FE Editorial : Cyrus’s challenge
Inheriting a $100 billion empire, as Cyrus Mistry will do tomorrow, must be intimidating. More so when you’re following a Ratan Tata who, while maintaining his reputation for integrity, delivered a scorching growth (20% annually since FY92 and 30% since FY06), and with a reasonable profit margin. The Tata Group’s FY12 PAT/sales of 6.95% is not too different from Reliance Industries 7.07%, and that’s when RIL isn’t anywhere as diversified and has a turnover of a third less. The flipside is much of this is linked to a single company, TCS, which operates in an environment that’s getting tougher by the day—TCS accounts for a tenth of group turnover but a third of profits and half of market capitalisation; remove TCS and the group’s ROCE falls by around 40%. Mistry’s obvious advantage is he has the board’s approval, unlike in the case of Tata when he joined, despite bearing the family name—how problematic a dysfunctional board can be is best seen from Hewlett Packard’s case. The fact that, much like himself, Mistry is dealing with a young team of committed professionals is another plus—so unlike Tata, he won’t spend time gaining control of the empire. It also helps that, as in the case of JLR, the integration and turnaround of several big global takeovers has been completed.
The most important part of Mistry’s job will obviously revolve around making Corus profitable—shorn of asset sales, Tata Steel profits in FY12 were just R1,760 crore on a turnover