N Chandrasekaran’s 2nd year may begin with Tatas’ largest domestic deal with Bhushan Steel takeover
As N Chandrasekaran, the first non-Parsi chairman of the Tata Group in its 150 year-old history, completes his first year on February 21, he can draw lots of satisfaction that he’s successfully pulled the group out of the morass that began after the sacking of his predecessor, and also possibly has a good start to the second year with the largest acquisition the group has ever made. Chandra, as he is known popularly and also the third non-Tata to head the group, was asked to helm the salt-to-software group with over $105 billion in revenue of which over 65 per cent come from outside, during one of the most critical periods in the group’ long history following the acrimony created by the sacking of the previous chairman Cyrus Mistry on October 24, 2016.
Before being named the chairman of Tata Sons, the holding company, Chandra was managing director and chief executive of the group flagship TCS, which commands the highest market valuation at close to Rs 6 trillion. It had scaled past the Rs 6-trillion m-cap many times in December last and this January.
“One year on, the marathoner Chandra in his typical style seems to have met with some success in leading performance across businesses in a challenging environment. “His first year in office has been marked by finding solutions to legacy issues like the Tata Teleservices-NTT Docomo dispute, revamping Tata Motor’s domestic operations and also divesting Tata Steel’s cash burning European operations,” said a Bombay House insider.
One of his biggest achievements would be the now-almost-certain acquisition of the crippled Bhushan Steel by Tata Steel for Rs 36,000 crore, which the company has reportedly bid for and thus emerging as the highest bidder for the Delhi-based company that’s under NCLT now. Chandra took over the reins last February, when the group was facing a litany of challenges and bad press for the manner in which the board sacked Mistry as the chairman after a four-year stint.
The case is sub-judice now with NCLTs and the Delhi and Bombay high courts hearing a slew of petitions. The issues ranged from loss-making units to aftermath of the acrimonious exit of Mistry, whose family is the single largest shareholder in Tata Sons with an 18.6 per cent stake. Chandra began with clear intent to resolve some of the issues that the group was plagued with during the Mistry era.
Some of the most notable resolutions that he could sew up include the $1.2-billion settlement with the Japanese telecom major Docomo, and also the sale of its crippled telecom business to Bharti Airtel, the resolution of Tata Steel Europe’s highly loss making business with part sale and a merger with Thyssenkrupp of Germany. Another achievement is the approval to demerge the vast tracts of land parcels of Tata Communications which was previously known as the government-run VSNL.
He also simplified the group holding structure, including to unwinding of crossholdings towards which, according to the Bombay House insiders, has seen the group spending around Rs 10,000 crore towards share buybacks. This has seen Tata Steel buying back 1.6 per cent stake Tata Motors held, Tata Global buying back 4.5 per cent stake in Tata Chemicals, which in turn sold back its 6.9 per cent in it.
Tata Sons also increased their holdings in Tata Motors by 1.6 per cent, also marginally in Tata Power and T Communication. To deleverage the crippled telecom business, the parent has pumped in a whopping Rs 20,000 into Tata Tele. “These steps gave the world a clear indication that the Tata Group is serious about business and while they are ready to invest in core businesses for growth, they will also not hesitate to exit non-core businesses that would continue to burn cash,” said an analyst.
Another key area that Chandra focused was on getting fresh blood into the 15-year-old group. The new appointments at the Tata Sons level included Saurabh Agrawal coming in as the group CFO; Aarthi Subramanian as the group chief digital officer; Banmali Agrawala as the head of the newly created infra cluster; Shuva Mandal as the group general counsel; and Rupa Purushothaman of the Goldman fame as the group chief economist among others.
At the companies level, key appoints include Puneet Chhatwal as the CEO of Indian Hotels, replacing Rakesh Sarna who was handpicked by Mistry; Rajiv Sabharwal as CEO of Tata Capital in place Brotin Banerjee; PB Balaji as the CFO of Tata Motors; Giridhar Sanjeevi as CFO at IHCL; and Prathit Bhobe as the CEO of Tata AMC.
Chandra is also getting a new head for Tata Power, having ensured the company veteran Anil Sardana resigned. On the market valuation front, the group companies led by the cash-cow TCS, Tata Steel, Titan, Tata Global have Tata Chemicals outperformed the indices in the first year of Chandra as the chairman.
Most of the key Tata stocks have outperformed the market, which is a clear a thumbs up to his leadership. While Tata Steel has rallied over 47 per cent, Tata Global Beverages soared over 94 per cent and TCS has crossed the Rs 6-trillion m-cap mount many times since last December, becoming the first domestic firm to do so till RIL too achieved it and since then its a tight fight between the two.
“The rally in Tata stocks is credible in the face of the Sensex growing only 18 per cent during the same time and therefore is an endorsement of Chandra’s leadership,” said an analyst. But he was quick to note that there are also laggards like Tata Motors which fell a good 18 per cent and Tata Power which barely moved up with a paltry 2 per cent gain.
In the past one year, across the 22 listed Tata entities, the value of the stocks has grown by Rs 1,45,000 crore registering a growth of over 17.5 per cent. “The market seems to have liked Chandra’s efforts in closing some of the legacy issues of Tata Steel including its cash guzzling international operations,” said an analyst.