Column: Measured Mistry

Written by Shobhana Subramanian | Shobhana Subramanian | Updated: Dec 6 2013, 09:03am hrs
Stepping into Ratan Tatas shoes was never going to be easy. More than just a successful industrialist, who transformed the businesses he inherited into a $100 billion conglomerate, the former Tata Sons chairman has always been regarded as a person of high integrity. So, for Cyrus Mistry, heading Indias biggest business house was always going to be a tough job all the more because he was beginning his stint in the midst of a global and domestic downturn.

A year down the line, Mistry must be an even more worried man. While it was always evident that the marquee clutch of companies he inherited werent all in great shapesome of them are doing brilliantly but a couple are losing money hand over fistthe past year would have taught him how tough it can be to turn around a business.

Mistrys biggest misery would have to be that Tata Teleservices is a capital-guzzler that has failed to make money in more than a decade of its existence, despite thousands of crore having been spent on it. The Tata Sons chairmans gameplan for the telecom piece is not clear but he must be praying someoneperhaps the firms partner Docomowill buy out the Tata stake. Meanwhile, although the mild recovery in Europe has helped, Tata Steels debt is a debilitating R66,000 crore despite a couple of plants in Europe being mothballed and some sold; the overseas subsidiary barely generates the cash flows to cover sustenance capex. Its unlikely the $13 billion buyout of Corus will ever pay off.

In the interim, Mistry has started taking impairments at some of the firmsTata Steel, Tata Chemicals and Indian Hotelsand must unravel Ratan Tatas strategy of accumulating top line through a string of overseas acquisitionsmany of them ill-timed and expensive. Mistrys mission from the very beginning, would have had to be one of containing the haemorrhaging rather than growing top line. Ratan Tata may have wanted a turnover of $500 billion in five yearsthe former chairman is understood to have outlined his vision to group executives at a meeting in March 2012but right now Mistry would be looking to shed top line where possible so as to rein in the debt. His proposed investments of R45,000 crore in a couple of years, following the R50,000 crore invested in the three years to December 2012, will, in all probability, be used to add to existing capacity.

Indeed, theres no question right now of any more acquisitions. Even if other senior team members of Tata group havent been gripped by the burnt-child-fears-the-fire psychosis, Mistry is not about to chase assets. That became clear early on in Mistrys stint, at a Tata Chemicals board meeting in March this year. A Reuters report quoted a board member pointing out how Mistry had quickly brought to an end a discussion on the merits of buyout opportunities across the globe, asserting instead the need for consolidation. Not surprising, given Tata Chemicals had clearly blundered in buying Brunner Mond in 2006the business is now being restructured to fight rising energy costs.

Mistrys most mature move so far would have to be the decision not to set up a bankTata Sons has officially withdrawn its application for a bank licence. Given the group already has a presence in financial services, and a terrific brand to boot, the idea of running a bank must have been a tempting one. But not rushing into something completely new at a time when other businesses need attention, and when the existing financial services model might have been disrupted is creditable.

For someone so grounded, however, the decision to venture into the aviation space came as a surprise; partnering with Singapore Airlines will no doubt make it easier for the Tatas but even the most efficient of airlines globally is known to have run into rough weather some time or other. So while aviation may not be a capital-intensive business, operating costs can nonetheless spiral out of control. A new addition to the stable, at a time when existing businesses need attention could diffuse the managments focus.

A year can be a very short time when youre trying to grasp the specifics of a hundred different companies, all new to you. Even with the excellent team at his command, it could be a while before Mistry is able to get the group back into shape. His first year has been a bit of a mixed bagTCS doing spectacularly well but most others just about muddling through. The stock markets reflect the troubles in the group; just three out of ten Tata firms currently have a higher market capitalisation than they did at the end of December last year when Mistry took over from TataTCS, Tata Motors and Tata Communications. The markets may not always be the best gauge of performance but they do have a fairly good idea of what can be expected, which is probably why Tata Power has lost about a fourth of its value and Tata Chemicals about a fifth. Mistry clearly has a lot of work to do but his first year would have left no one in doubt the group is in safe hands; a politically-correct, sensible chairman who may be less charismatic than his predecessor but with greater concern for the bottom line.