Brexit fallout would have added to Cyrus Mistry's woes at Tata

Mistry had to tackle JLR's robust European sales coming under the Brexit cloud and the panic sale of Tata Steel's global assets not yielding results

After the British voted to exit the European Union (EU) on June 23 this year, various companies have been busy formulating strategies to counter the ill effects on their businesses. One of the hardest hit in the process would have been the Tatas, especially two of its companies in the UK – Jaguar Land Rover Automotive Plc (JLR) and Tata Steel UK Holdings Ltd.

Mistry, an Irish national of Indian origin, was appointed as a director in JLR soon after being appointed chairman of the Tata group in December 2012. JLR which manufactures two iconic cars – Jaguar and Land Rover – hasn’t performed badly under Mistry. In 2016, the group’s profits were £1.3 billion, which were almost £700 million short as compared to the year before. In 2014, as Mistry completed a year at JLR, the auto maker earned £1.8 billion in profits. Its sales have gradually increased by almost £1.5 billion under Mistry. He also oversaw JLR’s expansion in China after a deal was inked with the Chinese state-owned car maker Chery just months before his appointment at the helm of the Tata group.

But with Brexit, JLR under Mistry was faced with a tough situation. Europe accounts for a quarter of the sales of JLR. With Britain exiting the EU, the exports of JLR cars to Europe would attract a levy of 14 per cent. Import of components to make those cars in Britain would attract a duty of four per cent. These would have made JLR cars more expensive and negatively impacted their demand outside Britain.

The reasons are not far to see. JLR has built an impressive sales and distribution network in nine other European nations apart from Britain from which it derives most of its sales. These include networks in the recovering Iberian economies of Spain and Portugal (JLR Espania SL and JLR Portugal Veiculos e Pecas, respectively). In addition, JLR has robust networks in Russia, Holland, Germany, France, Austria, Italy and Belgium. Spending habits in most of Europe hasn't shown any significant jump. With an increase in export and import duties post Brexit and without a strategy to negate its adverse effects, the future of JLR could be at stake.  

After all, the acquisition of JLR by Ratan Tata in 2008 was hailed as an achievement for not just the group but for the country. It is not known whether Mistry’s plan to counter the impact of Brexit on JLR’s future cut any ice with Rata Tata.

  

While the automotive business is at stake, Tata’s steel business will also be impacted hard. With the global steel industry in bad shape, there was an urgent need to devise strategies to further counter the impact of Brexit. European nations contribute 52 per cent of Tata Steel’s revenue. Tata Steel UK Holdings' exports to EU nations have enjoyed duty free status prior to Brexit. That won’t be the case anymore.

What also seems to have surprised the Tata Group’s board was some of the decisions taken by Mistry in the face of adversity. Tata Steel has seen a rapid growth in its losses and debt under Mistry owing to global factors not entirely under his control.

Mistry tried to offset losses by going on a selling spree of Tata’s global steel assets. In May 2015, Tata Steel’s Dutch subsidiary sold its entire stake in Danieli Corus Technical Services. In 2014, it had sold its New Zealand subsidiary, Tata Steel International (Australasia) Ltd. Mistry had also initiated negotiations to sell off Tata Steel’s manufacturing and distribution assets in France and Germany as well.

  

With the panic sale strategy not bearing any fruit, Mistry’s options seemed to have run out. And with the actual repercussions of Brexit yet to hit Tata Steel, the prospects of a turnaround were diminishing by the day.