Tata Sons: The Heir Misfortune

In her article, a colleague of mine recently wrote, “Chappal Bata ki. Aur naukari Tata ki”. While I had never heard the line myself, it wasn’t hard to believe that such a phrase would exist for one of India’s most well-reputed companies.

Tata group’s history is closely intertwined with that of India. So when it comes to stories, the body corporate has no shortage of tales to tell. Unfortunately, not all tales are sunshine and rainbows. With Tata’s elaborate history, there are bound to be some bleak moments.

A “bleak moment” for a company of Tata group’s stature is equally prominent in scale. But a company like Tata would fade out of existence if it couldn’t handle a few bumps in the road. This is why, like the hero of any tale, Tata always comes out on top, no matter the adversity.

Today we shed some light on the Tata vs Mistry battle, and I know you’ve already read your fair share about it. The point of remembering the infamous struggle is to know the aftermath and Tata's road to recovery.

Tata vs Mistry

So to recap, Cyrus Mistry was appointed as the CEO of Tata group of companies succeeding Ratan Tata. This path was paved for him thanks to the 18% shares held by Shapoorji Pallonji, a business conglomerate that Mistry is an associate of.

After his appointment, Mistry made a few deals that weren’t in the company's best interest, two to be precise. The first one was the Tata Power and Welspun deal which was worth ₹9,249 crores. In this deal, Tata Power acquired the renewable energy unit of Welspun. The problem with the deal was that Tata Power’s market capitalisation at the time of the deal was around ₹17,000 crore. Mistry essentially spent more than half the company’s worth to execute the agreement.

The second deal, which was with NTT Docomo, brought for the Tata Group a two-pronged problem. The first problem was with the existence of the deal itself, but we will get to that in a bit. This deal escalated into a crisis when NTT Docomo’s investment worth ₹12,740 crores in Tata Teleservices did not bear any success. The telecom joint venture failed to generate sufficient subscribers, and as a result, NTT Docomo wanted to withdraw from the JV.

Docomo entered the JV with a clause that if Docomo exited within five years, it would be paid a minimum of 50% of the acquisition price. However, when Docomo did want to exit, seven months before the expiry of the stipulated five years and asked for ₹7,200 crores, Tata offered only ₹2500 crores. The reason for this low offer was delegated to RBI guidelines that state that foreign firms can only exit their investment at a valuation "not exceeding that arrived at on the basis of return on equity".

Not only the exit valuation was an issue; when it came to choosing between buying back Docomo’s stake or finding a potential buyer for said stakes, Mistry chose neither of the options. This caused Docomo to start a legal tussle with the Tata group. The settlement of the dispute cost Tata group a whopping ₹8,984 crore.

This legal dispute dragged the Tata brand name through the mud and was Mistry’s third strike. The first two strikes occurred when Mistry executed these deals against the board of directors’ advice. During Ratan Tata’s leadership of the company, he would fairly regularly consult his board and respect their opinions, a trend Mistry wasn’t too keen on following.

And guess what happens after three strikes? Mistry was removed from his position, which ensued another legal battle. Read about it on Tata, Mistry and NCLAT – The Battle Continues and Tata Mistry Feud – The Climax!

During these trying times, our knight in shining armour, N. Chandrasekaran was already appointed as the replacement to Mistry and successor to Tata. Let’s get into his tale now.

The perseverance of gritty N. Chandrasekaran

What is a success story without a bit of underdog action? (we all know and love our training montages😁). Well, N. Chandrasekaran’s tale is sure to check all your success story tick boxes.

Chandra’s personal life might have been interesting in its own right, but his climb to the top of Tata’s org chart is what takes our fancy the most.

Chandra started off as just an intern at TCS right after his university education. But it would be safe to say that he found his calling with the IT giant because the man stayed employed with the company for 30 whole years. Following this employment, Chandra was promoted to the CEO of TCS. He also chaired the board of other Tata companies like Tata Steel, Tata Motors, and Tata Power (look at where you came from, look at you now🤩).

Chandra definitely leapt to success from CEO at TCS to Chairman of the Board of Tata Sons. But this leap was made at a time when there was no sure landing spot for him. Chandra’s ascension to the post of chairman happened when the throne for the position was very heated. He was promoted in March 2017, when Mistry had his eyes on the same position.

The Chandrasekaran Effect

Even with his position under threat, Chandra focused on the essential things. This was also when the Docomo lawsuit was ongoing, and reportedly, Chandra expedited the proceedings and led to prompt de-escalation of the situation by agreeing to the settlement amount.

Chandra was also leading the Tata group when the conglomerate re-acquired Air India. Yes, re-acquired, find out how Tata’s crown jewel was taken away from the business on our Tata Generational Story.

“The Tata Image” that was on the brink of being compromised during Mistry’s leadership was rescued by Chandra’s entrance in a position of power. Under Chandra’s wing, “TCS generated total revenues of US $16.5 billion in 2015-16 and consolidated its position as the largest private-sector employer in India and the country’s most valuable company.” (quoted from TCS’ website)

Chandra also made the Tata group undergo major restructuring to simplify the business vertical. This simplification can be seen with the merger of Tata Chemicals and Tata Global Beverage to create Tata Consumer. The plan worked, as merging the companies resulted in a rise in their stock by 270% in the last three years.

Chandra also made the various companies under the Tata group work together to fortify the creation of newer products. Like the synergy of Tata Motors, Tata Chemicals, Tata Elxsi, Croma and others to strengthen the company’s Foray into EV Industry.

Finology Says

The facts mentioned above are just a few feathers in N. Chandrasekaran’s hat. He has achieved more still and can improve the Tata group’s state even more.

Just like Tata benefitted from N. Chandrasekaran’s managerial prowess, another company recently went through managerial turmoil but turned its fate around by revamping its managerial constituency.

We are so floored by this company’s performance that we wrote an Investment Insight about its operations. Hell, we even recommend it as a potential well-performing stock!

Curious? Then head over to Recipe by Finology and find out about this mysterious company.

The Bottom Line

Today’s article shows just how deeply intertwined management's decisions are with the company's performance.

N Chandrasekaran’s role in the success of the Tata group is quite incidental. But Tata group, like any other company, is the amalgamation of the efforts of many people coming together, and the success the company earns is the result of everyone’s combined efforts.

That’s it for today. See you on the next blog.