The $103 billion Tata group will balance its portfolio to insulate itself from business cycles, try and get closer to consumers, and tap the digital opportunity as it seeks to build for the “next 150 years on the foundation we have inherited”, Tata Sons Ltd chairman Cyrus Mistry said in an interview posted on the conglomerate’s website.
Mistry added that he is not worried about the $24.5 billion debt on the books of Tata group companies and that while the group would seek to tap opportunities emerging in India, it would not go cold on its global business, which accounts for 70% of its revenue. He mentioned Iran and Myanmar as two countries where several Tata companies are expanding their businesses.
Mistry, 48, has maintained a low profile since taking over as chairman of Tata Sons in December 2012. On 13 September, he finally spoke out, through the Tata website. His equally media-shy predecessor Ratan Tata popularized the template. The interaction does provide a glimpse on Mistry’s induction into the group, his views on challenges the group is facing (especially in terms of debt and in its global operations), and his own preferences.
Primary among these challenges is the digital wave, which was the theme of the Tata group’s annual leadership conference. Mistry said N. Chandrasekaran, chief executive officer and managing director of Tata Consultancy Services Ltd (TCS), made a presentation on this to the group.
He also highlighted the three new-economy companies being incubated by the group: “Tata CLiQ, our e-commerce platform, is an omni-channel marketplace with curated products that deliver value to our customers. It is quite a unique positioning we have chosen. We also have Tata iQ, our big data play, which effectively uses data analytics to connect the dots with respect to our many consumers so as to ensure we have a more holistic picture of their needs. And finally, with Tata Digital Health, we are creating a platform where we are experimenting with different business models to build the de facto platform for healthcare in India.”
In an interview on 6 August 2015, Nirmalya Kumar, member of the group executive council at Tata Sons, said the e-commerce website will sell both Tata and non-Tata brands across lifestyle, electronics and other segments. The group has signed up 80 brands, which will be offered on its website as well as through omni-channel options.
The Tata group has unique strengths to tap these new opportunities, Mistry explained, supporting new businesses in ways financial investors such as private equity firms can’t.
“From a synergy perspective, even within the restrictions of separated legal entities, there are many opportunities for two-sided or win-win synergies,” he said. “Private equity funds are rarely able to tap into such synergies, due to the imperatives of individual exits. Lastly, from a portfolio perspective, the group can take decisions with longer-time horizons for value creation. For instance, this allows the incubation of next-generation businesses with long gestation periods, whereas private equity funds have average lives of seven years to exit.”
But even as it taps new opportunities, the 148-year-old conglomerate will have to address issues in some of its businesses. One such is Tata Motors Ltd.
Mistry was forthright about the problems in this business. “On reviewing the passenger car product plan, it was evident we had challenges in aspirational design, platform strategy, and an over-reliance on diesel power trains. These contributed to challenges in brand perception and the health of our dealership network. Product and service quality were areas that needed strengthening,” he said in the interview.
But, he added, “I also saw that the strength of Tata Motors lay in its people. It had a highly committed, creative and capable set of people that could make a difference.”
As part of the solution, the company identified eight “strategic imperatives and set up over a 100 cross functional teams” to drive those. “Our journey has just begun, but we can already see the green shoots of a turnaround,” he added.
“It’s a group that has been around for 100 plus years and faced challenges thrown open by the changing dynamics, but they have managed to sustain themselves and grow based on the strength of their core value and brand. It’s just that the pace of change is a lot faster now,” said Harish H.V., partner at Grant Thornton India Llp, a consultancy.
Analysts have often highlighted the level of debt, mostly held in the group’s older companies, as a cause for concern. Mistry said these numbers have to be seen at the level of each company and also in the context of “business growth, increasing cash from operations, and capital projects underway which will lead to future growth”. He added that the numbers could be misleading at the group level because “the companies which have high cash generation, capex and debt are not all necessarily the same, and resources of different companies are not fungible with one another.”
Little is known about the reclusive Mistry and he has said even less about his initial days as chairman. In the interview, Mistry, who said “design and technology” were his “special love” because of the “anticipation of creating something new” and the “potential it has to improve lives” spoke about his first months as chairman.
“Instead of relying on the position of chairman as the primary basis of my authority, I needed to earn the trust and respect of all our chief executives, the boards of directors and external stakeholders. This meant building enough depth of knowledge about specific domains to ask the right questions, while exposing myself to a variety of views on geopolitics, technology and societal issues. After obtaining a deeper understanding of the group, I focused on identifying areas that needed special attention,” he said.