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The pioneers of industrialization in India, the visionaries, the nation builders, if one were to guess which business house I am talking about they would say the salt to software conglomerate 'Tata's'
Why? Because every Indian is proud of the name, nobody ever speaks foul about it, there's not much to write against them, and everyone envies their objective. The raison d^eitre or purpose of existence for Tatas has always been 'Make good for the people.' They truly believe in Zoroastrian philosophy of 'Humata - Hukhta - Hvarshta' meaning 'Good thoughts, Good words, Good Deeds.' Yet, on 24 October 2016, everyone was shocked to hear that Tata had sacked their chairperson Cyrus Mistry from the Tata Sons board. Without any prior notice or better without it being on the Agenda as well.
Mistry, an outsider chairperson in a very long time, only the second in the history of 120 years, accused Ratan Tata of forming a coup against him for his ouster. But as time went by and new details surfaced, it was clear that this was in the making for a very long time. Cyrus Mistry, the grandson of Shapoorji Pallonaji, the largest shareholder of Tata Sons, was a unanimous choice for the post of chairman back in 2012. Having worked on the board, an experienced and dynamic businessman with expertise in the real estate deals, he was a perfect fit for ever-growing Tata Sons, but Mistry had a tough job as he was the successor of the Ratan Tata. The man who bought Jaguar Land Rover and turned it profitable, something that the giants like Ford couldn't do. Mr. Tata had launched the cheapest car in the world, lay the groundwork for Tata to enter the aviation industry, and successfully steered the group during the financial meltdown of 2008.
Tatas have their ways of doing things, Tatas have their ethics and morals, which they take very seriously. And Cyrus even though well aware of the working of the group, he had his ways of getting things done. So conflicts were unavoidable. The first crack appeared when there were elections to be held in Odisha. Mr. Mistry wanted to donate to regional parties but Tatas have the policy to donate funds only for a national election. And Cyrus wanted to donate because he believed they had a bigger interest in the region with the mining business. Ratan Tata refused as it was against their Article of Association. A few months later in a major embarrassment for the group, Two of Tatas companies, subsidiary of Tata Power and Tata Motors, had put up a bid for Rs. 60,000/- crore defense contract, which, according to Mr. Tata was tarnishing the image of the group, he was against the idea. Mr. Tata made it clear to Mistry that Tata's should put only one bid. The matter was discussed at lengths during the board meetings and Mr. Mistry could not find his way around the board.
In another insult to Tata's, there was an offer for a joint venture from a US restaurant chain called Little Caesers, who specialized in selling pizzas. The board was offended that such a minor point was presented for discussion to the board. Especially when they had a special business running coffee chains across India. Mr. Mistry believed this was a growth opportunity worth discussing since a joint venture with Starbucks had worked well for the Tata's in the past. Ironically, according to media reports, Cyrus Mistry did not consult the board of Tata Sons about the Tata Power - Welspun deal worth Rs. 9,000/- crore. The deal was so big in size that not consulting with the Tata Sons board was a 'breach' of the article of association. Mr. Mistry was not ready to call spade a spade and mention the word breach in minutes due to its legal connotations, and so it was replaced by 'not in accordance with'.
Later, Tata Communication and DoCoMo of Japan had their issues. Mr. Tata was in favor of settling the Rs. 8,000/- crore dues with Delhi High Court, Mr. Tata intervened in this matter only after the management of DoCoMo complained to Mr. Tata that Mr.Mistry was not handling this issue properly. Mr. Mistry contested, that such a high-value transaction would not be legal according to RBI rules. And he was working with Government authorities towards a resolution which they could not find sooner, and the damage was done already. Mr. Tata was also not happy with the real estate deals that Mr. Mistry was undertaking since it wasn't their area of expertise. Mr. Tata wanted the chairperson to visit different factories. He wanted Cyrus to interact with workers, and not steer the group only from inside the 'Bombay House' and so the decision was made to oust Cyrus Mistry.
What followed after that was a lengthy legal battle, which has not produced any solutions as yet. If media reports are to be believed Tata's have offered to buyout Shapoorji Pallonajis stake in Tata Sons, with that, they would part their ways. But now the question remains how the Tatas are going to fund such a humongous deal. Tata Sons is the parent company of 28 listed and thousands of their subsidiaries. The total market cap of Tata sons is anywhere between $105 -128 Billion out of which 18% stake is with the SP group. That would translate anywhere between Rs. 1.45 to 1.60 lakh crores at modest pricing. How Tata's will manage to make this deal is to be seen.
The group is facing multiple problems all at once, with the debt increasing for their flagship companies like Tata Motors and Tata Steel. Tatas were facing issues long before the COVID-19 appeared on the map. Tata Steel has bitten more than it can chew by acquiring Bhushan Steel, which cost the group Rs. 35,000/- crores only. Tata Power is reeling with losses upwards of one lakh crore, its investment in the Mundra plant has lost its steam. The expensive coal they have to import from Indonesia makes it difficult to keep it profitable. The aviation business was supposed to turn profitable in FY20, which is now facing even larger losses than before. Tata Motors is facing the heat from a downturn in the economy like every other major OEM. The net debt for Tata's is close to 2.2 lakh crores. Yes, you read that right. The number is so big because the marquee businesses are not generating enough cash to service their debts. Tata Consultancy Services is the only growing business of Tata Sons, so they are highly dependant on the IT giant. Which again in itself is a big problem.
But everything is not as ugly as it seems. Tata companies are the biggest beneficiaries of the Aatmnirbhar Bharat movement launched by the government. Tata Motors has recorded 154% sales growth in the past two months. Tata Motors is also looking to sell its stake in Tata Technologies to reduce its debt of Rs. 48,000/- crores in the next three years. Jaguar Land Rover is hopeful about a recovery in China. Tata Steel along with Tata Motors is working on cost-cutting plans at its UK plants. Tata Chemicals has shut many non-core businesses and is more efficient for the future. Tata Consumer Products has grown sharply even during the six months of lockdown.
If Tata were to raise such high funds for buying out Shapoorji Pallonaji group they would have to list Tata Sons which until now is a private limited company. But even that is not possible as the Indian markets are starved for liquidity. It's difficult for the market to accommodate such a big public issue in the current scenario. Overseas markets are one option or else Tata's would have to get a strategic partner to replace SP group. The number is so big, that even with all the might and credibility that comes with the name, is not enough to raise a debt of this magnitude. This also means that Tata's plan to acquire Air India will have to take a back seat and the government will have to look outside for their disinvestment proposal. Acquiring Air India and merging it with Vistara would have given a boost to the sector and put up a good fight in the domestic market.
Time would tell how Natarajan Chandrashekharan finds his way around the situation. Based on how Mr. N Chandra has shaped and got businesses in line in the very little time that he is acting as a chairperson, there's no doubt he will succeed. His verticle integration and dilution plan of non-core businesses are bearing fruits for Tata Chemicals, Tata Elixir, and Tata Consumer Products. As a fan of Tatas and a true believer in their capacity to make things work, I wouldn't be surprised, to see Tata flying high as they did before 2008. That too in an Air India flight...
Looking forward to exciting times with fingers crossed and a fastened seat belt.
-Chinmay N. Tinaikar
Note: All the facts and figures are collected from news sources published from time to time and they are not verified by any government authority.
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