Motor With A Slow Pick-Up

A bunch of Bombay Gymkhana regulars recently let on that they refer to Tata Group chairman Cyrus Mistry as ‘the ghost’—he rarely makes an appearance and if he does at all, few get to know about it. True to form, this sob­riquet—along with another one, ‘the invisible’—is popular among employees of India’s second-largest conglomerate, with interests in coffee to cars and steel to software. In the three years that Mistry has been at the helm, he has been working quietly without a public face. Few know of his strategies beyond the immediate team. He doesn’t give media interviews as a matter of course—and his team declined to speak for this story.

Perhaps this reluctance to engage has something to do with not having a great story to tell. In these three years, Mistry has no big success story; the period has been marred by bad performances across the sprawling group. There have been no big bang announcements, no acquisitions and no disruptive moves. At best, Mistry has chosen to devote time to consolidate operations of the group, which has over 100 companies in the fold, 30 of them listed.

The two big drivers of the Tata engine—Tata Steel and Tata Motors, both with operations in Europe—are in deep trouble. The only company that continues to be successful is the software services company, Tata Consultancy Services (TCS). Out of the group’s market capitalisation of $113 billion in December 2015, over 70 per cent, or over $75 billion, comes from one company—TCS.

Owing in a large measure to that one company, the numbers are looking good—total group revenue has increased by 12 per cent from 2012; net profit by over 50 per cent; but the group’s total debt is also alarmingly up by 67 per cent. And while the group has gained in market capitalisation in these three years, experts shrug it off. “The Tata brand is a strong one and pulls them through in the stockmarkets,” says Shankar Sharma of broking firm First Global, adding, “I will rate his performance as above average and nothing spectacular or outstanding.”

Most agree that the larger-than-life shadow of Ratan Tata still looms large over the group. While Tata insists he is in retirement, Mistry is accused of not showing any indication yet of moving beyond his legacy. Says Andrew Holland, CEO, Ambit Investment Advisors, “The group’s functioning has not changed.... There has been nothing that can be called a major change. He is maintaining the previous style of functioning. It’s still a mish-mash with no focus.”

A cross-section of senior Tata insiders who spoke to Outlook off-the-record feel that Mistry’s core team has not helped matters. Barring a few exceptions like Mukund Rajan, the perception is that Mistry has surrounded himself with a team of not-so-talented people. Mistry’s team—which also includes figures like N.S. Rajan, Madhu Kannan and Nirmalya Kumar—has helped craft his ‘Vision 2025’ strategy, under which he wants the group to be in the top 25 global groups by market capitalisation and reach out to 25 per cent of the global population. 

To his credit, things were not rosy when Mistry took over in 2012—several Tata firms were performing badly. Says Alan Rosling, former director at Tata Sons, “Cyrus Mistry took over at a time when India had slowed down and capital-intensive ind­ustries were on a downslide. This was being felt by prominent Tata companies like Tata Power, Tata Motors and Tata Steel.” Tata Steel—the group’s flagship in the past—has been in particularly bad shape, with low demand for steel in Eur­ope and in India, coupled with a rise in cheap steel imports, mainly from China.

The Indian steel business saw operating profits reduce by 40 per cent; European operations are running in losses. Mistry’s handling of the situation has not gone down well. While demand remains subdued in India, he inaugurated the Kalinga Steel plant in Orissa. In Europe, Mistry took the unpopular path of announcing closure of plants in Lincolnshire and Scotland, with 1,200 job cuts. Says a London-based observer: “Mistry’s reaction to the problems has been rather kneejerk. The plant closure and job cuts in the UK will have repercussions across the board. It will not put the management in good light. If Cyrus showed leadership and was willing to go out on a limb to aid the ailing industry, he’d be seen as a true industrial leader.” Clearly that has not happened.

Even though Jaguar Land Rover (JLR) is showing improvement in Europe and finding fresh markets in the US and China, Tata Motors is having a disastrous run in India, with its marketshare dwindling in the last couple of years. Clearly, Mistry had no control on this and has not been able to improve it despite new launches, most of which have bombed. And Nano, on which the company pinned its hopes, remained a non-starter. Not appointing a CEO of Tata Motors after Karl Slim has also sent a poor signal. A new CEO was announced this month, almost two years after Slim’s death.

Tata Motors reported a net loss of Rs 429.76 crore in the September 2015 quarter on a consolidated basis. Net sales rose by just 1.1 per cent. Even in the commercial vehicle segment, where Tata Motors was the leading pla­yer, it has been doing badly of late. “In the last three years, we have seen spectacular growth from JLR, although this is largely the result of investment decisions taken before Mistry’s leadership.... Over the next few years, Mistry will have to contend with a very volatile Chinese market,” says Ben Oliver, London-based motoring journalist and consultant.

Many other group companies have been also going through a bad patch (see graphics). Of course, his peers think that it is still early days to judge Mistry’s work and that results will start showing in due time. Subodh Bhargava, who is on the board of Tata Steel, says, “It continues to be work in progress. Mistry is looking at all possible solutions without any inhibitions. He is hands-on and enc­ourages discussion on the board. At Tata Motors, he is rebuilding the brand with a huge push towards new models and is looking at it directly.”

Mistry is also bringing in young CEOs as heads of companies, like T.V. Narendran at Tata Steel. The group has also ann­ounced forays into new areas like def­ence, e-commerce and retail. Despite defence being totally dependent on government orders, the Tata Group has made a mark here. On the other hand, being a late ent­r­ant in e-commerce does not make sense in a crowded market and acquisition at today’s valuations will put enormous burden on the group’s finances. “It is difficult to figure out what exactly they are doing. Where are the next gen Tata companies that will grow in the future?” wonders a global journalist who tracks the Tatas.

Many experts also worry about the outsider effect—that is Mistry may not be able to grasp the group’s problems and issues well. Says Sougata Roy, professor at IIM Calcutta, “Mistry started with a severe handicap. His intuitive feel and understanding of the ground realities of the Tata companies is doubtful, as unlike Ratan Tata, he had not worked in any of the Tata companies earlier and will struggle to loom large over them, as he is an outsider in a place where Ratan Tata’s shadow still prevails.”

What goes in his Mistry’s favour is the fact that even the Ratan Tata regime faced huge challenges early on, only to hit a winning stride in later years. Going by that, Cyrus still has time to work on his new strategies for the group. But in a brutal business environment, there’s no den­ying that the clock has started ticking.

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Market Cap Of Tata Companies

The Top Companies

• TCS still the dominant company for the group, continues to do well

• Tata Motors India is?struggling with dwindling marketshare. But Jaguar Land Rover showing good business of late.

• Tata Steel India pulling along, but Corus and European operations deeply in the red

• Other large firms, Tata Power, Tata Teleservices and Indian Hotels, in losses

The Future

• Foray in defence makes Tatas one of the biggest private players in the sector

• Much hope is pinned on the group’s launch of its e-commerce venture soon

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