Tata Group under Cyrus Mistry: Shedding Weight?
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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
Introduction
For the quarter ended March 2016, Tata Steel, the steel-making arm of India's multinational conglomerate, the Tata Group, recorded a net consolidated loss of Rs. 32.14 billion. The company recorded a consolidated revenue of Rs.295.08 billion during the quarter with 12 percent decline on a year-on-year basis compared to the same period during the previous year. 2 The decline in sales was attributable to the surge in cheap Chinese steel imports into Europe, where Tata Steel had its operations, despite an increase of 13 percent in steel sales volume in India for the same period. Analysts were quick to point out that Tata Steel was not the only Tata Group company to hit a rough patch. Other group companies such as Tata Global Beverages and Tata Power were also badly hit.
Founded in 1868 by Jamsetji Tata, the Tata Group had pioneered several industries in India: power, steel, airlines, and hospitality. The group operated in several sectors ranging from automobiles, steel, energy, hotels, chemicals, and consumer goods to communication systems, with a combined market capitalization of US$ 116.41 billion, as on March 31, 2015. For the fiscal year 2014-15, the revenues of the Tata Group stood at US$ 108.78 billion, of which around 68 percent were attributable to the group's several international acquisitions. Ratan Tata, then Chairman, Tata Group, who had served the group for over two decades, had propelled it 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 he 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 group.
When Cyrus Mistry (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. Industry analysts pointed out that while the approach of Ratan Tata and Mistry were different, it was driven by the prevailing economic environment. They stated that in 2006, the Tata Group had faced challenges in growing its domestic business and since finances were not a constraint, Tata Steel had got into a huge bidding war with Brazil CNS for Corus. Tata Steel eventually acquired the company in 2007.
However, the steel market started deteriorating in the second half of 2008-09, and the company went in for restructuring. The company's problems were attributable to the continuing economic slowdown in Europe that started in 2008 and the unfavorable currency rate movements, especially of the pound, which affected the competitiveness of its UK business. The dumping of cheap Chinese imports in Europe also affected Tata Steel UK’s operations, forcing Mistry to sell the business. Commenting on Mistry’s move, U.R. Bhat, managing director at Dalton Capital Advisors India Pvt., a unit of UK-based Dalton Strategic Partnership Llp, said, "Mistry's been looking to sell non- profitable assets in other companies too, so it seems like a broad theme across the group. He is doing what needs to be done without being emotional about historical decisions."...
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