Tata Group under Cyrus Mistry: Shedding Weight?

Case Code: BSTR499 Case Length: 15 Pages Period: 2012-2016 Pub Date: 2016 Teaching Note: Available

Price: Rs.500 Organization: Tata Group Industry: Diversified Countries: Chile, Latin America Themes: Diversified

Abstract Case Intro 1 Case Intro 2 Excerpts

Abstract

The case discusses the growth of India's largest multinational conglomerate, the Tata Group under its new chairman, Cyrus Mistry (Mistry). When Mistry took over as the CEO of the Tata Group in 2012, in the wake of a global economic slowdown, he focused on addressing the huge debt mountain, raising cash, refinancing loans, selling assets and writing down their value. On the other hand, the group's former Chairman, Ratan Tata , who had served the Tata Group for over two decades had propelled the group onto the global map by acquiring international brands such as UK-based steelmaker, Corus Group plc (Corus), Ford Motor Company's, luxury vehicle brands, Jaguar Land Rover, UK-based beverage manufacturer, Tetley, and New York's luxury hotel, Pierre. While Ratan Tata grew the Tata Group into a US$ 100 billion revenue earning company by 2012, he also increased the company's debt 11-fold attributable to the several acquisitions made by the Tata Group.

As of November 2015, the group's debt stood at US$ 37.4 billion. To reduce the debt burden Mistry was focusing on selling off non-performing assets and writing down their value. For instance, in December 2013, Tata Chemicals announced that it was closing down its plant at Winnington in the UK. This was followed in June 2016 with Tata Steel selling its 4.5 million tonne European long steel business, including the Scunthorpe plant to UK-based investment firm, Greybull Capital LLP (Greybull). In addition to this, the Tata Steel sold its mills in Teesside and northern France. Tata Communications was also looking for a buyer to sell its South African network operator, Neotel Pty. Tata Group’s chain of hotels and resorts, Indian Hotels Company Ltd., branded as Taj Group, also planned to sell the Taj Boston Hotel.

While selling off some of the non-performing and loss making assets reduced the debt burden, analysts felt that Mistry still had a long way to realize its Vision 2025 goal under which he planned to list Tata Group into the top 25 global companies by market value. To realize this goal, in 2014, Mistry made investments of US$ 35 billion in finance, aerospace, defense, retail, and infrastructure. He was embarking on organic expansion of existing businesses and adding new ones.

In the wake of the debt burden, several analysts suggested that Tata Group should reduce their dependence on the group's cash cow, its software company, Tata Consultancy Services (TCS), which had an annual cash flow of Rs. 180 billion, which was compensating the Rs. 80 billion cash drain from the group's other 10 largest publicly traded firms. They believed that the group needed a new cash cow since depending only on TCS was risky in light of the group's huge debt mountain. The Tata Group also needed money for scaling up its aviation joint ventures AirAsia and Singapore Airlines. Analysts stated that it remained to be seen whether Mistry's decision of selling assets such as Tata Steel UK and Indian Hotels was a good move since it was expected to cut the group’s debt burden by 30 percent.

Issues

The case is structured to achieve the following teaching objectives

• Analyze the effectiveness of Mistry’s efforts to sell off loss-making assets such as Tata Steel UK
• Apply strategies that would help Mistry reduce the group’s dependence on TCS and focus on new clusters to reduce the group’s debt burden in future

Contents

Introduction
Background Note
Tata Group Under Ratan Tata
Cyrus Mistry Steps In
The Results
Looking Ahead
Exhibits

Keywords

Tata Steel, Tata Group, Ratan Tata, Cyrus Mistry, International Acquisitions, Debt Burden, Organic Growth, Inorganic Growth, Global Economic Slowdown, Cash Cow, Economic Environment, Corus Group, Tata Consultancy Services, Jaguar Land Rover

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