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THE WEEK’s cover story of the issue dated November 9, 2016, had presciently identified Chandrasekaran as the frontrunner for the job.
A few weeks ago, a friend asked Ratan Tata how he was going to find a new chairman for Tata Group in such a short time. Tata, who has been the interim chairman of the group since the unceremonious sacking of Cyrus Mistry last October, retorted: “What makes you think that a new chairman cannot be from within the group?”
It seems N. Chandrasekaran’s ascension to the top job in the group had already been decided. THE WEEK’s cover story of the issue dated November 9, 2016, had presciently identified him as the frontrunner for the job. It might not have been a difficult choice for Tata and other members of the search panel, considering Chandra’s outstanding track record at Tata Consultancy Services, the crown jewel of the group.
A Tata lifer, Chandra was mentored by former TCS chief S. Ramadorai. “Chandra has always been extremely focused and driven by a passion to excel in all that he takes up. He has driven business across various verticals in TCS, be it manufacturing, engineering or banking, both in India and in several geographies abroad, which he has been able to do by understanding the customer’s business models and needs,” said Ramadorai. During Chandra’s seven years at the helm, TCS’s revenues increased about 30 per cent every year. The IT giant accounts for some 80 per cent of the net profit of Tata Group.
A day after an official announcement came from Tata Group on his selection as chairman, Chandra met all top Tata officials at Bombay House, the group’s corporate headquarters in Mumbai. His next official programme was the World Economic Forum in Davos, Switzerland.
Chandra commands respect in the group. “He is a thorough numbers’ man; he expects you to have all your numbers on your fingertips,” said a Tata employee at an eatery near Bombay House. A former TCS employee said Chandra was an astute people manager who took care of employees. “Earlier we would get our appraisal letters in June, almost a quarter after the dividends of the previous fiscal were paid to shareholders,” she said. “It was Chandra who suggested a change in this tradition, and said that he would want all TCS employees to have their appraisal letters in hand on the same day as the dividends were announced.”
Under Mistry, Tata Group had taken some bold steps, which included winding up some businesses. While many analysts felt that such steps were necessary for the well-being of the group, it did not really suit Tata’s business philosophy. “With Chandra, the Tata Sons promoters could be keen on reviving business like Tata Aviation that Mistry had criticised,” said A.K. Prabhakar, head of research at IDBI Capital, an investment advisory firm. “For Chandra, it would be best to take the middle path between his own conservatism, Ratan Tata’s ambition and Cyrus Mistry’s initiatives to consolidate the group.”
Shareholders of Tata Group companies are particularly enthused over the appointment of a professional chairman. “He likes profitable growth and is conservative about mergers and acquisitions,” said Prabhakar. “He is a disruptive leader and he was always given a free hand by Ratan Tata at TCS. He will be keen on turnaround and an improving performance and margins of all group companies if he gets the same independence to act on his own.” Chandra is expected to be appointed chairman of most of the major group companies soon. “Tata Steel has already started the process,” said a Tata official.
Most of the Tata Group companies’ stocks reacted positively to Chandra’s appointment, except TCS stock. His exit from TCS could not have been at a more tumultuous time for the software giant. “Managing relationships would be challenging, especially when TCS is facing increased competition from startups in the US,” said Urmil Shah, an analyst at IDBI Capital. The agency has downgraded TCS stock to ‘hold’ from ‘accumulate’.
Many Tata watchers are keen to know what Chandra would do about the mounting debt of group companies. It was Rs 2,25,740 crore in 2016 fiscal. “He would have to address the debt issue on a priority after taking over. So far indications are that once he comes in, corporate governance will improve for the group companies and some of the borrowings will be pared down. This will be better for improving corporate bond prices of Tata Group companies,” said Ajay Maglunia of Edelweiss Securities.
Tata Group has already engaged a top consultancy company for restructuring some of its businesses. The firm refused to share any details citing confidentiality clauses, but a key executive said it had just started working on Tata. “We are taking a hard look at the investment and returns from some of the businesses,” he said.
Chandra will have to immediately address a few issues, like taking a call on Tata’s telecom business and some sick assets. “The telecom business has been on the back burner; he will have to bring it to the front quickly,” said a Tata executive.
Even with Chandra in charge, Ratan Tata is expected to continue supporting the new chairman. According to Prakash Diwan, director of investment firm Altamount Capital Management, the next challenge for Chandra would come from the legal battle initiated by Mistry over his removal as chairman of Tata Group. “Chandra will be left to focus on the business, while Ratan Tata and his team would concentrate on dealing with the legal hurdles,” he said.
Notwithstanding the challenges, appointment of Chandra as chairman has ensured that India’s most prestigious corporate group is coming out of one of the worst crises in its history. Most market watchers view Chandra’s quick appointment as a masterstroke by Ratan Tata. On the other hand,
it is an opportunity for Chandra to prove his detractors wrong that he is not just Ratan Tata’s remote control.
