Cyrus Mistry has been at the helm of the Tata Group for close to two years now, and if one was to describe his style in a few words, these would be cautious and conservative. While that is no doubt a good way to begin one?s innings, the chairman of Tata Sons hasn?t had much of a choice to be otherwise, given his tenure so far has coincided with a severe downturn in the Indian economy. To add to his woes, the global recovery has been slow and fragile and while companies such as Tata Consultancy Services (TCS) have cashed in on clients? initiatives to cut costs, others such as Tata Steel continue to be hurt by weak demand. In his attempt to deleverage some of the businesses, the Tata Group has chosen to pare assets?as with Indian Hotels and Tata Chemicals. And to put the group?s accounts on a more prudent footing, impairment charges totalling more than R13,200 crore have been taken across companies; of this, close to R10,000 crore is on account of Tata Steel alone. Moreover, the balance sheets of group companies have been bolstered by equity infusions from the group?s holding company?Tata Sons put in close to R700 crore into Tata Power, for instance, and R250 crore into Indian Hotels, both via rights issues.
While investors have applauded the turnaround efforts at firms like Indian Hotels?its market capitalisation has more than doubled over the past year?ratings agency Moody?s has also been impressed with the support from Tata Sons. Confident the holding company will continue to have the ability to provide such support in the future, Moody?s has upgraded several of the group?s companies?Tata Motors, Tata Chemicals, Tata Steel and Tata Power?by a notch. The agency believes the holding company will back the group?s firms since it would not want the Tata brand to fall into disrepute as a fallout of any of the companies being in distress. At one level, it would seem this realisation has dawned on the ratings agency somewhat late in the day, given how Tata Sons has always backed group entities. And while it?s true that the group?s involvement in consumer-facing businesses may be increasing, the group has had consumer-facing businesses for several decades now?Titan and Tata Salt, for instance. Nevertheless, Mistry should be pleased since the higher ratings should help these firms access borrowings at lower costs; the combined debt of the group today would be well in excess of R1.5 lakh crore. What he might not appreciate is the ratings agency?s observation that Tata Sons can always sell stakes in TCS if it needs to raise resources to fund investee firms. Indeed, Mistry must be eager to see each of his companies become self-sufficient.
