Allegations and losses: Tata Sons’ Chandrasekaran has a lot to clean up
N Chandrasekaran has a reputation to protect. The 30-year old IT industry veteran has the top job of cleaning up the Tata Group of its allegations, stumbling business. In the process he will have to take some tough decisions.Updated: Feb 21, 2017 16:52 IST
For most top executives, the job that Natarajan Chandrasekaran landed with would be a dream one. But being the chairman of Tata Sons, the group that controls the 103-year old salt-to-software conglomerate, has its own challenges.
And for Chandra, as the former Tata Consultancy Services (TCS) CEO is fondly called, the time of his entry cannot be more critical.
Tata Group’s credibility has depleted after the boardroom battle, following the ouster of Cyrus Mistry, the former chairman of Tata Sons. In the months after the ouster, Mistry alleged that Ratan Tata continued to interfere, and called him the “chairman who never retired”.
According to Institutional Investor Advisory Services (IiAS), Chandra should first reinstate the old trust that the Tata Group enjoyed, and ensure that “governance structures, practices, and disclosures are put in place so that the recent events are not repeated”.
Alongside, Chandra will have to grow the businesses of the Tata Group, tend the ailing ones, and cut out the diseased ones.
Mistry had alleged that the Tata Group companies will face $17 billion in write-downs in five of its unprofitable businesses in the years to come, justifying his stand for the changes he had undertaken as the chairman of the company.
That makes Chandra’s position even more critical.
Chandra joined the TCS in 1987, and understands the Tata Group values. But his biggest challenges will be to understand some of the core sector businesses such as insurance and finance, manufacturing, and automobiles—areas that he has never looked at in his entire career.
For now, the top three companies, TCS, Tata Steel and Tata Motors, account for about 75% of the conglomerate’s revenue. Most of that comes from TCS, which contributes 60% to the Group’s revenue. Now, Chandra will have to grow the other businesses.
Mistry wanted to undo what Ratan Tata had built—a large global steel empire, through acquisitions. (Tata Steel had acquired steel major Corus Group for a whooping $12 billion.) But the UK steel market, which Tata was betting on, collapsed. Add to that, falling commodity prices and cheap Chinese imports. Among the top three businesses, Tata Steel’s has been the worst performance.
With Chandra at the top, it will be crucial to see what he does with the UK assets, which is a drag on the company’s balance sheets. Mistry wanted to sell these assets. However, brokerages such as CLSA have raised questions about “continuation” of the ousted chairman’s strategy.
Chandra is also said to have initiated talks with Reliance Communication, Anil Ambani-owned telecom business for a possible merger with Tata Teleservices. Tatas had earlier formed a joint venture with Japan’s NTT Docomo, which wants to exit India, and has deemed the venture as its “worst” overseas investment, and has sought $1.17 billion in compensation.
One of Ratan Tata’s most loved businesses is automobiles. However, its local business continues to face tough times. Its market share is down from 13% in 2013 to around 5% in 2016.
The Nano—Tata’s dream project—has flopped. Chandra might have to take some tough calls: on whether to continue or shut down Nano.
To make matters worse, in the December-ending quarter, Tata Motors’ profits plunged 97% as margins from JLR, which drives its revenue and profitability for the auto business, squeezed and cost surged.
Tata’s hospitality company Indian Hotels, owners of the Taj chain of luxury hotels, has been in the red for the past four years. Chandra will have to turn it around.
While all this at hand, Chandra cannot afford to lose sight of TCS, the bellwether of the Tata Group. Under the new management, Chandra will have to ensure stability. After all it makes for 70% of the Group’s market capitalisation.
“Going by Chandra’s track record at TCS, I think his biggest focus will be to grow the group,” said Juergen Maier, a Vienna-based fund manager at Raiffeisen Capital Management who oversees about $1 billion in assets including Tata Motors and Tata Consultancy shares, according to Bloomberg.
First Published: Feb 21, 2017 13:04 IST