A Red Letter Day of Corporate India
One IPO that changed many things
True entrepreneurs find worth in the worthless and possibility in the impossible. This is about one of that such tale.
The Hedgehog and the Fox
While reading Jim Collins famous book Good to Great: Why Some Companies Make the Leap... and Others Don't, we discovered about The Hedgehog and the Fox.
While the original work was done by Archilochus (680-645 BC). This story gains fame when it was retold as an essay by philosopher Isaiah Berlin in 1953. The theme of the story is simple
The fox knows many things, but the hedgehog knows one big thing.
Mr. Collins shows his preference towards a hedgehog mentality. And, since then I used to wonder under what head The Tatas will fit in. After all, over so many decades, they have shown us that they know many things, as well as THE BIG THING.
I feel more than that story, they simply believed in:
To survive you often have to reinvent yourself.
Iron & Steel made the industrial revolution a reality.
The Industrial Revolution is mostly remembered for coal, steam and the invention of the railways. However, there is another industry that played a huge role in the progress of this period: iron and steel production.
One of the direct impacts of this was to make Iron in India.
The first attempts to establish an iron and steel industry on Western lines in India were made by Joseph Heath, a retired Madras civilian and a friend of Charles Dickens, on the Madras coast, in 1830.
The second attempt was in 1875, by Barakar Iron Works Company started on the Jharia (Dhanbad) coalfields, 143 miles north-west of Calcutta.
Worthless, Impossible and Stupid
Both of these attempts led to a lot of wastage of capital by the English entrepreneurs, they had almost decided that iron can’t be made in India.
By 1882 Jamsetji Tata also considered the possibility of setting up a plant in the Chanda District of the Central Provinces following the discovery thereof the Lohara 'iron hill' by Ritter Von Schwartz, but he was forced to abandon the project because 'the available coal did not cake well'.
He remained focused to have a play in the iron industry and kept looking for the right people and place for his dream project.
In the middle of the difficulties lies opportunity
Bose Babu
Pramatha Nath Bose, completed his education from the London University and Royal School of Mines. When there was a delay in getting a ‘suitable post’, he started spending time with other nationalists in London. In order to get rid of Bose's political activities, he was soon appointed to the Geological Survey of India (as the first graded Indian) and sent back. He was the first to map India geologically in a scientific manner, from Kashmir to Tutticorin and from the Arabian Sea to Burma.
P. N. Bose will soon go on to discover rich iron ore deposits in the Durg districts (Chhattisgarh). After his retirement accept the request of Maharaja of Mayurbhanj, to explore the mineral deposits in his state.
Around the same time (1900), Lord Curzon liberalized the licensing policy on mining, in another attempt at steelmaking from India. Given the railways were spreading fast across Indian hinterlands, there was not enough iron and steel to go around.
Seeing this demand, Tata, the company, applied for a prospecting licence for the Dalli Rajhara hills (Chhattisgarh) and soon the license was granted. Now that raw material had been found in decent quantity, the next question was where would be the plant be located?
In May 1904 Jamsetji died at Bad Nauheim, Germany, still in doubt whether his two beloved schemes would ever come off (IISc and Tata’s play in Iron & Steel).
Meanwhile, the hand of fortune intervened again. Mr Bose had again made a BIG discovery and he was very happy to inform about the same to Tata’s.
He has found iron ore in Mayurbhanj state, within easy range of Jharia and Raniganj.
The Quest of Capital
Having discovered iron ore reserves, easily availability of cheap labour, and political encouragement (from the Maharaja of Mayurbhanj), Tata was quickly solving all problems towards making swadeshi steel. Except capital.
Dorabji Tata, the then CEO and son of Jamsetji Tata (along with Burjorji Padshah- a professor turned trusted advisor of Tata’s) stationed himself in London, meeting investors, bankers, and anyone willing to listen to his story. It was the first pitch an Indian perhaps made to a ‘VC’.
