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Mistry takes tough calls while opting for continuity

Cyrus Mistry, 46, is hungry for growth like his predecessor. But for $ 103 billion revenue Tata Group that has over 100 companies operating in about an equal number of countries, the task is equally demanding.

Especially when some strategic decisions of the past proved troublesome in changed economic environment of today. No one understood it better than Mistry who asserted himself by writing-down $ 2.2 billion in goodwill from the balance sheet of four companies (Tata Steel, Tata Motors, Tata Chemical, and Indian Hotels) who had made overseas acquisitions.

This is 12% of about $ 18 billion invested by Ratan Tata in 37 cross border acquisitions to boost group’s global competence. It was required when multi-national companies started making inroads in India post liberalization of early nineties. But the changed economic environment of today had a different demand from Mistry.

Tata Steel’s $ 12.8 billion acquisition of British steelmaker Corus in 2007 proved to be a financial disaster after the economic meltdown of 2008 that crippled demand for alloy in Europe. The $ 1.6 billion goodwill impairment for the asset prepared the ground for partial sale of the facility. Now Tata Steel is in talks with Geneva based Klesch Group to sell the long product division of its European unit. This division produces 5 million tonne of long products like wires and billets and accounts for one fourth of Tata Steel Europe, the erstwhile Corus.

“The man has the guts to take such tough decisions quickly,” says O P Bhatt former chairman of State Bank of India who is an independent director on the board of Tata Steel. “On one hand he is very low profile and humble and on the other hand he is so decisive, that is a powerful personality,” he says.

The year also saw group companies burdened with debt selling of non-core assets to avoid knocking on parent’s door. Tata Steel raised about Rs 3500 crore by selling its 50% stake in Dhamra port besides land in Mumbai’ suburb and its small arm in New Zealand. Tata Power, Tata Communications and Indian Hotels Company made similar moves when they respectively sold stake in Indonesian mine, South African subsidiary Neotel and a hotel property in Sydney.

The tough decisions of write-downs and sell-offs came simultaneously with growth plans. The year saw Mistry presenting his growth strategy termed Vision 2025 during the annual leadership summit of the group. The vision document envisages record $ 35 billion (Rs 210,000 crore) investment in the next three years through organic growth.

But the momentum for this organic expansion was created in the last two years of Ratan Tata’s chairmanship who started consolidating the empire once his acquisitions got stabilized. This saw Tata Steel expanding capacity at its century-old plant in Jamshedpur and JLR starting new product development such as the now-popular Evoque.

It is this organic expansion plan that Mistry plans to continue as JLR plans to invest Rs 35,000 crore this year to expand capacities and Tata Steel plans to spend Rs 14,000 crore in establishing a 6 million tonne green field plan at Kalinganagar.
“In such large groups you need continuity and change at the same time, so he has got this balance well,” says Rashesh Shah chairman and CEO of Edelweiss Group. “While he is cleaning up a lot of things, he has not made any sharp move that can create instability,” he says.

The continuity is also evident as the group launches new full-service airline Vistara next month in a joint venture with Singapore Airlines. Tata Sons has a 51% stake in the venture. Early this year low-cost airline Air Asia started its service in India in which Tata Sons has a 30% stake. Ratan Tata for long desired to re-enter the airline business which the group existed after it had to sell country’s first airline venture Air India to the government in a nationalization drive in 1953.

Mistry’s vision 2025 is also about achieving a market capitalisation comparable with the 25 most valuable companies in the world. This would require addition of another $ 60 billion to its current combined market cap of about $ 136 billion. But it is not revenue or market capitalisation alone, the group wants to be among the 25 most admired companies and employer brands globally. And it has clearly chalked out growth clusters for the next 10 years: retail, defence, financial services and infrastructure.

“Cyrus has put huge focus on the way he wants to take the group forward,” says a top executive at group headquarter Bombay House. “He clearly has a long term value creation strategy and he is approaching it with a clear target that can be achieved in a time bound delivery fashion,” he says requesting anonymity.

Mistry also sees a strong role for Tata Sons in this which can nurture group companies. While he earlier set up a Group Executive Council with the mandate to drive group-level strategies now he is making its members responsible for each growth clusters.

“Formation of four clusters is the first step in empowering business with logical synergy within the group,” says Ashvin Parekh, former senior partner at Ernst & Young who now runs a consultancy firm under his own name. “This is a healthy change as it is an organized way of doing business and establishes commonality of purpose,” he says.

