N. Chandrasekaran to take the reins of Tata Sons today
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Mumbai: Sometime in the first half of Tuesday, 21 February, the directors of Tata Sons Ltd will meet in the boardroom at Bombay House, the conglomerate’s iconic headquarters in south Mumbai.
Interim chairman Ratan Tata, 79, will chair the meeting, which has been called to mark Natarajan Chandrasekaran’s “assumption of charge”, as a Tata spokesperson put it.
The 53-year-old Chandrasekaran will be the first chairman of the $103 billion Tata group with no family links to the Tatas, although he has spent all his working life at one Tata company, Tata Consultancy Services Ltd (TCS).
He takes over at a time the holding company is in the midst of a legal battle with its former chairman Cyrus P. Mistry, who was ousted in a boardroom putsch on 24 October. And he takes over as several of the group’s companies battle significant challenges.
Within the Tata group, the belief is that Chandrasekaran “will hit the ground running”, said one executive who asked not to be identified, adding that the new chairman will likely “first take a hard look at all the difficult companies”.
There he is spoilt for choice.
Tata Steel Ltd, Tata Power Co. Ltd, Tata Chemicals Ltd, Indian Hotels Co. Ltd and Tata Teleservices Ltd are all in trouble, earning sub-par returns or making losses.
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Tata Sons is heavily dependent on dividends from TCS. In 2015-16, Tata Motors Ltd and TCS accounted for more than half of the group’s combined revenue, 69% of operating profit, 100.5% of net profit and 80% of all equity dividends paid. Excluding TCS and the Jaguar and Land Rover operations of Tata Motors (the two bright spots for the group over the past few years), the group reported a net loss of Rs160.7 crore.
“I want him to do something that the group doesn’t like. Close down part of the traditional, historic part of Tata group that is not doing much for the Tata group anymore but has a long history,” Aswath Damodaran, professor of finance at the Stern School of Business, New York University, said in an interview on 20 January. This is something that a family member would have never done but somebody from outside the family would have done on grounds that “this is a drain on our business”, Damodaran added.
Still, there is no denting that Chandrasekaran’s appointment has soothed the market. The combined market capitalization of Tata group firms declined 4.87% between 24 October and 12 January. The new chairman was named on 13 January. Between then and now, the group’s market capitalisation is up 4.31% to Rs8.45 trillion.
Chandrasekaran can’t be too hands-on, one expert said.
“Considering his limited exposure, he will have to adopt a decentralized approach and rely on the boards of each company for an insight,” said Kavil Ramachandran, executive director, Thomas Schmidheiny Centre for Family Enterprise, at the Indian School of Business.
Meanwhile, he will also have to deal with the reputational fallout of the bruising battle between Tata Sons and Mistry.
Chandrasekaran’s first task should be to repair the damage caused to the Tata brand, said J.N. Gupta, managing director and co-founder of Stakeholders Empowerment Services, a proxy advisory firm. Second, he should perhaps bring out a white paper on the issues raised by Mistry to “give a sense of restoration”, Gupta added. And finally, he said, Chandrasekaran should, “if possible, develop an institutionalized framework to smoothen the relationship between the Trusts, Tata Sons and the Tata companies”.
Mistry has claimed that he was going to make a presentation on just that during the 24 October board meeting when he was removed.
The Tata group’s growing pile of debt was one of the key reasons for Mistry’s ouster. He tried addressing it by shedding assets, which didn’t go down well with the board and the Trusts. Chandrasekaran is likely to address the issue by allocating more capital to debt-ridden, under-performing businesses, said an analyst at a domestic brokerage. He declined to be identified. “The TCS buyback is an indication of the direction the new chairman will adopt.”
TCS on Monday announced a Rs16,000 crore share buyback—the biggest in the Indian capital market.