N. Chandrasekaran planning merger of smaller Tata companies
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Mumbai: Tata Sons chairman N. Chandrasekaran is planning to consolidate group firms to weed out duplication and increase efficiency, two Tata group executives said.
With at least 100 companies in its fold, the $103-billion Tata group has diversified into multiple businesses that range from chemicals and fertilisers to auto components and therapeutics over the last 110 years. Some of these are underperforming, some are not contributing to profits and in some cases, two or more businesses are doing similar things. These are the ones that Chandrasekaran is expected to take a hard look at, said the first of the two executives.
The executives spoke on condition of anonymity since the plan is not public yet.
A Tata Sons spokesperson declined to comment.
On Thursday, the Times of India first reported that the salt-to-software conglomerate is reviewing its diverse portfolio to streamline operations and allocate capital more efficiently and unlock value in businesses that are non-core and face growth headwinds.
“A lot of things are going to be looked at in the group from the point of view of profitability and performance,” the executive quoted above said. However, these are not the big companies of the group such as a Tata Motors Ltd or Tata Steel Ltd. These are mostly subsidiaries of flagship firms that make contribute little to revenue and profits.
As part of the plan, Chandrasekaran may merge different entities serving the same function, said the second person.
“There can’t be multiple companies in the same segment, like Tata Finance, Tata Housing Finance, Tata Capital Finance—all may merge and become one entity,” the second person said.
Divesting or exiting non-core businesses has been on the agenda of the group’s boardroom meetings for a while.
The board of Tata Sons discussed a divestment plan for non-core businesses in its 15 September meeting, its last one before the 24 October meet when previous chairman Cyrus Mistry was forced out. This was revealed in the minutes of the meeting appended as an annexure in the petition filed by two investment companies of the Mistry family at the National Company Law Tribunal.
At the meeting, Ajay Piramal, an independent director on the Tata Sons board, even recommended forming a separate team to work on the divestment strategy. Amit Chandra and Nitin Nohria, two other directors and nominees of the Tata Trusts on the Tata Sons board agreed, and suggested starting a dialogue with private equity firms.
In that sense, Chandrasekaran, who took charge on 21 February, is picking up from where Mistry left.
“These have been identified earlier, but Chandra (Chandrasekaran) has been moving in a very aggressive way,” said the first person cited above. “There will be a rationalization of portfolio of all the big companies, including Tata Steel Ltd, Tata Power Co. Ltd, Tata Chemicals Ltd. The structure will not be the same as today, they will either be merged or exited from completely.”
Vijay Sampath, head of the centre for family-managed business at Mumbai’s SP Jain Institute of Management and Research said the move will help Tata Group become more prudent in capital allocation and focus management bandwidth on businesses that warrant long-term returns. The group, he pointed out, also needs to take radical steps for some under-performing large companies such as Tata Teleservices Ltd.
“Among the bigger companies, I think Tata Group’s presence in the telecom segment is a big question mark. Unlike Indian Hotels Co. Ltd which also is a drag, a tough decision for Tata Teleservices shouldn’t be weighed down by an emotional baggage of the past,” he said.
Since he took over chairman of Tata Group, Chandrasekaran’s first 100 days in office have been action-packed, from working out an amicable settlement with Japanese partner NTT Docomo to forming his core team that will help him drive group strategy.
Market capitalization of 27 listed Tata firms that had dropped 1.3% to Rs8.6 trillion from Rs8.71 trillion from 24 October 2016—when former chairman Mistry was shown the door—to 20 February 2017, started picking up from the day Chandrasekaran took charge. Since then, market cap has risen 1.6% to Rs8.74 trillion from Rs8.6 trillion.
“One of the most critical tasks for the leader in family-run businesses is to ensure that there’s continuity,” said Kavil Ramachandran, executive director, Thomas Schmidheiny Centre for Family Enterprise at the Indian School of Business. “I think Chandra has managed that quite well so far.” The recruitment of professionals from outside the group will ensure that the decisions he takes are independent and not biased, said Ramachandran.
Chandrasekaran also seems to have taken up Amit Chandra’s suggestion to form a team.
Last month, he hired Saurabh Agrawal, 48, head of corporate strategy at the Aditya Birla group as group chief financial officer (CFO) of Tata Sons.
Agrawal was the second investment banker to join Chandrasekaran’s team after Ankur Verma from Bank of America Merrill Lynch.
The recruitment reflects on the group’s strategic intent to focus on divestment and restructuring.
“They (recruitment of Agrawal and Verma) are all part of the plan to create a team that can pursue the consolidation strategy aggressively. Going ahead, Chandrasekaran is likely to hand-pick some people internally to strengthen his team,” said the first executive quoted above.