Boardroom battle with Mistry escalates: Takeaways from Tata Sons' 9-page letter

Group indebtedness has increased by Rs 69,877 crore to Rs 2.26 lakh crore in four years

Tata Sons on Thursday issued a statement relating the current situation at the group and its issues with former chairman Cyrus Mistry. In this letter, the group made many revelations on how Mistry had been counducting himself and the business of the group.

Here are a few takeaways from the Tata Sons statement:   

Issues related to Tata Sons

Cyrus Mistry had been the executive vice-chairman (for one year) and executive chairman for nearly four years, which was a long enough time for him to show results at Tata Sons. The perrformance of Tata Consultancy Services (TCS) should not be considered Mistry's, as he did not really contribute materially to TCS’ management; also, TCS had needed no funds from Tata Sons for its growth.

Rather, the performance of other 40 companies should be considered Mistry's performance. And, dividends received from all the other 40 companies (many non-dividend paying) had continuously declined -- from Rs 1,000 crore in 2012-13 to Rs 780 crore in 2015-16.

Expenses (other than interest on debt) on staff increased from Rs 84 crore to Rs 180 crore, and other expenses increased from Rs 220 crore in 2012-13 to Rs 290 crore in 2015 (excluding exceptional expenses).

Little or no profit on sale of investments was recorded during these years. And, impairment provisions increased from Rs 200 crore in 2012-13 to Rs 2,400 crore in 2015-16, indicating Mistry's inability to stem falling values.

Mistry’s role in the past four years

Mistry is alleged to have constantly used the public relations network of Tata to emphasise the supposedly good work being done under his leadership. 

The letter questions his public relation activity, asking if that was relevant in the face of many major problems that needed urgent attention and action? 

Despite he voluntarily taking the position of the chairman, Tata Sons was told ‘legacy’ problem areas were a major drag on Mistry’s otherwise good performance.

The three major problem companies -- Tata Steel Europe, Tata Teleservices/Docomo and the Indian operations of Tata Motors -- saw no noticeable improvement in operations in the past four years. In fact, they got worse, as shown by continuing huge losses, increasing high debt levels.

The only action taken was to write-off huge amounts against these companies — which was no solution because the problem companies continued to exist.

Mistry presented overall figures of the group to cover up the failure; the overall performance was good largely due to the outstanding performance of TCS and Jaguar Land Rover. These two companies probably account for around 50% of the total turnover and over 90% of the total profits of the whole group. Mistry inherited these two crown jewels from his predecessor Ratan Tata. 

The group under Mistry’s leadership was intolerant to critical reports about the actions taken under his aegis. Some strategic initiatives were articulated repeatedly but the implementation was too slow to show results.

Group indebtedness and return on investments

The Tata group's indebtedness increased by Rs 69,877 crore to Rs 225,740 crore  in four years.

Market share drop for Tata Motors

In passenger cars, in the year ended March 2013, the market share of Tata Mptors was 13%. This now stands at 5%. 

The market share in commercial vehicles, which in March 2013 stood at 60%, is now down to 40+% — the lowest in the company’s history as the market leader in commercial vehicles.

Group write-offs/write-downs/provisions/asset sale

Tata Steel alone has written off a large part of its investments in its UK/European assets. Mistry repeatedly spoke of ‘bad’ acquisitions, but he forgot that his own firm had acquired South India Viscose Limited and Special Steels Ltd many years ago from which it walked away.

Handling of critical issues

Critical reports on the handling of the Tata Steel Europe problems in the UK and the negotiations with Docomo of Japan had been received from these countries.

Other issues

The recent development at the Indian Hotels Co, where independent directors said they had faith in his leadership, might point to Mistry's ulterior objective. Mistry might was trying to gain control of IHCL with the support of the independent directors of the board. He had cleverly ensured over these years that he would be the only Tata Sons representative on the board of IHCL. This might have been done to choke Tata Sons’ ability to exercise influence and control over IHCL.

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