And sure enough, the first rejection to an Indian from a VC - plenty of encouraging words but no capital!
Mainly because London businesses were passing through a bad patch at the time. But mostly because who would bet on a nation of brown slaves to successfully set up a steel plant - something which was the pinnacle of technology at that point in time.
Then, the usual problems always did present - that of the extent of control. Many investors wanted to exert control if they were to invest. Something totally unacceptable by the Tatas.
Tata Jr was in hurry to fulfil the dream of his father, and so he decided to do the unthinkable. Having failed to raise capital in London, Tata Jr. and Burjorji Padshah now decided to try to raise within India itself (mostly with Indians).
The overwhelming angst against Indian resources (mostly by the British Controlled entities) being used to make the British rich was spreading across Bengal & India. Dorabji rode this wave of patriotic fervour and appealed to all Indians, ‘Don’t you want to participate in the first such project in India?’
The First of our Desi IPO
There was a certain debate over the name of the company. Some of the family were of the opinion that Bapuji (Jamsetji) did not like the association of his name with his enterprises. Neither for his mills (Empress Mills, Swadeshi Mills) nor the Indian Hotels Company Ltd OR for the Indian Institute of Science had he allowed the use of his surname.
Some said this is because a decade earlier Jamsetji had enthusiastically started a Tata Shipping Line which had been driven out of business by the P&O. But the consensus was that without the name of TATA’s, this capital raising endeavour will not work out.
After all their decision was considered highly risky since such large sums for an Indian enterprise had never been raised domestically.
Only confidence in the name of Tata will bring in the capital.
And so the company was registered on 26 August 1907 as the Tata Iron and Steel Company Limited, later referred to as TISCO. They opened a public issue worth INR. 2.3cr , 1.5cr rupees worth of shares was earmarked for the common man, priced at a princely rate of Rs. 75 each.
The very next day saw long queues outside the Tatas’ Navsari Mansion in Bombay. The rich picked up their lots while the common man invested in small amounts.
Though most of the capital came from a few rich businessmen - 63 people, four of them members of the Tata family, owned 43% of Tisco stock, thousands of small investors contributed as well. Both P.N. Bose as well as Maharaja of Mayurbhanj also invested.
Nearly 8,000 people had invested within two weeks. The number of investors rose to 11,000 in 1911 and 17,000 by 1913.
Later, when additional money was required for working capital, the issue of the entire debentures was taken by the Maharaja of Gwalior. Dorabji, now convinced that it was just a matter of time, uttered these words:
“For the first time in India's financial history I had succeeded in raising for industrial purposes such a vast sum from the hidden wealth of India for the development of our mineral resources.”…….. “It feels so nice that for the first time in India we are seeing a project that is for the Indians, by the Indians, and of the Indians.”
The British colonial administration also constructed a rail network linking the mines to Sakchi, and encouraged potential investors by guaranteeing to purchase 20,000 tons of steel per year.
Sons of Steel
For many leaders of the independence movement, the Tata example was an inspiring one, as it suggested that a post-colonial state would be successful, modern and efficient, as we had our own Sons of Steel.
From 1907 (till TCS and Titan rise), Tata's were intrinsically linked to steel, they expanded into many businesses as the logical extension from their core steel business.
The Wires division of Tata Steel across geographies became one of the top ten largest wire manufacturers in the world.
Tata Steel Tubes division is one of the largest manufacturers of tubes in its category in India.
The Bearings division offered a wide range of ball bearings.
Tata Agrico was the first organised manufacturer of hand tools and implements for agriculture in India.
Infact Tata Motor itself was kind of an extension of their steelmaking
Tata Steel has enriched the progress and prosperity of the community and has built wealth for the nation over the century of its existence.
Also, read our post on Steel Rally
Steel Rally : Sleep with one eye open - TheGreySwan (substack.com)
I wonder what that original share of Rs.75 would be worth today...