And this comes with clear focus on bringing better shareholders return as he puts emphasis on profitable growth with a vow to bring the group back to 8.5% operating margin – a level last seen in 2008. “While it is already evident that he is a true culture carrier with a strong strategic bent, one will have to wait to see his approach to capital allocation and returns,” says Sanjay Nayar, member and CEO, KKR India.

Mistry has about 24 years more of leading the group as its chairman. And at the beginning of his leadership role he is often getting compared with what Ratan Tata was at the end of his career, which is unfair. But to be fair Ratan Tata also had a choppy start. He was also quick on restructuring the group with exiting from ACC, Tata Oil Mills and Lakme where it did not see achieving dominant position.

“While he is keeping the values of the group intact, he is yet to make a mark in terms of reshuffling the portfolio of companies with shedding some part of empire,” says India head of a top global management consultancy firm who does not wish to be identified. The group has a portfolio of business in 7 core sectors. It plans exits and entries based on leadership, scale, growth and profit metrics. Some of its businesses including telecom has not given the desired results. His move in this direction will be watched closely.

  Net Sales Net profit Mcap ( End of FY) RONW (%)  
Indian Hotels
FY10 2521.0 -136.9 7419.5 -3.2  
FY11 2862.5 -87.3 6395.0 0.0  
FY12 3443.5 3.1 4849.4 0.7  
FY13 3743.4 -430.2 4320.1 0.0  
FY14 4066.2 -553.8 5838.2 0.0  
Tata Chemicals
FY10 9448.7 605.9 7951.0 16.7  
FY11 11060.6 653.5 8619.8 15.5  
FY12 13815.0 837.6 8803.2 16.4  
FY13 14711.0 400.4 8213.5 10.1  
FY14 15895.4 -1032.0 7307.8 -9.8  
Tata Comm
FY10 11025.6 -597.7 7991.4 0.0  
FY11 11932.0 -776.9 6808.6 0.0  
FY12 14196.0 -794.7 6413.9 0.0  
FY13 17212.9 -623.3 6666.1 0.0  
FY14 19665.9 101.4 8719.6 2.8  
Tata Global
FY10 5783.0 390.3 6057.9 8.4  
FY11 6003.2 254.3 6044.9 6.0  
FY12 6640.0 356.1 6929.2 8.1  
FY13 7351.0 372.8 7915.5 8.5  
FY14 7737.6 480.5 9272.9 8.0  
Tata Motors
FY10 92519.3 2571.1 38267.2 19.0  
FY11 122127.9 9273.6 67149.5 64.7  
FY12 165654.5 13516.5 74207.8 52.0  
FY13 188792.7 9892.6 72930.6 27.9  
FY14 232833.7 13991.0 109017.0 27.2  
Tata Power Co.
FY10 18928.2 1966.8 32573.2 18.0  
FY11 19525.6 2059.6 31570.5 15.1  
FY12 26152.9 -1087.7 23932.4 -4.9  
FY13 33231.5 -85.4 22876.4 0.7  
FY14 35811.6 -260.0 20123.7 -0.3  
Tata Steel
FY10 102393.1 -2009.2 56129.3 -17.3  
FY11 118753.1 8982.7 59519.0 21.4  
FY12 132899.7 5389.8 45685.7 6.9  
FY13 134711.5 -7057.6 30330.9 -21.7  
FY14 148613.5 3594.9 38251.1 9.6  
TCS
FY10 30028.9 7000.6 152818.2 40.9  
FY11 37324.5 9068.0 231438.9 42.1  
FY12 48893.8 10413.5 228571.6 38.3  
FY13 62989.5 13917.3 307632.7 40.6  
FY14 81809.4 19163.9 416860.3 43.7  
Titan Company
FY10 4779.1 251.3 8171.8 39.0  
FY11 6533.1 433.1 16916.4 49.0  
FY12 8848.4 601.3 20295.1 48.2  
FY13 10123.3 725.4 22772.1 42.3  
FY14 10927.4 734.9 23300.3 32.7  
Trent
FY10 1105.4 1.6 1607.2 0.6  
FY11 1591.7 7.5 1949.1 2.6  
FY12 1946.3 -37.8 2586.6 -5.1  
FY13 2248.6 -26.8 3304.9 0.0  
FY14 2497.8 -18.5 3403.8 0.0  
Voltas
FY10 4757.5 381.0 5866.9 40.4  
FY11 5191.4 357.2 6010.8 28.4  
FY12 5185.7 162.1 3707.7 15.1  
FY13 5531.0 207.8 2496.6 13.2  
FY14 5266.0 245.4 5325.8 14.2  
Source: Capitaline
Compiled by BS Research Bureau

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