Chronicling Chandra's 3 yrs as Tata's boss

When N Chandrasekaran joined Tata Consultancy Services (TCS) as a trainee at Chennai in 1987, no one could have predicted he would go on to head the legendary Rs 1.2 trillion Tata Group three decades later. It’s just not the kind of thing anyone imagines when a trainee walks into a company. But Chandra, as he is now widely known, did stand out.S Mahalingam, former director and chief financial officer of TCS who headed Chennai for the company at the time, says the young fresher’s dynamism was evident to all. Within a year, TCS nominated him for a stint at IBM Labs in Sweden and his performance there took him to Washington to manage a project for IBM. Mahalingam says that it was exceptionally early in his career that Chandrasekaran got to lead a project, and build a team of 40 people for it. 74260153 He impressed the biggies among clients in the US, says Mahalingam. Once back in India, he was placed on the fast track as executive assistant to S Ramadorai, who became MD in 1996. Eventually, Chandrasekaran led marketing for TCS and then became chief operating officer in 2007 and took over the reins of TCS as MD, when Ramadorai retired in 2009. He started being noticed nationally in 2012 as TCS overtook Reliance Industries in market capitalisation for the first time, and started contributing the bulk of Tata Group’s profits. Between 2013 and 2017, the company’s market capitalisation doubled and in 2015-16, TCS contributed 65% of the profits of Tata Group companies. So when the Tata Group started looking for a new chairman, after Ratan Tata’s successor Cyrus Mistry was acrimoniously removed in October 2016, after three years and 10 months in the saddle, Chandra, the ‘rainmaker’ of the group, was a natural choice. On February 21, 2017, he was appointed executive chairman.The three years that followed have, however, been different from Chandrasekaran’s time at TCS, where he was amidst rapid revenue and profitability growth. Much of his time at Tata Sons has been spent consolidating and cleaning up the steel, automobiles, power and telecom businesses— some of the largest and oldest Tata operations. At the same time, Chandrasekaran has tried to find new growth engines. As the legacy problems are complex and often structural, they will demand time as well as capital. Chandra’s biggest challenge in his fourth year will be to break out of the legacy problems, and to try and do what he does best.Ajay Piramal, chairman of the Piramal Group and a non-executive director at Tata Sons, told ET Magazine in an interview that a business of this magnitude will have many challenges and Chandra has applied himself with tenacity, and managed to remain cool in the face of crises. “The head of Tata Sons is probably the biggest corporate role in the country,” Piramal said, adding that changes and new business ideas take their own time to mature. 74260170 The Mistry OverhangUnfortunately for Chandrasekaran, the shadow of Cyrus Mistry and his unceremonious removal from chairmanship of Tata Sons in October 2016 continues to loom large. The Mistry family owns 18.7% of the equity of Tata Sons. Cyrus Mistry had been on the board of the company as a non-executive director for almost six years before becoming executive chairman of Tata Sons upon then chairman Ratan Tata’s retirement.Ratan Tata had continued to head Tata Trusts that own around 64% of Tata Sons. The relationship between the two had soured in the next three years and ended in Mistry’s removal on October 24, 2016.The resultant legal battle, as Mistry challenged his removal from the board, moved through the National Company Law Tribunal, the Appellate Tribunal (NCLAT) and is now at the Supreme Court. In December 2019, the NCLAT re-instated Mistry and termed Chandra’s appointment illegal. In January, a Supreme Court bench stayed the NCLAT order.Mistry’s tenure was three years and 10 months, and as Chandra completes three years in the hot seat, comparisons will inevitably be drawn. While it is admittedly not an apples-to-apples comparison (Mistry tenure was 10 months longer), the results depend on which metric you pick.Analysis by The Economic Times Intelligence Group show that while the combined market cap of the listed Tata companies went up by 71% under Mistry, during the three years of Chandrasekaran they have gone up by 41%. The Sensex, in comparison, moved up 45% and 43% during Mistry’s and Chandra’s tenures, respectively.While the combined market cap metrics shows Mistry’s period doing better than Chandra’s, if one looks at total revenue and profit growth, Chandrasekaran’s stint looks better.Market analyst and chairman of Inditrade Capital Sudip Bandyopadhyay says if one compares FY17-19 versus FY13-17, group revenue seem to have grown at a compounded annual growth rate of 10% in FY17-19, versus at 6% CAGR in FY13-17. The rate of growth of group profit after tax is also 18% CAGR in FY17-19 versus 9% for FY13-17. He says: “Chandra has done a fabulous job of steering the group during an extremely turbulent period.He has provided steady and stable leadership without any friction or conflict.” Meanwhile, the market capitalisation league tables of Tata Sons also shows some crucial changes in group dynamics. At the end of Mistry’s tenure, Titan Company Ltd, with Rs 33,487 crore of market cap, was the group’s fourth largest company. Today, it has jumped over Tata Motors and Tata Steel to become the second largest Tata company with a market capitalisation of Rs 1,17,429 crore. Trent Ltd and Tata Global Beverages, two other retail consumer-focused companies, have also moved up sharply on the market-caps league table to fifth and sixth positions. Among the revenue-wise biggies, Tata Motors was a big contributor (63% up) to the combined market caps growth during the Mistry period but during Chandra’s, it has gone the other way (63% down). Tata Steel has largely been flat in both periods. The changes show how consumer facing businesses have become bigger while heavy industrials have suffered. 