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Tough Conditions Call For Hard Decisions On Portfolio: Tata Group Chairman Cyrus Mistry

Tata Group chairman Cyrus Mistry has said the challenges some of the group's businesses face require hard and bolder decisions on pruning portfolio

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Tata Group Chairman Cyrus Mistry on Tuesday (13 September) said "challenging situations" confronted by some of its businesses require hard and bolder decisions on pruning portfolio even as he stressed that the conglomerate is open to acquisitions within and outside India, besides organic growth.

Mistry, who took up the baton at salt-to-software conglomerate in December 2012 from his predecessor Ratan Tata, said he wanted the group firms to have speed and agility to adapt to turbulent environments even as he maintained that the existing debt level is not a matter of concern.

He further said 'green shoots' of a turnaround are visible at Tata Motors and Tata Steel has potential to grow significantly while several Tata firms are gaining traction in two new markets of Iran and Myanmar.

"It was clear to me relatively early that one needed to confront the challenging situations facing some of our businesses, and ultimately this would entail hard decisions on pruning the portfolio," he said in an interview to his group's in-house magazine.

Stating that there are no shortcuts, he said there would always be external influencers and so-called experts, who motivated by immediate transactional gains, would goad to churn portfolio.

"It is important that we develop our own prognosis based on knowledge and context, keeping all stakeholders in mind. We should not be afraid of taking tough decisions for the right reasons, with compassion," he said.

He said some of the innovations are incremental and the 'dare to try' concept does make the Tatas bold.

"We have to start taking bolder steps because true value in today's environment will not only be created from incremental innovation, but the bolder and bigger strides that we take," he said.

Mistry said each of the group companies is charting its own strategy and growth story, with the focus on sustainable and profitable growth.

On some group companies having taken on significant debt, he said: "This has to be seen in the context of business growth, increasing cash from operations and capital projects under way which will lead to future growth. As the group has been growing significantly in the past, the total capital employed has also grown. Proportionately, there has been an increase in debt.

Over the last three years, Mistry said, the gross debt across the group has gone up by about 2 per cent per annum in US dollar terms while cash and equivalents have grown at over 10 per cent, leading to a decline of 3.3 per cent in net debt.

As of March 2016, the group's net debt stood at about $24.5 billion. Capex on an average was $9 billion in each of the last three years. In 2015-16, cash from operations at $9 billion a year exceeded the capex.

"At the group level, therefore, the aggregate debt is not something I feel concerned about... Of course, for a more meaningful discussion, these numbers would require to be viewed at each company's level," Mistry reasoned.

The group invested Rs 4,15,000 crore ($79 billion) by way of capex over the last decade. Of this, Rs 1,70,000 crore ($28 billion) was invested in the last three years alone.

"We recognise that growth has to be a function of the operating cash flows we generate. At the group level, over the last three years, our operating cash flows have grown by over 30 per cent CAGR," the chairman stressed.

"At the group level, we are focused on helping our companies earn this right by building strong operational cash flows and looking at their capital structures."

He has a word of caution though: Capex should not be looked in isolation from investment in talent, brands and technology, marking them as true differentiators in future.

"We are building the Tata group of the next 150 years," he said.

Tata group's international revenues are close to 70 per cent of its composite turnover. Also, a majority of the group's capital expenditure in the last three years has been in international geographies.

With the opening up of two new markets of Iran and Myanmar, several of Tata Group firms are "gaining traction there".

"We continue to remain open to growth opportunities in India and overseas through the organic route and through acquisitions," he said.

On speculation that Tata group would now focus more on its Indian operations rather than international businesses after Brexit-like events, he said, "I cannot emphasise enough that this is far from truth.

The Tata Group chief feels India is well placed compared with other markets in terms of growth prospects in multiple sectors. "We must, from that perspective, make full use of the opportunities being thrown up in India," he said.

On Tata Motors, he said the company has always had a pioneering streak in its DNA, from first commercial vehicles that were brought out under Sumant Moolgaokar to India's first indigenously designed and built passenger car, Tata Indica.

"Our journey has just begun, but we can already see the green shoots of a turnaround," Mistry added.

The group's 6-mt steel plant at Kalinganagar in Odisha, he said, faced significant challenges in land acquisition and possession of government-owned land for several years.

"The apex governance mechanism included setting up a specific board committee dedicated to reviewing the project. Frequent reviews helped pull back some of the cost and time overruns," he said.

Stressing on the need to have organisational speed and agility and an openness to change, he said in the context of turbulent environments, organisational agility is crucial.

"On the risks front, if we are not agile I think we will be left behind," Mistry said.

But care should be taken to have the right composition of teams, which can collaborate and break through hierarchical processes when needed, he suggested.

"Fundamentally, Tata companies need to have robust strategies to deliver sustainable, profitable growth," he said. "Harnessing innovation and technology as differentiators will drive growth, even in the face of change."

According to Mistry, appropriate investments in research and development along with a multi-layered understanding of customers can lead to creation of new industries, products and business models.

Recognising the digital wave, Tatas are incubating three companies -- Tata CLiQ, the e-commerce platform, is an omni- channel marketplace with curated products; Tata iQ, the big data play, uses data analytics; and Tata Digital Health is building the de facto platform for healthcare in India.

To Mistry, his assuming office was more than a "routine" change of guard at the leadership level. "It was a generational change," he opined.

"My initial approach was to adopt a listening mode. A corollary to this development was that we filled the vacuum in the leadership team with a judicious amalgamation of maturing leaders from within the group as well as lateral inductees who brought in fresh perspectives and new knowledge."

To successfully lead the group, instead of relying on the position of chairman as the primary basis of authority, he said he needed to earn trust and respect of all chief executives, boards and external stakeholders.


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