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N. Chandrasekaran plans to consolidate smaller Tata group firms

LiveMint logoLiveMint 01-06-2017 Shally Seth Mohile

Mumbai: Tata Sons chairman N. Chandrasekaran is planning to consolidate group companies in a bid to weed out duplication and increase efficiency, said two people familiar with the plan, who are Tata group officials. They spoke on the condition of anonymity since the plan is not public.

A Tata Sons spokesperson declined to comment.

On Thursday, the Times of India first reported that the salt-to-software conglomerate is reviewing its diverse portfolio to streamline operations and allocate capital more efficiently and unlocking value in businesses that are non-core and face growth headwinds.

With at least 100 companies in its fold, the $103 billion Tata group has diversified into multiple businesses that range from chemicals and fertilisers to auto components and therapeutics over the last 110 years.

Some of these are underperforming, some of them are not contributing to profits and in some cases, two or more businesses are doing similar things. These are the ones that Chandra is expected to take a hard look on, said the first person cited earlier.

“A lot of things are going to be looked at in the group from the point of view of profitability and performance,” he said. However, these are not the big companies of the group such as a Tata Motors Ltd or Tata Steel Ltd. These are mostly subsidiaries of flagship companies that make small contributions to revenue and profitability.

As part of the plan, Chandrasekaran may merge different entities serving the same function, said the second person. “There can’t be multiple companies in the same segment, like Tata Finance, Tata Housing Finance, Tata Capital Finance—all may merge and become one entity,” the second person said.

Divesting or exiting non-core businesses has been on the agenda of the group’s boardroom meetings for some time now. The board of Tata Sons discussed a divestment plan for non-core businesses in its 15 September meeting, its last one before the 24 October meet when previous chairman Cyrus Mistry was forced out. This was revealed in the minutes of the meeting that had been appended as an annexure in the petition filed by two investment companies of the Mistry family at the National Company Law Tribunal.

At the meeting, Ajay Piramal, an independent director on the Tata Sons board, even recommended the formation of a separate team to work on the divestment strategy. Amit Chandra and Nitin Nohria, two other directors and nominees of the Tata Trusts on the Tata Sons board, shared his view and suggested that a dialogue with private equity firms be initiated.

In that sense, Chandrasekaran, who took charge on 21 February, is picking up from where Mistry left.

“These have been identified earlier, but Chandra has been moving in a very aggressive way,” said the first person cited above. “There will be a rationalisation of portfolio of all the big companies including Tata Steel Ltd, Tata Power Co. Ltd, Tata Chemicals Ltd. The structure will not be the same as today they will either be merged or exited from completely.”

Chandrasekaran also seems to have taken up Amit Chandra’s suggestion to form a team. Last month, he hired Saurabh Agrawal, 48, head of corporate strategy at the Aditya Birla group as group chief financial officer (CFO) of Tata Sons. Agrawal was the second investment banker to join Chandrasekaran’s team after Ankur Verma from Bank of America Merrill Lynch.

The recruitment reflects on the group’s strategic intent to focus on divestment and restructuring.

“They (recruitment of Agarwal and Verma)are all part of the plan to create a team that can pursue the consolidation strategy aggressively . Going ahead, Chandrasekaran is likely to hand-pick some people internally to strengthen his team,” said the first person.

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