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Tata shake-up may distract group from restructuring efforts

Tuesday, October 25, 2016 - 19:40

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The surprise removal of Tata Sons' chairman Cyrus Mistry and his advisory team, and the temporary return of Ratan Tata, could distract the salt-to-software conglomerate from ongoing efforts to trim debt and reshape some of its businesses.

[NEW DELHI] The surprise removal of Tata Sons' chairman Cyrus Mistry and his advisory team, and the temporary return of Ratan Tata, could distract the salt-to-software conglomerate from ongoing efforts to trim debt and reshape some of its businesses.

The boardroom coup, announced late on Monday, sent shares in some Tata listed companies lower on Tuesday, though the reinstatement of the widely respected Ratan Tata as interim chairman likely helped ease investor concerns.

"When Mr Mistry was there some actions were being taken at a group level which would have helped reduce the company's cash drain activities," said Daljeet Singh Kohli, research head at broker IndiaNivesh. "There was hope that rational, rather than more emotional decisions would prevail."

Some analysts expect uncertainty at Tata may stall some ongoing initiatives, such as the search for a partner for Tata Steel's struggling UK assets.

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"Under Mr Mistry, Tata Group have taken significant steps towards deleveraging and better utilization of capital," Citigroup said in a client note on Tuesday, adding his absence may impact the group's future strategy and delay the "process of deleveraging."

Media reports following Mr Mistry's ouster suggested the influential Tata family, which owns a majority stake in Tata Sons through a series of trusts, was unhappy with some of his decisions as chairman.

Ratan Tata on Tuesday urged those in charge of Tata Group companies to focus on their businesses and shareholder returns, and not be distracted by the board changes.

Those group companies own a range of well-known brands, including Jaguar Land Rover, Tetley tea, Titan and the Taj Group of hotels.

"The companies must focus on their market position vis-à-vis competition, and not compare themselves to their own past," Tata said, according to a company statement.

Referring to ongoing initiatives, he said Tata would"evaluate and continue to undertake those that are required". Any changes would be discussed with business heads. "At a business level, life doesn't change for us due to this management re-jig," said a senior banker and frequent investor in Tata group's bonds. "What we need to see is what kind of strategy they will adopt now to revive their weak companies."

Mr Mistry's dismissal as chairman - he remains a board member - stunned even Tata insiders and senior executives, people in the company said. "It came as a surprise to us; nobody seemed to know anything about it," said one senior Tata Group official, adding they were informed through a memo and told the move was "unlikely to have much impact on individual companies."

Tata has disbanded the group executive council - a core advisory team - set up by Mr Mistry, who was trying to shake up the US$100 billion company through changes to its management structure and the introduction of new faces at senior levels.

In a sign of the near-150-year-old conglomerate's heft, Prime Minister Narendra Modi was told about the leadership change in a personal letter, according to government sources.

Shares in Tata Steel fell 2.5 per cent, Tata Power 1.5 per cent, TCS 1.2 per cent and Tata Motors 1.1 per cent. The broad Mumbai market closed down 0.2 per cent.

"The reaction in some of the stocks could be termed as a knee-jerk reaction as sentiment takes a hit and an air of uncertainty prevails," said Arun Kejriwal of Kris Research in Mumbai. "Communication with investors and analysts will play a key role in restoring faith and normalcy."

REUTERS

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