Tata Motors couldn't shut down Nano due to emotional reasons: Takeaways from Mistry's letter

Emotional reasons alone have kept us away from this crucial decision, said Mistry

Tata Motors has been unable to shut down the loss making small car Nano due to "emotional reasons" and doing so would also stop the supply of "gliders" to an entity that makes electric cars in which Ratan Tata has a stake, Tata Sons' ousted Chairman Cyrus Mistry has alleged.

In clear indications that not all was well between him and Tata, Mistry in his letter to Tata Sons board members said for the group's automotive venture Tata Motors to make a turn around the company needed to shut down the Nano -- a pet project of his predecessor.

Here are the takeaways from the letter:

1. Not shutting down Nano was an emotional reason
The Nano product development required concept called for a car below Rs 1 lakh but the cost were always above this.

This product has consistently lost money, peaking at Rs 1,000 crore," Mistry said in his letter written a day after he was ousted as the Chairman of India's largest conglomerate.

He further said: "As there is no line of profitability for the Nano, any turnaround strategy for the company (Tata Motors) requires to shut it down. Emotional reasons alone have kept us away from this crucial decision." Moreover, raising issues of conflict of interest, Mistry said: "Another challenge in shutting down Nano is that it would stop the supply of the Nano gliders to an entity that makes electric cars and in which Mr Tata has a stake.

2. Mistry says was pushed to a position of 'lame duck' 

Cyrus Mistry said he was pushed in to a position of "lame duck" chairman and changes in decision making process created alternate power centres in Tata Group. He accused them of replacing him as Chairman of India's largest conglomerate without so much as a word of explanation and without affording him an opportunity of defending himself "in a summary manner" that must be unique in the annals of corporate history.

3. No free hand 

Mistry said he was promised a free hand when he was appointed Chairman in December 2012 but Articles of Assoc.iation were modified, changing the rules of engagement between the Tata family Trusts and the Board of Tata Sons.

4.Tata Sons face potential combined writedowns of close to $18 billion due to poor investments

Mistry said Indian Hotels Co, the passenger vehicle operations of Tata Motors, the loss-making European steel operations of Tata Steel, a telecoms venture and an Indian plant of Tata Power were "legacy hotspots". "A realistic assessment of the fair value (of) these businesses could potentially result in a writedown over time of about Rs118,000 crores ($18 billion)," he said in the emailed letter.

5. Ratan Tata forced the group to foray into aviation, Mistry had no role in that 

Mistry alleged that it was Tata who forced the Group to foray into the aviation sector by making him a 'fait accompli' to joining hands with Air Asia and Singapore Airlines and making capital infusion higher than initial commitment.

6. Sudden move will damage Tata reputation

He said the suddenness of his removal, and the lack of explanation has led to all manner of speculation and has done immeasurable harm to his reputation as well as that of Tata Group. 

7. Acquisition strategy resulted in a massive debt burden

Mistry was also critical of the group's foreign acquisition strategy, saying it resulted in a massive debt burden, especially the buyout of its European steel business which faced "potential impairments in excess of $10 billion."

Many foreign properties of IHCL and holdings in Orient Hotels have been sold at a loss. The onerous terms of the lease for Pierre in New York are such that it would make it a challenge to exit," he said.

Tata Chemicals still needs tough decisions about its UK and Kenya operations, he added.

Mistry also hit hard on the group's hospitality arm IHCL, saying beyond flawed international strategy, it had acquired the Searock property at a highly inflated price and housed in an off-balance sheet structure.

"In the process of unraveling this legacy, IHCL has had to write down nearly its entire net worth over the past three years. This impairs its ability to pay dividends," he said.

8. Telecom biz was bleeding the most 

Highlighting the problems faced by the group's telecom business, Mistry said, "Of all the companies in the portfolio, the telecom business has been continuously hemorrhaging. If we were to exit this business, via fire sale or shut down, the cost would be $4-5 billion. This is in addition to any payout to Docomo of at least a billion plus dollars." He also lashed out at the original structure of the Docomo transaction, saying it "raises several questions about its appropriateness from a commercial or prudential perspective within the then prevailing Indian legal framework".