N Chandrasekaran’s challenges

When Natarajan Chandrasekaran took over the reins of Tata Sons four years ago, the group was under a cloud. The widely respected Tata group had suffered a major controversy, with the departure of Cyrus Mistry following a well-publicised rift with patriarch Ratan Tata. Mr Chandrasekaran faced a daunting challenge — not just in repairing the group’s image, one of its most valuable properties, but also in dragging it into the 21st century. Mr Tata’s own stewardship of the group, through the liberalisation era, had involved many ambitious bets, especially on overseas expansion. But many of those loaded landmark group companies down with debt. Tata Steel was burdened with Corus; Tata Motors had bought Jaguar Land Rover; the group’s foray into the telecom sector meant it was exposed to that business’ policy instability and cut-throat competition. The companies operated in silos but nevertheless had an organisational structure that baffled outsiders.

Four years on, Mr Chandrasekaran can look back on a beginning well made. As this newspaper has reported, the group companies’ overall market capitalisation has doubled over the past four years, beating the Sensex. Even more important, a start has been made towards the restructuring of the group and harmonising its businesses. Yet a great deal remains to be done. The hole the group was in when Mr Chandrasekaran took over in 2017 was deep indeed. In fact, over the past four years, the group’s reliance on its only consistently profitable company, IT major Tata Consultancy Services, has only increased, with the company responsible for almost 80 per cent of the group companies’ combined increase in market capitalisation in the period of Mr Chandrasekaran’s chairmanship. Of course, some of the group companies faced significant sectoral headwinds in the period — Tata Steel, for example, had to deal with depressed steel prices, Chinese competition, and overall sectoral overcapacity. With the rise in commodity prices in recent months, Tata Steel’s share price has seen signs of life. Tata Motors also returned to profitability in the December 2020 quarter. But net debt continues to rise. Tata Steel has more than ~86,000 crore of net debt; for Tata Motors, the figure is almost ~55,000 crore; and for Tata Power, ~36,000 crore.

For the Tata group, there is only one way forward: Adapt or perish. The flagship companies in particular will have to change their systems and their growth models. Tata Motors, which has announced a new chief executive officer and managing director this month, has led the way with JLR’S promise to take Jaguar all-electric in three years. The group reportedly intends to get into mobile handset component manufacturing; and Tata Power has to focus on renewable build-out, where it is seeing solid earnings growth. But all this will, in the short term, mean more investment. JLR has laid out spending plans for electrification, which require $3.5 billion a year; Mr Chandrasekaran’s attempt to lure iphone manufacturing to Tamil Nadu will reportedly require $1 billion in overseas loans. The group is also getting into online retail, with a similar figure being bandied about for a majority stake in Bigbasket. The question going forward is: How different is this spending and reconstruction spree from what happened in the past? Much will depend on how much investors trust Mr Chandrasekaran to make the right calls about the future of the broader economy.