It was October 24, 2016, when Tata Sons, the holding company of Tata Group, shocked everyone by sacking Cyrus Mistry as the chairman of the board. Allegations and counter allegations followed over the next few months, the dust finally settling when Natarajan Chandrasekaran, then CEO and MD of Tata Consultancy Services took charge as the chairman of Tata Sons on February 21, 2017.
Chandrasekaran became the first chairman with no links to the Tata family. However, he is a Tata insider, having spent his entire working life at TCS, where he joined as a trainee and went on to lead the company.
At the time of taking charge as chairman, Chandra, as he is known, had said that he would work to ensure all the group companies were leaders in their respective segments and will work with all the business leaders of the group to drive discipline on capital allocation and shareholder return.
Six months down the line, he seems to be driving down the path in right earnest and has made clear his priorities to people within and outside the group.
The Tata Group is a conglomerate of a 100-odd companies that make everything from salt to software, luxury hotels, steel, automobiles and even air craft components. However, many of the companies are small and a major share of the revenue is driven by two of its cash cows―Tata Consultancy Services and Tata Motors, which owns the luxury Jaguar Land Rover Unit in the UK.
For the year ended March 2017, Tata Group reported a revenue of Rs 673,347 crore, up 4.4 per cent year-on-year. In US dollar terms, revenue rose 1.9 per cent at $100.39 billion.
Market experts say Chandrasekaran will look to merge companies in same sectors within the group or sell smaller companies, where there are limited growth opportunities.
In a recent interaction with a US-based business publication, the only interview he has given since he took charge, he gave enough hints of what he had planned.
“We won't exit a business just to get a headline. But, we will exit if we aren't getting returns today and we don't think we will get them tomorrow. I have thought a lot about this. We'll definitely prune the portfolio,” he said.
Chandrasekaran says if the $100 billion Tata Group is to get to the next level, it will need scale, which may not be achieveable if there are multiple small companies.
“Sooner rather than later, we will start seeing consolidation in the group. Those businesses where there is limited possibility of scaling up and be among the top few, the group may have to take a decision of merging them or exiting them,” said Ajay Bodke, CEO and chief portfolio manager at Prabhudas Lilladher.
Chandrasekaran has quietly taken steps in that direction (streamlining the group) over the last few months, and its none more evident than in the people that have been hired.
The first major appointment was that of Ankur Verma, who joined the chairman's office in March from Bank of America Merrill Lynch, where he was managing director in the investment banking division.
On May 22, Tata Sons appointed Saurabh Agrawal as the group chief financial officer. Agrawal was most recently head of strategy at the Aditya Birla Group and has been among the top investment bankers in the country, having worked as the head of the corporate finance unit at Standard Chartered Bank in India as well as the head of investment banking at DSP Merrill Lynch.
Just a few days later, Shuva Mandal, one of India's most successful corporate lawyers was roped in as group general council in place of Bharat Vasani, who would continue as legal adviser to the chairman's office.
Experts say, Chandrasekaran has made a strong start and unlike the differences that were raised by Cyrus Mistry and Tata Sons, at least for now, he seems to have everyone on board.
The financial performance of several of the group companies has been lackluster and improving that will be a challenge that lies ahead. For instance, Tata Motors reported a loss of Rs 467 crore for the quarter-ended June 30, in its standalone business. Over the last few years, its market share too has declined in the passenger vehicle as well as commercial vehicle business. Elsewhere, agri-chemical maker Rallis India reported a 74 per cent drop in consolidated profits in the first quarter. The Tata Group has also been looking to sell its loss-making telecom arm Tata Teleservices.
Bodke says the group must take a “unemotional” and a “pragmatic” approach towards businesses.
A focus on cash flows, costs and investments going into business also seems to be a key focus for Chandrasekaran, say market watchers. So, recent partnership talks between Tata Motors and German Volkswagen Group were called off, while the company's focus shifts to its own product plans and improving the market share across segments.
“In the domestic business segment, business turnaround is the need of the hour and management is working with renewed focus and energy to improve our market share, reduce our cost base, streamline the supply chain and ensure launch of products on time to delight our customers,” Chandrasekaran told Tata Motors shareholders.
Plotting a turnaround at companies would certainly get a thumbs up from shareholders as it will improve their returns over time. However, other things, including a new corporate governance structure, has not been put into place, said Shriram Subramanian MD of proxy advisory firm InGovern.
“Beyond capital allocation decisions, pruning of business, which are important, defining the terms of preference between Tata Trusts, Tata Sons and operating companies was the key thing and that has not panned out,” said Subramanian.
Former Tata group chairman Mistry had raised various corporate governance issues at the group. He had alleged a total lack of corporate governance and the failure on the part of the directors to discharge the fiduciary duty owed to stakeholders of Tata Sons and the group companies. He had even suggested that the government should look into the governance structure at the Tata Trusts, who are the major shareholders of Tata Sons. Subramanian hopes some of these issues will be clarified in the coming months.
Under Chandrasekaran, Tatas seem to be keen to distance themselves from any business dealings with the Shapoorji Pallonji Group, promoted by Mistry's family. The Tata Sons board is learnt to have asked group companies to end all business relationships with the Shapoorji Pallonji Group. Tatas have remained tight-lipped on this so far.
It will indeed be interesting to see how things pan out in coming months and quarters. At least for now, Chandrasekaran seems to be enjoying full support from the Tatas. Being an insider, he would probably be the best person to tackle if any differences crop up in the future.
