The business plan that partly cost Mistry his job
The 2016-17 to 2020-21 business plan for Tata Sons that partly cost Cyrus Mistry his job was presented and discussed on September 15 at a board meeting exceeding four hours.
The meeting was the first for Venu Srinivasan, Amit Chandra and Ajay Piramal, appointed to the board in August, according to the minutes of the meeting, that have found their way to the petition of ousted chairman Cyrus Mistry to the National Company Law Tribunal.
All the directors were present, except Nitin Nohria, who participated through video conferencing. From the minutes, it appears many of the directors had concerns about the plan. Projections for Tata Sons The business plan till FY 202021 comprised the projected profit and loss statement, balance sheet, key ratios and cash flow. For FY17, the total income was projected to be ~8,103 crore, expenses ~2,425 crore and a normal profit of ~5,677 crore. Gross debt at March 2017 was estimated to be ~22,280 crore and net debt was to be ~19,236 crore.
The plan also envisaged sale of three per cent of Tata Consultancy Services for meeting part of the funding requirements for the year. A profit of ~14,700 crore was estimated on the sale. However, the board was also informed that the proposed sale was 'work-inprogress' and could spread over two years.
The plan also entailed impairment of the investment in Tata Teleservices by ~6,689 crore and Tata Teleservices (Maharashtra) by ~178 crore, considering a year-end fair value of ~10 a share and ~5 a share, from ~15.5 and ~5, respectively, at March 2016.
Chandra raised several concerns. He said there was a need to have a deeper dive into TCS, as the plan's success was heavily dependent on its performance; without the TCS dividend, cash flow would be negative. He suggested formulation of a risk mitigation strategy.
Vijay Singh said the board required a descriptive report on the degree of exposure expected in the telecom sector and any other unforeseen expenditure Tata Sons might need to incur. He said the the plan was more of a cash flow statement and needed to include a summary of the key business strategies, as well as the high level of macro assumptions that the plan was most sensitive to.
The requirement of the Tata Trusts in having an annual budget and a five-year strategic plan was also pointed to by Singh. He mentioned that the documents for an annual business plan would include a statement of profit and loss, a balance sheet, cash flow statement, business strategies, analysis of key risks and opportunities, as well as a descriptive write-up on any extraordinary or unforeseen event or expenditure. Such an annual plan would comprise an aggregation of the annual plans of major companies of the group, while the five-year strategic plan was to be the basis of an aggregation of the strategies of the operating companies and would consist of the same details as the annual plans forecast over five years.
This would enable the Tata Trusts to know, with reasonable accuracy, the likely revenue flows by way of dividends, in addition to having informed all issues provided by the Articles of Association which might impact the Trusts and which might require the consent of Trust nominee directors, Singh had said.
The annual and five-year plan would serve as a measure to assess the performance of Tata Sons. This could also become the basis of an annual discussion between the Tata Trusts and Tata Sons, on the strategic direction of the group and the returns to be expected from the investment portfolio of Tata Sons.
Chandra also said the previous board meetings had endorsed exits from certain non-core businesses, which should be clearly factored into the business plan. Telecom consolidation Mistry briefed the board about his ongoing discussion with Vittorio Colao, chief executive officer, Vodafone, on opportunities to consolidate various telecom related businesses. He mentioned the latest amendment to the Finance Act, under which hiving off an undertaking/asset of a company, which ceased to be a public sector company as a result of disinvestment of the government, shall also be deemed to be a demerger. This would enable the demerger of the surplus land of Tata Communications without incurring a tax liability.
Mistry also updated the board on discussions with Idea, Reliance Communications, Aircel and Sistema. Chandra said the Trusts were absolutely fine with any strategic step, including sale of the telecom companies to any of the competitors, as part of the resolution plan. Hot spots, exits Mistry briefed the directors on the 'hot spots'. Namely, the telecom and power segments, Tata Steel Europe, Indian Hotels and the passenger car division of Tata Motors. He also mentioned the strategy of de-promoterising Tata Sky. Going ahead with an initial public offer of equity was mentioned. The plan envisaged a complete exit after two years.