Winds of change: Tatas may prune units in a year; no plan to cut staff

$104-bn group is again in consolidation phase under Chandrasekaran, who took over as chairman in Feb

Cyrus Mistry spelt out his intention to consolidate the group soon after taking over as Tata Sons chairman in December 2012. Reports show that as early as February 2013, at a board meeting, he had said consolidation was the only way forward. Then in a June 2016 board meeting — four months before being ousted — Mistry proposed consolidating the businesses under eight verticals. The plan never took off. 

The $104-billion group is again in consolidation phase under N Chandrasekaran, who took over as the chairman in February. But this time, sources said, plans have moved beyond PowerPoint presentations and that merchant bankers are already crunching numbers. 

As some of the group firms are being valued for sale or exit opportunities, merger routes are being worked out for several others. Chandra, as he’s popularly called, is spearheading the project and his finance team — Chief Financial Officer Saurabh Agarwal along with bankers Nipun Aggarwal and Ankur Verma — is the key driving force. 

The objective is to “substantially reduce” the number of listed and unlisted entities, so that it’s a cohesive business operation, people in the know said. The idea is not to reduce the workforce, they said. Chandra told executives last month that their plan was not to inflict any pain through consolidation. However, in a recent interview to Fortune, Chandra had said that some of the Tata firms may have to be shut during the consolidation.

Responding to a Business Standard questionnaire on various aspects of consolidation, a Tata Sons spokesperson said, “We do not comment on such matters.” Sources aware of the plans said the consolidation would unfold over the next one year or so. The effort would be to bring down the number of group companies’ subsidiaries, running into dozens in many cases. “In the process, there will have to be shutdown. None of it is going to be easy,” another source said. 

Besides defence, infrastructure and finance, retail or consumer business is another area of consolidation. Broadcasting business Tata Sky, where the numbers have remained weak, is one of the ventures where the group could look at an exit. Telecom is another. Under retail, companies may be reconfigured. The retail portfolio includes Trent, Landmark, Tata International, CLiQ and Croma, among others.  

Another person aware of the plans said this should not be seen as a typical consolidation and that the group would not shrink. Rather, this is an exercise to make the business much more powerful by putting the group’s muscle behind it all, he said. The source cited the example of Tatas reviewing its banking foray and giving up the licence. “A company is created at a particular time for a particular reason. When the purpose of a company is lost, there has to be a review.” 

In some other cases, like in defence, the sector is being scaled up and no two companies should compete with each other in the same space, the person said. “Operate as if it’s one fleet.” 

The recent case of shifting the Tata Consultancy Services (TCS) unit out from Lucknow, impacting 1,000-odd employees, is being seen as a test. The employees were given the option of moving to other facilities such as Noida and Indore, but the staff still sought political intervention. TCS had said: “We are consolidating our UP operations. There have neither been any job losses nor have we asked anyone to quit.”  Through consolidation, the group, with an employee count of over 650,000, is looking at managing the time and energy of its people better. “Why go for hundreds of registrar of company filings, preparation of so many annual reports,” an industry watcher said. 

Tata Sons has been one of the biggest investors in the private sector in the last decade. It has made fresh equity investments worth nearly Rs 45,000 crore in its various listed and unlisted firms. At the end of March 2016, it had direct equity investments in 15 listed and 32 unlisted group companies, with cumulative investments of Rs 54,139 crore. However, only a handful make money. 

Among the listed firms, TCS accounts for 90 per cent of Tata Sons’ dividend income, while firms such as Tata Steel, Indian Hotels, Tata Motors’ domestic business, Tata Power and Tata Chemicals remain cash guzzlers. Only half of the 20 key listed firms reported double-digit return on net worth in FY17. Three listed firms were loss-making on consolidated basis and two had large accumulated losses resulting in negative reserves. In its unlisted portfolio, most of the key companies such as Tata Tele Services, Infiniti Retail are loss making, despite being in operations for over a decade.