Sets sights on issues that led to Mistry’s ouster

To bring the Tata Group closer together, reinforce a leader’s mindset in operating companies, and deliver superior returns to shareholders

MUMBAI: On his first day in office, Tata Sons Ltd’s new chairman Natarajan Chandrasekaran outlined three strategic priorities for the group: bring the group closer together and leverage its collective strength; reinforce a leader’s mindset in operating companies; and bring greater rigour to capital allocation and deliver superior returns to shareholders.

“We need to work together to excel, and to be ranked among the top performers in our respective industries,” Chandrasekaran, 53, wrote to employees. “We will also bring more rigour to our capital allocation in order to consistently enhance stakeholder value.”

Some experts said the agenda seems to be aimed at addressing some of the core issues which led to Cyrus Mistry’s ouster as chairman on October 24.

Trustees of Tata Trusts, which own two-thirds of Tata Sons, had previously talked about declining dividends while the group’s debt had increased three fold over the past four years to ₹2.25 lakh crore.

In a October 25 email to the board of Tata Sons, Mistry pointed out that the capital employed in the weaker companies of the group (Indian Hotels Co Ltd, Tata Motors Ltd’s passenger vehicles division, Tata Steel Europe, Tata Teleservices Ltd and the Mundra plant of Tata Power Co Ltd) rose from ₹1.32 lakh crore in 2011 to ₹1.96 lakh crore in 2015.

Chandrasekaran “is taking charge at an unusual time. And one has to read the statement in that context,” said Amit Tandon, managing director at proxy advisory firm Institutional Investors Advisory Services (IiAS).

Mistry’s ouster and bitter war of words that followed dented the Tata Group’s reputation. The group’s listed companies have collectively lost ₹29,969 crore or 3.44% in market capitalisation, compared to a 2.84% gain for all firms trading on the BSE. The fight between Mistry and Tata Sons is now before the courts.

On Tuesday, as Chandrasekaran assumed charged, shares of some Tata Group companies gained. Tata Motors rose 0.76% to ₹458.95, Tata Steel advanced 0.8% to ₹490.60 and Indian Hotels gained 3.33% to ₹124.20. TCS fell 1.68% to ₹2,464.30 and Tata Power retreated 1% to ₹84.10 on a day the BSE’s benchmark Sensex gained 0.35% to 28,761.59 points.

The biggest challenge for Chandrasekaran is binding all the Tata Group firms, including boards and management of those that voted “against the principal shareholders when the fight with Mistry broke out,” said Mahantesh Sabarad, head, retail research, SBI Cap Securities Ltd.

Chandrasekaran is also taking over at a time when TCS, the group’s cash cow where he has spent his entire career, is facing trouble over likely changes in US visa rules, which will increase its employee costs.

“Chandra will fix his own priorities, but I do believe there will be two major thrusts,” said RK Krishna Kumar, former director, Tata Sons, and trustee at Tata Trusts: “To ensure that TCS ...retains the dominant position in the software sector. Secondly, I think he is going to put lot of pressure on operating companies to give better results ... and sharpening focus on maximising shareholder returns.”

And in all likelihood, going by the recent experience, Tata Sons may want to shore up its shareholding in most of the companies, said Tandon of IiAS.

With the exception of TCS where Tata Sons owns 73.26% , the holding company’s stake in most of the other major listed group companies ranges from 14% to 30%.

Shriram Subramanian, managing director at InGovern Research, a proxy advisory firm, said he’d like to see how Chandrasekaran’s statements translate into details. “One also has to see how the terms of engagement between the different Tata entities — the Trusts, Tata Sons and Tata companies — pan out,” he added.