Chandrasekaran To ‘Prune The Portfolio’ Of Tata Group Companies
Chandrasekaran says you can’t perform if you are not fit.
Tata Sons Chairman N Chandrasekaran, in an interview to Fortune magazine, has signalled that the salt-to-software conglomerate will be open to selling underperforming companies.
“We won’t exit a business just to get a headline. But we will exit if we aren’t getting returns today and we don’t think we’ll get them tomorrow,” Chandrasekaran told Fortune in his first interview after taking over as the head of the $100-billion group.
We’ll definitely prune the portfolio.N Chandrasekaran To Fortune
Chandrasekaran took over the reins in February after a messy boardroom and legal battle triggered by the ouster of former chairman Cyrus Mistry. He had warned of writeoffs of Rs 1.18 lakh crore from “legacy hotspots”, referring to debt-laden and non-performing companies within the group. The Tata Group has over 100 companies that span diverse businesses. However, a huge chunk of its revenue comes from two of them – Tata Consultancy Services Ltd. and Tata Motors Ltd.
Chandrasekaran was tasked with improving the group companies’ operating performance, capital allocation and boosting shareholder returns. “Tata is already a $100 billion group. To get to the next level we need scale. We can’t do it with multiple small companies,” he told Fortune.
The Tatas’ marathon man has started shaping his core team which includes some of India's top investment bankers and one of the most successful corporate lawyers.
One of them, Saurabh Agarwal, who also spoke to Fortune, has been made the group's chief financial officer. It is the first time such a role has been occupied at the Bombay House since 2012. Agarwal spearheaded the proposed Vodafone-Idea cellular merger and had also helped to broker TCS’ initial public offer in 2004.
Agarwal told Fortune that he would like to shave the number of companies in Tata’s portfolio “down into single digits”.
I’ll be surprised if we are not able to take at least a third of the companies out of the system.Saurabh Agarwal To Fortune
The group would achieve it over the next five to 10 years.
Agarwal, like Chandrasekaran, also wants to do away with small ventures and wants to remain in businesses “which can be large” and “can deliver shareholder returns”.
There is a huge amount of rationalisation which is going to take place in over the next 24 to 36 months.Saurabh Agarwal To Fortune
Chadrasekaran said that to improve operating performance they would have to look at growth rates, profitability and return on capital. “You can’t perform if you’re not fit. If you want to run a six-minute mile, you have to bring your weight down,” he said.
On Shutting Down Nano Project
One of the legacy hotspots that Mistry had talked about was Tata Motors’ low-cost car Nano. He had alleged that despite being an unprofitable venture, the Nano project wasn’t shut down due Ratan Tata’s “emotional reasons”.
Chandrasekaran admitted to the problem with Nano, but said that his team may not agree to a shutdown. “Passenger car sales are small, and within that the Nano is even smaller,” he said adding, “I don’t think shutting down the Nano plant is a decision the team will make.”
On Freedom As Chairman
Mistry had also alleged that Ratan Tata had often interfered in business decisions, like he claims in the case of Nano. Ratan Tata is the chairman of Tata Trusts, the 66 percent owner of Tata Sons, while his close aide R Venkataraman is the managing trustee.
Chandrasekaran said that he is not briefing them on every single decision he takes.
I am not briefing [them] on what we’re doing with every single company. But they are the primary shareholder for the group. I don’t think there is a conflict in keeping them informed.N Chandrasekaran To Fortune
He said every decision has to be thought through and discussed with the board and that he was “pretty happy” with the freedom he has.
You know the corporate world. If you are asking if I feel like I have as much power as any other CEO, the answer is yes. But it’s a process. It’s not like I can get up in the morning and say, ‘Hey, I want to exit financial services.’ There’s a discussion. I have a long conversation with the board. Every decision has to be thought through, explained to the management … I’m pretty happy with the amount of freedom I have.N Chandrasekaran to Fortune