Tata and SP Group - A Continuing Saga

 

Way back in 2020, I wrote this when the famous imbroglio between then Chairman Cyrus Mistry and Ratan Tata happened.

My Blog from 2020

Since then, Rata Tata has passed on and ever since Noel Tata took over as the Chairman, very single day we see news reports of some controversy or other. Directors have resigned, others forced out, still others not given extension, etc. Then we hear about this bizarre demand that the Tata Sons Chairman Chandrashekar must publicly state that he is against taking Tata Sons public. When the issue is legal, the Govt and regulatory authorities breathing down their neck, this demand is illogical.

Over the last 18 months the Tata group has been rocked by one controversy after another and all of them except one involved the Board and Noel Tata. On the face of it, they seem bizarre since the board and the group have always behaved with grace and rarely have public spats except when a major issue was involved.

Even then the issue was clear, the public spectacle understandable but here it’s been a series of wranglings like a bunch of school kids over several issues that could have been debated behind closed doors. Yet these are becoming public spectacles. Why? Is it deliberate or is it about control or is it about something else? Lets analyse.

The Tata family, specifically Noel Tata is married to the daughter of the Late Pallonji Mistry, the patriarch of the Shapoorji Pallonji family. She is also the sister of the Late Cyrus Mistry and Shapoor Mistry who now runs the SP Group.

The SP group DNA is basically real estate and civil construction, across India and the middle east. At one time they were one of the top contractors in the Middle east building palaces for Sheikhs etc and continue to be an influential player. Tata Sons which is the flagship company that controls the Tata Empire is in turn owned by the following major shareholders.

• Sir Dorabji Trust – 28%
• Sir Ratan Tata Trust – 24%
• Shapoorji Pallonji family – 18%

Noel Tata is Chairman of these trusts while N Chandrasekhar is the Chairman of Tata Sons which is the public face of the Tata Group.

The SP group in the past was visionary, doing things far ahead of its time, only to see the market taken by others as it changed. A lot of such work was done under the Forbes group earlier owned by the Tata Group and then taken over by the SP Group.

The Forbes group at one time was on the way to becoming a giant with significant interests in High precision contract manufacturing, Textiles, Shipping, Travel, Logistics, Retail, Engineering, Paints etc with market leaders like Eureka Forbes, Goodlass Nerolac, Gokak Mills etc. Some businesses were spun off as independent companies, still owned by the SP Group while others were sold. One can say that they were Pioneers, but others became Leaders on the foundation set by this group.

In the 80’s the Forbes group were the first, to start plastic lenses for eyewear when glass was the only option. They soon lost interest, walked away, the Indian eyewear industry driven by two world giants Essilor and Sala (who were rivals like Pepsi and Coke) became 100% plastic by way of a brilliant market strategy jointly conceived by these two giants. Titan from Tata encashed on this much later as a retailer.

Again, under the Forbes group, they were one of the first to start manufacturing typewriters in India – it is the most complex, precision mechanical manufacturing activity – and as youngsters we demanded that our letters be typed on a Facit machine, made by FAL (Facit Asia). When the initial mobile phones under Nokia came in, this company was probably the best positioned in India to take up the localisation given the electro-mechanical and plastic precision manufacturing it demanded. FAL could offer the best mechanical precision in India and with plastics, could have become a giant like Nokia, by working with them. The high stakes business with the risk of certain models of mobile phones failing, a longer gestation period did not jell with the SP group leadership, and they made feeble attempts and finally the company was closed.

A pioneer in the clean and renewable energy industry was Sterling and Wilson also owned by the SP group till they sold it to Reliance around 2022 in financial distress.

They pioneered the concept of direct marketing and selling in India with Eureka Forbes range of vacuum cleaners and water purifiers. Try as much as they did, global giants threw everything they had, including the kitchen sink, but sank in the market given the goodwill and reach Eureka Forbes had. The loyalty the company enjoyed from employees, customers was to be experienced to be believed. Eureka Forbes became the generic name for clean homes and clean water. Customers would demand a Eureka Forbes water purifier from a competitor like Unilever, infuriating the competitor. This was much like asking for a Xerox copy from a Canon photocopier. A charismatic leader Suresh Goklaney led this company which was the jewel in the crown for the SP Group. Eureka Forbes was one of the last companies to be sold.

Interview with Suresh Goklaney

A chance meeting over lunch in the early 2000’s with the SP Group CEO was unforgettable as he casually said he breeds horses and when asked if he makes money, flippantly said – I like spending money, I enjoy it, it’s a hobby.

Shapoor Mistry - Race Horse Breeder

Prophetic words indeed. Within 2 decades the group which was and is the largest single shareholder of the Tata Group, floundered financially. Every pioneering business which today could have made the group giants, were lost to others.

