BackN. Chandrasekaran outlines his ambitions for Tata Sons, seeks to fix core issues
Tata Sons chairman Natarajan Chandrasekaran says will bring rigour to capital allocation in order to consistently enhance shareholders value
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Mumbai: On his first day in office, Tata Sons Ltd’s new chairman Natarajan Chandrasekaran outlined three strategic priorities for the group: bring the group closer together and leverage its collective strength; reinforce a leader’s mindset in operating companies; and bring greater rigour to capital allocation and deliver superior returns to shareholders.
“We need to work together to excel, and to be ranked among the top performers in our respective industries," Chandrasekaran, 53, wrote to group employees. “We will also bring more rigour to our capital allocation in order to consistently enhance stakeholder value."
Some experts said the agenda he spelt seems to be aimed at addressing some of the core issues which led to Cyrus Mistry’s ouster as chairman on 24 October.
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Trustees of Tata Trusts, which own two-thirds of Tata Sons, had previously talked about declining dividends, while the group’s debt had increased three-fold over the past four years to Rs2.25 trillion.
In a 25 October email to the board of Tata Sons, Mistry pointed out that capital employed in the weaker companies of the group (The Indian Hotels Co. Ltd, Tata Motors Ltd’s passenger vehicles division, Tata Steel Europe, Tata Teleservices Ltd and the Mundra plant of Tata Power Co. Ltd) rose from Rs1.32 trillion in 2011 to Rs1.96 trillion in 2015.
Chandrasekaran “is taking charge at an unusual time. And one has to read the statement in that context", said Amit Tandon, managing director at proxy advisory firm Institutional Investor Advisory Services (IiAS).
Mistry’s ouster and bitter war of words that followed dented the Tata group’s reputation. The group’s listed companies have collectively lost Rs29,969 crore, or 3.44%, in market capitalization compared with a 2.84% gain for all firms trading on BSE. The fight between Mistry and Tata Sons is now before the courts.
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The biggest challenge for Chandrasekaran is binding all the Tata group companies, said Mahantesh Sabarad, head of retail research at SBICap Securities Ltd, including boards and managements of Tata companies that voted “against the principal shareholders when the fight with Mistry broke out".
Chandrasekaran is also taking over at a time when TCS, the group’s cash cow where he has spent his entire career, is facing trouble over likely changes in US visa rules which will increase its employee costs.
“Chandra will fix his own priorities, but I do believe there will be two major thrusts," said R.K. Krishna Kumar, former director of Tata Sons and trustee at Tata Trusts: “To ensure that TCS... retains the dominant position in the software sector. Secondly, I think he is going to put lot of pressure on operating companies to give better results ... and sharpening focus on maximizing shareholder returns."
And in all likelihood, going by the recent experience, Tata Sons may want to shore up its shareholding in most of the companies, said Tandon of IiAS.
With the exception of TCS, where Tata Sons owns 73.26% , the holding company’s stake in most of the other major listed group companies ranges from 14-30%.
Shriram Subramanian, managing director at InGovern Research, a proxy advisory firm, said he’d like to see how Chandrasekaran’s statements translate into details. “One also has to see how the terms of engagement between the different Tata entities—the Trusts, Tata Sons and Tata companies—pan out," he added.
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