74260186 People close to Cyrus Mistry, unsurprisingly, now raise a question: if after three years, Chandrasekaran remains stuck with the same problems that Mistry was grappling with, what was the point of the change?Nirmalya Kumar, who was part of the Mistry’s top team at Tata Sons, feels that the challenges that face Chandrasekaran today are the same ones that faced Cyrus Mistry, something that Mistry had flagged as legacy hotspots. These include passenger cars business of Tata Motors, the European business of Tata Steel and the telecom business.Kumar, who is based in Singapore now and is Lee Kong Chian professor of marketing at Singapore Management University & distinguished fellow at INSEAD Emerging Markets Institute, says: “The five hotspots (challenges) identified by Cyrus that were critical to confront for the viability of the Tata Group remain unchanged since October 2016. Chandra’s ‘strategy’, to the extent one can discern, does not show any marked divergence from what was in the Mistry strategy document.”Looking Beyond LegacyR Gopalakrishnan, a former director of Tata Sons, says that every CEO has an initial period of dealing with legacy issues. He adds that Nowroji Saklatvala, the third chairman of Tata Sons (1932-1938), had spoken about how he dealt with issues arising from the inter-war years. Gopalakrishnan also mentions what Saklatvala had said in a speech in 1933: “Those were the really mad days... when companies were launched with insufficient preparation.” Between 1917 and 1922, Tata group launched Tata Industrial Bank, Tata Construction, Tata Electrochemicals and nine other companies.Saklatwala had added: “Tata Sons made mistakes but endeavoured to learn from its mistakes.”Chandrasekaran has worked hard to close down and write off much of the telecom business under Tata Teleservices. He has tried to rejuvenate the passenger cars business by focusing on new technology, new platforms and electric vehicles, and almost got through a deal with Thyssenkrupp to merge the European steel business with it. A project to develop a charging ecosystem for electric vehicles has drawn in Tata Motors, Tata Power and Tata Chemicals.Mahalingam pointed out that TCS is a very good place to learn how to use technology to solve problems, as you constantly work with clients trying to do that. A new initiative by Chandra has been Tata Digital, which was launched as a new vertical in August 2019 and Pratik Pal, from TCS, was pulled out and appointed its CEO.Around Rs 1,000 crore is being invested in Tata Digital to create consumer platforms that can be accessed by all Tata companies. It has started with Croma and is likely to be taken up by Titan and Starbucks. The project will try to track all Tata consumers across brands, pushing synergies across companies. Earlier, in May 2019, the consumer business of Tata Chemicals had been demerged and merged with Tata Global Beverages Ltd, unifying the retail foods and beverages businesses. While Tata Chemicals, Tata Global Beverages and Trent Ltd are listed entities, there are many unlisted entities that can unlock value in the future.These include Croma, which operates under Infiniti Retail, as well as Tata International, the global trading arm of the company led by Ratan Tata's half-brother Noel Tata. There is also the defence vertical, led by Banmali Agrawala.In fact, Chandrasekaran had identified 10 different clusters, out of which at least five should become growth engines. In an interview with The Economic Times in August 2019, Chandrasekaran said he would like five clusters each to give 10-15% percent of the profits of the entire group. That would help move the group away from its current dependence on TCS. 74261108 Focus on EssentialsIn the backdrop of the Mistry ouster and the subsequent legal wrangling, one persistent question is whether Chandra is truly in charge or if Ratan Tata constines to be a significant influence, by virtue of heading the majority shareholder, the Tata Trusts. Chandra had clarified in an interview to ET in August that he seeks out Tata's guidance for important decisions.Board member Ajay Piramal has pointed out how Chandra manages to remain calm and composed, even while facing a crisis. And there have been many, including some that are not publicly known. In fact, the sideshows are big enough to be a significant distraction. One of the key demands of the Mistry camp at the company law tribunal has been on corporate governance at Tata Sons, where it is legally battling the company on its move to turn Tata Sons into a private limited entity. A Tata old-timer pointed out that the best thing for Chandra to do at this point is to stay out of this battle, and let Cyrus Mistry and Ratan Tata see the legal battle to its conclusion.S Mahalingam says that something he noted about Chandra right from his early days was his ability to focus on the essentials. "He has always been very intense, very involved. "This has helped Chandra navigate his way through the difficult task of moving from managing one company to a conglomerate spanning diverse businesses, he adds. Plus, there is an ability to evoke loyalty around him.Chandra also sets the pace. Mahalingam remembers very well the day when he and Chandrasekaran joined the TCS board together in 2007, 20 years after the latter joined TCS. Mahalingam was already the CFO of the company since 2003, and Chandra had just been anointed COO. Two years later, Mahalingam saw Chandra become CEO. When in 2011, the Tatas hunted for a new chairman to replace Ratan Tata, and Mistry was chosen, Chandra was not even a contender.By 2016, he was a front-runner for the position he now holds.It might be key for him to move ahead with the same speed once more. There are many crucial decisions coming up. Biggest of all would be whether Tatas should put in a bid for Air India, as it is being divested by the government.Given that it already has Air Asia and Vistara in its portfolio, and losses to contend with, it won't be an easy decision. Chandra personally visited the Air Asia India offices to secure a no-objection from the joint venture for the Air India bid.At the group level, the debt keeps growing too, although Chandra argued in his interview with ET that it has been managed well.There are multiple ways to look at debt, and the group-wise leverage seems to have gone down, Inditrade's Bandyopadhyay pointed out, even as it has grown at the gross level. In multiple ways, the Tata Group presents a maze and will keep testing Chandra's ability to race ahead of it.

from Economic Times https://ift.tt/2urdTkc