Knight In Shining Armour.

In a recent interview with the Business Standard, Mr. N Chandrasekaran said that he expects the Tata Group to grow at 20% year-on-year amid the global turmoil, irrespective of the fact that the business earns 65% of its revenue from overseas markets. The conglomerate, which began life in 1868 as a private trading firm founded by Mr. Jamshedji Nusserwanji Tata and then moved into hotels, steel, automobiles, power, IT, financial services, retail, and a myriad other business over the past century and more, now readies itself for a new world shaken frequently by large doses of disruption.

Brian Tracy once said, "Sometimes you have to let things go, so there's room for better things to come into your life". The appointment of Mr. N. Chandrasekaran was a better thing for the Tata group. Today, the group is as strong as Hercules, but there was a time when the Tata group was facing survival issues. It was after the acquisition of JLR and the appointment of Mr. Cyrus Mistry. I have extensively covered the Mistry issues in another blog.

Here the following link - https://economicsunbiased.blogspot.com/2022/09/mistrys-mystery.html

The Tatas had acquired the European steel giant Corus, which was a great acquisition, but the timing wasn't. The European steel industry was facing subdued demand, and the cost of raw materials had skyrocketed. Tatas being Tatas, they were hellbent on not removing even a single peon post-acquisition so as to maintain profitability. They had to pour in billions of euros to get the company running. The following year, the group acquired another heavyweight brand, JLR, but again, the timing wasn't right because it was the post-2008 era. Buying a car was the last thing on people's minds. Other subsidiaries felt the pain as their cash flows were used to keep these giants running. This cash diversion affected their businesses as well because, to undertake capital expenditure, the companies had to take on debt. A big chunk of their current debt was taken between 2008 and 2012.

After 2013, the companies stabilised because European demand started to pick up. JLR was still losing money, but Corus had started contributing towards positive cash flow. Then Cyrus Mistry happened. By the end of 2016, the group was again facing negative cash flows. During 2008, the FED had lowered the interest rates so as to uplift the US economy. 2015 was a year of inflation, and hence, as a countermeasure, the FED started raising interest rates, which led to a rise in interest costs. Most of the debt that JLR or Corus had was Euro-denominated, meaning the interest payments were in Euro. Since rates were rising, the Indian rupee was getting hammered. To add gasoline to the fire, Tata's Indian operations were facing negative cash flows.

Every company goes through a cycle. When it starts a business, it's in its embryonic state. Later, as consumers start noticing the products, the company enters the growth stage. The next step is the shakeout phase, where the company faces slow growth, intense competition, and declining profitability. Later, the company matures. In this phase, the company faces consolidation, followed by high entry barriers and stable pricing with some skin in the game. In the end, the company either dies, which means they lose their competitiveness, or their products become obsolete, or another company acquires them. Most of the time, companies try to avoid the last stage by taking vague decisions like entering a new market or acquiring a new company in the same industry. Companies are vulnerable at this stage, and their probability of coming out of that zone is very low.

To come out of that last stage with a new personality is what defines the future of the company. During these times, management becomes the most important factor, and that's why Mr. N. Chandrasekaran is who he is today. He literally pulled the group out of misery and gave Tatas a new face. One of the many brilliant strategies that Mr. Chandra implemented was backward integration and using their own products. What he did was he started directing the cash flows inside the group itself. For example, the steel used for building TCS headquarters came from Tata Steel. The A/Cs used in these buildings were made by Voltas (another Tata company). To make a Tata car, Tata Steel was again requested to provide steel. Tata Chemicals was asked to manufacture batteries. Tata Elexi was asked to design their exteriors. You get the idea.

The consequence, as stated earlier, was that their cash flows started flowing between their subsidiaries. Hence, the money never left the group. It was because of this backward integration strategy that Tata Motors has become the leading EV producer in India. 

Natarajan Chandrasekaran, 59, a soft-spoken man who takes tough decisions easily. There is an easy informality to the persona of the seventh Chairman of Tata Sons, borne perhaps of his software background—he insists on being called Chandra but there is nothing informal or easy about the task he has before him, or about what he has overcome thus far. His story at the top of the Tata group began as a surprise appointment in February 2017 following one of corporate India’s biggest scraps—a boardroom battle that saw erstwhile chairman Cyrus Mistry (since deceased) being ousted followed by an acrimonious court battle and slanging matches. The markets were jittery, and the group’s direction seemed unsure. But Chandrasekaran, once appointed and settled, changed it all. 

“He brought in the much-needed calm, and markets immediately recognised that under his leadership, the group was in safe hands,” says HDFC Chairman Deepak Parekh. “If one knows Chandra well, he is open and frank about where he sets his boundaries in his capacity as Chairman of the group.” 

With its top line (sales) growing consistently after the pandemic, Tata Son's profits are also on     an upward trajectory. In 2016, the group had a revenue of Rs 1.50 lakh Cr. During FY 22, the Group recorded sales worth Rs 3 lakh Cr. Similarly, the net worth has grown from Rs 1 lakh Cr during 2016 to Rs 1.75 Lakh Cr during 2022. From running one company to taking a huge leap to run the entire organization, what Chandra is doing is not for the faint-hearted. Mr. Chandra spent the first few years building the framework for the long-term and fixing the business issues. HE shifted his gears to pursue robust and sustainable growth, accompanied by strong shareholder value creation. And the value he has created aplenty. 

Between FY 17 and FY 22, the group's return on capital employed (debt+equity) and return on Net worth has went up from 13.3% to 22%, and from 11.5% to 21% respectively. Also, the consolidated revenue of the group went up from Rs 6.56 lakh Cr in FY 17 to Rs 9.56 lakh Cr during FY 22. During the same time, the group's listed companies have cumulatively grown their market capitalization (shares value) by an astonishing 149%. That's like an elephant running at the pace of a leopard. 

Despite being a software man, Chandrasekaran says he is extremely bullish about the group’s conventional businesses such as Tata Steel, Tata Power and Tata Motors’ commercial vehicles business. “I also like the way Indian Hotels is reinventing itself by keeping the exclusivity at the high end or what they are doing with Ginger,” he says.

Challenges are an inherent part of any business’s story. “Perhaps the two things that Tata group will need to think harder about are how talent today views jobs, which has changed a lot in the last decade. And to keep accessing quality talent, it might have to do some things differently. Secondly, the pace of disruption has picked up over the past decade and while it might slow down a bit with a funding winter, that might be temporary. It means the group will have to stay agile and be ahead of the curve in changing strategy. 

Meanwhile, Chandrasekaran is clear that as a culture, the group must be more agile and, as he puts it, be prepared to “fall forward”. Meaning? “It is okay to fail, and the only time you won’t fail is when you don’t do anything. Fall, but have the energy to get up and run again.” That’s the kind of touch and calming influence that will be critical to the Tata group as the world of business goes through one of the most disruptive phases ever seen.

For the man, a personal milestone of turning 60 in June would only spur him to greater heights. “I need to be at my fittest at 60,” he says. He would be echoing the collective voice of the entire Tata group.