The replacement of Tata Group chairman Mr. Cyrus Mistry by residual motion seems surprising. The removal is surprising and unprecedented in the Tata Group history. As per the reports, the process of removal of Mr. Mistry was in works for a while as there was significant misalignment in terms of business strategy, senior management handling and work culture between shareholders like various Tata trusts and Mr Mistry . The Tata Group will search for a new chairman over the next four month which will add to uncertainty over who could be the best fit of the prized job.
We believe that a number of steps taken by Mr. Mistry were positive for shareholders of various Tata Group firms.
Cumulatively the above factors may have trigger the exit for the current chairman. We believe that over the short term the markets may see a knee jerk reaction to this development but the group will readjust due to availability of abundant leadership at group firms. Over the long term, the new Chairman’s ability to focus on creating shareholder value by targeting profitability as Mr Mistry did, will be the key area to watch under the next chairman.
Possible Impact Analysis of resignation of Mr. Cyrus Mistry as Chairman of Tata Sons:
We believe, under Mr. Mistry, Tata Group have taken significant steps towards deleveraging and better utilization of capital over the last few years and his absence going forward may impact the future strategy and thereby may delay the process of deleveraging and RoCE improvement at the group levels. Although, all the companies under Tata Sons are managed by capable CEOs, but none of them are beyond the vision of common board and change in stance at the board levels will percolate to overall group performance. We try to analyze the effect of this event on few Tata group companies under our coverage.
Tata Consultancy Services: We do not expect any meaningful downside in the stock price due to this event as Mr Chandrasekaran was fairly independent and had been running TCS for many years prior to Mr Mistry coming on board.
Tata Motors: The resignation of Mr. Mistry would not have any significant impact on Tata Motors future strategies as on a standalone basis the company is performing well based on the decisions taken under Mr. Ratan Tata and hence perceived involvement of Mr. Mistry was minimal. Mr. Guenter Butschek (ex CEO of Airbus and Daimler) newly appointed CEO of the company is taking the decisions at the strategic levels along with Mr. Ravi Pishrody(ED- CV business) and Mr. Mayank Parekh (President- PV business).
Tata Communication: During the tenure of Mr. Mistry, we have seen significant change in the company towards focus on higher margin data business and reduce in exposure to asset heavy businesses, like Neotel and data centre. Mr. Vinod Kumar Anand (CEO, appointed since February 2011) has lead the company from the front and change a voice dependant telecom company to a data dependent technology company. But, during the period of uncertainty market will attach most of the success with Mr. Mistry and hence we may see pressure on the stock price in the coming weeks. Again, the uncompleted Neotel sales (cancelled once in the past) will add to the uncertainty.
Indian Hotels: With the removal of Mr. Mistry, we perceive a negative impact on Indian hotels stock prices as the change in management and massive deleveraging activity happened in the company during his tenure. More importantly market may perceive this as an unfinished agenda. But, the presence of Mr. Rakesh Sarna (CEO), an industry veteran, is going to ease some pressure in the medium term as under his leadership the company is expected to continue walking on the path of cleaning up of balance sheet by selling of loss making properties.