 "Investors raise the bar for new gen CEOs")
While Bharti Airtel's CEO Gopal Vittal is focusing on insulating the company’s Indian operations from its African operations and increase profits at a volatile time, Britannia’s Chief Operating Officer Varun Berry has been mandated to increase the margins of the biscuit major. An announcement on Berry’s promotion as managing director is expected when the board meets next time, say insiders.
Tata Steel’s managing director, T V Narendran, who took over in November last year, is targeting to cut the mountain of debt of the steel major taken to acquire Corus and will have to stabilise the operations at Rs 22,000 crore Kalinganagar project in Odisha which will be commissioned by next month.
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“These CEOs have taken over at a time when there is uncertainty both at the global as well as on the domestic front. A general election by the middle of this year is not making their task easy,” says Shashank Tripathi, Leader - Strategy of PWC India.
“All the three companies will have to set up long term goals in terms of innovation and come out with new brands and products that can become revenue champions,” he adds. In the last few years, the margins of all the three companies came under pressure (see chart) and hence the push to the CEOs to target better margins and profitability is coming from their promoters and large investors.
The only good news for the CEOs is that the share price of Tata Steel and Bharti Airtel have stabilised in the last one year while Britannia stock has almost doubled. And investors don’t want this trend to falter.
Challenges before CEOs
Large investors say all the three CEOs have to take tough decisions so that they can improve the margins and in turn increase market value of the companies.
| THE Firefighters | |||||
| Name | Age | Description | Education | Date of appointment | Past work |
| Gopal Vittal | 45 | JMD & CEO, Bharti Airtel | Madras Christian College, IIM | 1/4/2014 | Unilever |
| Varun Berry | 51 | COO, Britannia Industries | Punjab Univ –MBA, Punjan University – Bachelor’s Degree- Engineering | 1/2/2013 | Pepsi |
| T V Narendran | 48 | MD, Tata Steel | IIM– MBA | 1/11/2013 | Tata Steel |
“I am fairly optimistic that these three companies will do well as all of them have very strong foundations. The new leadership has bought fresh thinking and will have turbo charge the profits, all of them different kind of challenges,” says Rakesh Tarway, Head of Equity Strategy & VP of Motilal Oswal Securities, a Mumbai-based financial services company.
Take for example, Tarway says post spectrum auction, one of the uncertainty is over for Bharti Airtel. Investors say Bharti Airtel’s scrip is largely traded within a range since it acquired Zain’s African operations in 2010, as concerns over high debt and low margins in Africa weighed on the company. However, with its domestic business improving and Africa revenue trajectory stabilizing analyst think there is upside to margins. “We expect all the bad news is now behind Bharti,” says Tarway.
An Ambit Capital study dated January 15th has placed Bharti and Britannia among its turnaround plays for fiscal 2015 saying these companies have a clear, time-bound focused turnaround plans.
“As a long term investor we are bullish on these companies,” says a LIC official asking not to be quoted. “We give a lot of weightage to a strong management, brands and companies that follow high corporate governance standards,” says he.
Vittal, who took charge of Indian operations of Bharti Airtel as Joint MD and CEO last March, is focusing on increasing margins instead of volume growth. The competition from Reliance Jio will be another big challenge. Says Vittal: “We are the children of competition. There are already players in the market who are offering lower rates. I don’t think any new incumbent will have any impact on us.” Vittal says the focus is on content and consumers to create new users, increase usage and drive more value. “The company has broken up this strategy by districts to find areas of good growth and invest accordingly,” Vittal told investors in Kotak conference this week in Mumbai.
Meanwhile, for Tata Steel’s Narendran, investors say, the biggest challenge will be to stabilise Indian operations even as its European operations are showing signs of a recovery. The big concern for investors will continue to be its high debt. Says Narendran: "At Tata Steel growth in terms of capacity building and new facilities remain our priority. The future challenge for the steel industry will not be the demand, but to create capacity to meet the demand."
"We have completed our expansion at the Jamshedpur plant and are going strong on building the green field project at Kalinganagar in Odisha is currently India's largest green field project on ground," says Narendran.
The challenges for Britannia CEO are clear. Ambit says between fiscal 2009 and fiscal 2013, Britannia lost value market share of 5% and volume market share of 3%. In the same time, the biggest beneficiary was rival ITC was the largest beneficiary of this market share drop, gaining a volume market share of almost 3% to 11.2% by fiscal 13.
| PBIDT Margin (%) | Net profit Margin (%) | |||||
| Britannia Inds. | Tata Steel | Bharti Airtel | Britannia Inds. | Tata Steel | Bharti Airtel | |
| FY09 | 7.79 | 12.40 | 41.68 | 3.59 | 5.02 | 21.54 |
| FY10 | 5.66 | 7.96 | 42.41 | 3.22 | -3.84 | 22.38 |
| FY11 | 5.93 | 14.15 | 34.26 | 2.58 | 5.30 | 9.90 |
| FY12 | 6.67 | 9.97 | 33.52 | 3.60 | 2.03 | 5.95 |
| FY13 | 7.54 | 9.00 | 31.64 | 4.14 | -2.82 | 2.82 |
| Source: Capitaline; Compiled by BS Research Bureau; | ||||||
“Britannia certainly needs to increase margins and investors have noticed the action taken by the company,” says Tarway. In recent media interviews, Berry said the company can look at manufacturing efficiencies as outsourcing costs for Britannia are higher than those of other large players like Parle.
Analysts say these CEOs will be have to flexible and prepare a group of new leaders within the companies for fresh thinking and re-calibrate strategy. "All of them have different kind of challenges and difficult. How they manage these challenges is something to look out for in the next financial year,” says Tripathi.