A look at the steps that Tata group is taking under Tata Sons chairman N. Chandrasekaran, even as it is engaged in a legal battle with Cyrus Mistry
Mumbai: A year after a terse statement from the headquarters of the $103 billion (around Rs6.7 trillion) Tata group triggered an unprecedented crisis, it’s business as usual at India’s oldest and largest conglomerate.
The legal war on multiple fronts between group holding company Tata Sons Ltd and Cyrus P. Mistry, who was fired as chairman by its board on 24 October 2016, is on the back-burner. Under new chairman N. Chandrasekaran, the strategy now is to create clusters that will provide focus and drive growth even as there’s a clear aim to foster a “One Tata" approach by all companies.
Simultaneously, Chandrasekaran is making rapid strides on the operational front to resolve some of the issues that had been a drag on the group’s performance.
Since the Tata-Mistry crisis unfolded, market capitalization of listed Tata companies has gone up 2.47% as of date, to Rs8.93 trillion
Since the crisis unfolded, market capitalization of listed Tata group companies has gone up 2.47% as of date, to Rs8.93 trillion, according to data from Capitaline. During the same period, the market cap of the benchmark Sensex index has gained 15.36%.
After taking charge on 21 February, Chandrasekaran hit the ground running. He had his “to-do list" ready even before he entered the corner office at Bombay House. He started off by giving his stamp of approval to a legal settlement with Japanese partner NTT DoCoMo in his first board meeting on 21 February. Formation of a core team that could steer the restructuring of the group companies was next on his agenda.
Indeed, from disentangling the complex cross-holdings of group companies to taking calls on troubled debt-ridden units such as Tata Teleservices Ltd and Tata Steel Europe, to executing the strategy that involves simplification and streamlining of operations— there hasn’t been a dull day for Chandrasekaran’s core team, comprising Saurabh Aggarwal, group chief financial officer of Tata Sons; and ex-Bank of America Merrill Lynch banker Ankur Verma, who is in charge of the group’s mergers and acquisitions strategy.
The Tata group is looking to drastically prune the number of companies in its portfolio and take tough calls on non-performing, debt-laden firms and bring greater financial discipline, Chandrasekaran told CNBC-TV18 in an interview on 9 October.
The Group under Chandrasekaran seems to be working towards better capital allocation by consolidating their myriad businesses. This should hopefully deliver greater shareholder returns in future- Amit Tandon, managing director at Institutional Investor Advisory Services
The plan that involves rationalization of the portfolio from the current 110 to a maximum of up to five, six or seven will help the 150-year-old conglomerate that boasts an expansive presence, from steel and automobiles to technology and infrastructure, as it seeks to be more agile and strengthen its presence in existing segments.
“The Group under Chandrasekaran seems to be working towards better capital allocation by consolidating their myriad businesses. This should hopefully deliver greater shareholder returns in future," said Shriram Subramanian, co-founder and managing director of proxy advisory firm InGovern Research.
Challenges do remain, related to making the group’s three-tier structure that comprises Tata Trusts, Tata Sons and Tata group companies, more robust and accountable, and bring in greater transparency.
“The group, under Chandra, seems to be headed in the right direction," said Amit Tandon, managing director at proxy advisory firm Institutional Investor Advisory Services.
While Chandrasekaran will be able to do a few things relating to group’s operations quickly, others like making changes to the three-tier structure to ensure all interests are protected, will take some time, he said.
Nothing that Chandra is doing is not there in the strategy document—be it related to merger of Tata Steel Europe with Thyssenkrupp, simplifying the cross-holding or turning around the passenger vehicle business- Nirmalya Kumar, former group executive council member at Tata Sons who left with Cyrus Mistry
Subramanian added: “The terms of reference between Tata Trusts, Tata Sons as the group holding company, and the various operating companies isn’t yet clearly defined. There isn’t any differently articulated plan or vision for the operating companies than what the boards under Mistry had adopted."
Even the plan by Tata Sons to convert itself into a private limited company from a public limited one, while hardening the stand-off between Tata Sons and the Shapoorji Pallonji family to which Mistry belongs, has effectively blocked the latter from selling its 18% stake in the holding company.
A Tata Sons spokesperson declined to comment for this story. Mistry’s office also declined to comment.
Some Tata group observers view what Chandrasekaran is doing as a continuation of what Mistry started, albeit at a faster pace, as he has the benefit of learning from his predecessor.
“I would say nothing that Chandra is doing is not there in the strategy document—be it related to merger of Tata Steel Europe with Thyssenkrupp, simplifying the cross-holding or turning around the passenger vehicle business," said Nirmalya Kumar, professor of marketing at Lee Kong Chian School of Business, Singapore Management University, and a former group executive council member at Tata Sons, who left with Mistry.
Others, however, differ.
“Cyrus and his team were thinking but not taking decisions. That’s a big change that I find now; tough, hard decisions are being taken and implemented. Chandrasekaran is moving on his own. It’s not that somebody is all the time looking over his shoulder. Much like how Ratan Tata interacted with J.R.D. Tata," said a Tata group official, declining to be identified.
Chandrasekaran has adopted a cluster approach for the Tata group restructuring. The plan is to create five-seven clusters, besides the three behemoths: TCS, Tata Motors and Tata Steel
Be that as it may, Chandrasekaran has brought a definite sense of purpose to the promised restructuring as evidenced by the swift and clean exit from Tata Teleservices. On 12 October, the company decided to sell the business to Bharti Airtel Ltd, India’s largest telecom company, virtually for free.
As part of the larger consolidation strategy, Chandrasekaran has adopted a cluster approach for the group companies. The plan is to create five-seven clusters, besides the three behemoths: Tata Consultancy Services Ltd, Tata Motors Ltd and Tata Steel Ltd. Different entities serving the same function will be merged to create a cluster of companies around infrastructure, defence, consumer goods, finance and travel (to cover civil aviation).
Tata Sons took the first step in this direction on 24 August by appointing General Electric Co.’s South Asia head Banmali Agrawala as president of the infrastructure, aerospace and defence sectors.
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