Tata group turns circumspect under Cyrus Mistry

January 9, 2014 2:15 am

Tata group turns circumspect under Cyrus Mistry

By James Crabtree in Mumbai

It would once have been a familiar sight: the Tata group limbering up for a landmark deal with a blue-chip western company – in this case Britain’s Vodafone, to which the conglomerate is discussing selling a majority stake in its struggling mobile business.India’s largest business house by revenue won its reputation by pushing through a spate of daring multinational transactions over the past decade. In buying the likes of Anglo-Dutch steelmaker Corus and British luxury carmaker Jaguar Land Rover, it came to embody India’s emergence as a global corporate powerhouse.

Of late, however, it has been much more circumspect, especially over the past year, the first under new chairman Cyrus Mistry, who replaced long-time incumbent Ratan Tataat the start of 2013.

Mr Mistry’s first 12 months have involved getting to grips with a sprawling enterprise of more than 100 companies. Together they churn out products from software and chemicals to tea and wristwatches, earning $105bn over the past financial year, 63 per cent internationally.

That global revenue base is largely the result of the trail Mr Tata blazed abroad, a path Mr Mistry has thus far conspicuously avoided: the group’s companies conducted fewer deals last year than at any point since 2004, according to data from Dealogic.

Taken together, these transactions amounted to just $385m. By contrast, in 2006, the year it bought Corus, Tata’s ledger came close to $18bn. “I’m sure they won’t make any big purchases this year either,” says one Mumbai-based investment banker who works with the group. “They are much more likely to sell.”

Such caution is partly circumstantial. Tata’s domestic operations have been hit by India’s economic slowdown. Unhelpful government regulations have stifled industrial projects as well. Mr Mistry is also finding his feet.

But it also stems from the need to rescue a number of businesses, the most pressing being Tata Telecommunications. India’s fifth-largest mobile group by subscribers is losing money and market share, and needs a partner to inject capital and ideas.

Tata is courting other players – including Sistema of Russia, and Maxis of Malaysia – but those familiar with its thinking say Vodafone is the favoured target. Whether the British company is equally enamoured remains doubtful, however.

Mr Mistry faces a second, and arguably tougher, task in turning round Tata Steel’s embattled European division – the old Corus – the source of a $1.3bn loss over the past financial year. The Indian section of its car company is also enduring a wretched period of falling sales, while its energy division is lumbered with a moribund 4,000 megawatt power station in western India that is bleeding cash following a snarl-up over coal supplies.

As he tackles these issues Mr Mistry can rely at least on the group’s two star performers: Tata Consultancy Services, the highly profitable IT outsourcing division, and UK-based Jaguar Land Rover.

But while Tata’s finances are as a result much more solid than many rival Indian conglomerates, they remain far from ideal. Its steel and auto operations, for instance, carry combined net debts of $11.5bn, at a time when India’s banks are growing ever-less enthusiastic about issuing fresh debt even to companies of Tata’s stature.

“The problem is that he [Mr Mistry] just doesn’t talk much to investors, so there is a sense of a lack of direction,” says Nick Paulson-Ellis, head of emerging markets at Espirito Santo in London. “This worries them. They want to know the big plans for the group overall, even if they are just invested in the individual entities.”

The nature of these long-term plans was muddied further by a handful of quixotic announcements during 2013, including two new airline ventures that appeared to be a hangover from the old regime: Mr Tata was an avid pilot, who dreamt of seeing his company’s brand take to the skies.

Those familiar with the company dispute the accusation that Mr Mistry has started too slowly, or communicated too little. Tata is in “a period of consolidation”, as one person close to the company puts it, but the new chairman is developing plans for growth too, as part of a strategy that will see his focus turn increasingly to other emerging markets in Africa and Asia.

An aggressive push to expand consumer-facing business, including its retail and financial services operations, is likely to lie at the heart of this new approach. Housing and infrastructure are another priority; both also happen to be areas that Mr Mistry knows well, having earned his spurs at his own family’s construction conglomerate.

Yet while those who know Mr Mistry speak highly of his abilities, many also argue that a clearer sense of progress is needed in 2014.

“He is meticulous, he is great with numbers, he has humongous attention to detail, and he is putting his shoulder to the wheel,” says Suhel Seth, a marketing expert, who has worked with the conglomerate.

“But he has been there for a year now; two years if you count when he was chairman-designate. So now people are going to ask for a report card that shows results, not just intent.”