment of cement is an indication of the group's plan to move out of commodities, you may find that the next company on the chopping block may well be Tata Chemicals.
My analyst friend may well ask, "Tata Chemicals? Why should Ratan Tata sell Tata Chemicals? It's in such a strong position in its market." That's not the point. What's important is that the group needs to invest much larger sums of money in areas like automobiles than it has done so far. Will it be like putting all your eggs in one basket? It may be a bit of that. But in business it helps to do that.
Just look at Gujarat Ambuja Cements. Narotam Sekhsaria and his team have lost no sleep because they only make and sell cement. In spite of the cyclical nature of the cement industry, the company has performed remarkably well. It's very likely it may not have been able to do so had it also tried to make steel, cars, chemicals, and a dozen other things.
In the end, does it really matter who runs ACC well? The Tatas, or Gujarat Ambuja? As long as the job gets done?