• The plastic eyewear lens is said to be around 700 Mil $ with the larger eyewear market valued at 3 Billion $ (which the Tata Group Titan has leveraged).
• The mobile phone manufacturing segment is worth about 75 Billion $.
• The renewable energy market is worth what, I have no idea but Sterling and Wilson under the Reliance group is around 500 Mil $ in value with an order book of over 1.3 Billion $.
• The water purifier market alone is said to be around 3 Billion $.
• The Shapoorji Pallonji group is reported to have accumulated debt of over 7 Billion $ and the reasons for this could be complex, and many due to reasons beyond the control of the company, but it is what it is. The value of their stake in the Tata Group is said to be around 20 to 30 Billion $.

This brings me to what the real reasons could be for the never-ending saga over the 18 months within the Tata Group with unseemly wranglings and no one issue at hand. The various issues being mentioned from the losses in Air India, Big Basket, Tata Digital to the high-risk businesses in semi-conductors and electronics are what any half intelligent board member would discuss in meetings, behind closed doors. They don’t indulge in a public spectacle like the group has done over the last 18 months. Noel Tata has been a member of the Tata family, a board member in the trusts that oversaw Tata Sons since long. Neither are the questions he raises profound nor warrant a public debate which only hurt the Tata Group image.

The latest reports talk of 3 issues that Noel Tata is apparently concerned about and which he has been articulating often – again in public instead of in a board room. The 1st is ridiculous since a group like Tata would have such roadmaps all the time. The 3rd, demanding a public stance by N. Chandrashekar on going public downright silly.

Given that the SP Group has taken debts against their shares in the Tata group means 2 things.

Tata Sons must either go public so that the SP group gets cash in hand to retire their debt and survive. With the SP group negotiating refinancing of their existing debt to the tune of around 3 Bil $ at 19% interest is both insulting and killing in today’s business environment. The option is to get bailed out by the Tata group unless someone else bail them out – which means loss of control. The SP group wants Tata Sons to go public. They have stated that and lobbied for it as per reports.

So essentially, it’s the 2nd issue that is what is pinching the Chairman and likely hurting him since long before he even became Chairman. All else being said and read is a red herring, a diversion, a stated reason. This 18% stake and potential financial bankruptcy of the SP Group is the only and real reason. This is now family, personal, vested interest and there is nothing wrong in this. But is this the best way to handle this?

This issue is connected with having control, absolute control and that control is unlikely with the older team in positions of authority either as board members or as professionals. This explains the exit of Directors, allegations of misgovernance, refusing to discuss an extension in tenure of Chandrashekar. Since 1868, Tata’s (and Tata Sons) have always had a Tata or close family as the Chairman of Tata and Chandrashekar was the first professional to head it. Logic states that if Chandrashekar were to be ousted, then Noel tata would sit in that hot chair.

Once that happens, he will no longer have any reasons to not solve the problem’s he claims to be raising as profound. The real problem will be his to solve by taking a most uncomfortable decision which would likely be a Hobsons choice for him. He can’t negotiate a solution with his own extended family as any decision will be like – you are against family or the Tata group.

1. Going public means that the SP group may sell to anyone and that can have disastrous consequences for the Tata Group and for all that they have stood for over 150 years depending upon who buys the stake.
2. Once public, Tata Sons comes under severe scrutiny and will no longer be able to take decisions that can be called in the national interest or even based on a burning passion like Air India. Their hands will be tied.
3. Today the Tata Trusts earn about 1600 Cr or 170 Mil $ annually as dividend income from the Tata group businesses and this is spent on various social causes which have been of significant benefit to the citizens of India. this can come under question once Tata Sons goes public.
4. In short, the Tata Trusts which have been a charitable organisation and have done yeoman service over the decades and Tata Sons who have taken risks, lost money and invested in the “national interest” would come under scrutiny and questioning by external investors who may not have the same attitude to life in general.
5. Whether the Tata group can convince the Indian Govt and regulatory authorities against their demand of going public or go to court and drag the case for long is moot but in any case, they will have the SP Group countering them even if behind the scenes. That only exacerbates the overall family situation.
6. The other option is for the Tata Group to buy the 18% stake in the SP group and that means close to 30 Bil $ cash which will sink the Tata Group.
7. Or the Tata group buys peace from the SP Group by bailing them out with 7 Billion dollars and then unitedly they can more easily “fight” the regulatory authorities about going public.

This is where it gets interesting when you link this with other arguments put forth by Noel Tata demanding answers of why the Tata Group has lost about 2 Bil $ in Air India, 1.8 Bil $ in Tata Digital, over 200 Mil $ in Big Basket – making it 4 Bil $. He may well be calling this as hypocrisy when compared to the 7 Bil $ bailout needed by the SP Group which the Tata group has refused even in the Supreme Court, dismissing it as nonsence.

Noel Tata cannot take these decisions himself but make it appear as if a collective wisdom did it. For Noel Tata to obtain these decisions is not easy unless he has a pliable set of Directors who will accept his counsel and has a pliant Chairman at the helm of Tata Sons who will do his bidding.

This is the bottom line and the crux of all the wranglings in the Tata group and how this will play out is anybody’s guess.

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