Ratan Tata assumes interim chairman role at Tata Group as Cyrus Mistry leaves amidst concerns over sell-offs

tata Ratan

Tata Sons has announced that its board has replaced Cyrus P. Mistry as chairman of Tata Sons. The board has named Ratan N. Tata (pictured above) as interim chairman of Tata Sons. It has constituted a selection committee to choose a new chairman.

Mistry was chosen as Tata’s successor in November, 2011, and was appointed deputy chairman of Tata Sons, whose board he had entered in 2006. He was made chairman on the basis of his representation from Shapoorji Palonji, the largest shareholder in Tata Sons.

India’s Economic Times reports that there were no reasons given for the change of leadership of the man who was brought in with much fanfare but it is believed that Tata Sons was unhappy with Mistry’s approach of shedding non-profit businesses, including the conglomerate’s steel business in Europe, and concentrating only on “cash cows”.

Jaguar Land Rover a “consistent performer”

Mistry, no doubt, had his task cut out. The Tatas are present in about 100 businesses ranging from automobiles to retail to power plants to software. But just two of them have been consistent performers — IT services exporter Tata Consultancy Services (TCS) and Jaguar Land Rover, the car company it bought from Ford Motor in 2008.

Several other of its companies are struggling. The domestic automobile business, despite accounting for roughly half of India’s trucks business, has long been under strain. Tata Steel, once the brightest star in the Tata constellation thanks to the $12.5 billion acquisition of Anglo-Dutch competitor Corus in 2007, bore the brunt of a sharp plunge in prices since 2012 abetted by Chinese overproduction.

The loss-making telecom business has been locked in a bitter and potentially costly battle with erstwhile partner NTT DoCoMo of Japan, which secured a $1.2 billion arbitration award in June 2016.

In FY 2016, nine of the 27 listed companies in the group reported losses and the earnings of seven others dropped. The only bright spot was that Tata Power and Tata Chemicals reported strong earnings growth in FY2016 after turning profitable the previous year.

The turnover of India’s largest conglomerate dropped to $103 billion in 2015-2016 from $108 billion the previous year. Net debt rose to $24.5 billion in March 2016 from $23.4 billion a year ago.

Much of Tata’s problems are owing to its elephantine structure. Cross-ownership of companies — Tata Sons owns stakes in businesses like Tata Motors or Tata Steel and these businesses own stakes in each other — has made it difficult for the group to make the most of its potential as a diversified conglomerate.

Silos & inherent bureaucracy

The operational ethos of the behemoth is actually ingrained in silos. “There is an inherent bureaucracy in the system that has gone unchallenged for years,” says an insider.

Tata Sons is the main holding company of the group. CEOs at the operating company level of the group have not been touched in the rejig, Economic Times reports.

Mistry, who was chosen by a five-member panel in 2011 to succeed Ratan Tata, took over the reins of the conglomerate when the veteran industrialist retired on December 29, 2012, when he turned 75.

After taking charge, he had to face some challenging situations such as the decision to sell Tata Steel UK in the wake of mounting losses.

In an interview with an in-house magazine, Mistry had recently stated that the group “should not be afraid of taking tough decisions for the right reasons, with compassion” amid “challenging situations” confronted by some of the group’s businesses that would require hard and bolder decisions on pruning portfolio.

This was in contrast to steps taken by Ratan Tata, who led the group into some notable acquisitions, starting from Tetley by Tata Tea for US$ 450 million in 2000, to steelmaker Corus by Tata Steel in 2007 and the landmark Jaguar Land Rover in 2008 for US$ 2.3 billion by Tata Motors.

During Ratan Tata’s tenure, the group’s revenues grew manifold, totalling US$ 100.09 billion (around Rs. 475,721 crore) in 2011-12 from a turnover of a mere Rs. 10,000 crore in 1991.

Born on July 4, 1968, Mistry completed his graduation in civil engineering from London’s Imperial College of Science, Technology and Medicine and followed it up with a masters in Management from the London Business School.