Tata group chairman Cyrus Mistry says wouldn't hesitate to prune portfolios of cos
'We have to start taking bolder steps because true value in today's environment will not only be created from incremental innovation, but the bolder and bigger strides that we take,' he said
New Delhi: Tata Group Chairman Cyrus Mistry on Tuesday said "challenging situations" confronted by some of its businesses require hard and bolder decisions on pruning portfolio even as he stressed that the conglomerate is open to acquisitions within and outside India, besides organic growth.
Mistry, who took up the baton at salt-to-software conglomerate in December 2012 from his predecessor Ratan Tata, said he wanted the group firms to have speed and agility to adapt to turbulent environments even as he maintained that the existing debt level is not a matter of concern.
He further said 'green shoots' of a turnaround are visible at Tata Motors and Tata Steel has potential to grow significantly while several Tata firms are gaining traction in two new markets of Iran and Myanmar.
"It was clear to me relatively early that one needed to confront the challenging situations facing some of our businesses, and ultimately this would entail hard decisions on pruning the portfolio," he said in an interview to his group's in-house magazine.
He added that he had learned through experience that if one wanted to do the right thing by all the stakeholders, there are no shortcuts.
"There will always be external influencers and so-called experts, who may be motivated by immediate transactional gains, goading us on to churn our portfolio. It is important that we develop our own prognosis based on knowledge and context, keeping all stakeholders in mind. We should not be afraid of taking tough decisions for the right reasons, with compassion," he said.
To put his comments in perspective, a significant portion of the group's revenue is from software Tata Consultancy Services and Jaguar Land Rover. Under his predecessor Ratan Tata, the conglomerate had expanded through high value acquisitions, but spiking its debt significantly, which as of March 2016 stands at $24.5 billion.
However, he said in the interview that even if TCS, JLR and Tata Steel Europe are discounted the group will be the second-largest business group in India.
"We are of course very proud of the achievements of TCS and JLR, and their contribution to the total portfolio of our business group, which is the leader in India from the revenue, profit and market cap perspectives. But it is worth noting that even if we were to take out the top three global Tata companies — TCS, JLR and Tata Steel Europe — the remaining portfolio would still rank us as the second-largest business group in India, with respectable operating profits and market leadership in distinct sectors," he has said.
He said some of the innovations are incremental and the 'dare to try' concept does make the Tatas bold.
"We have to start taking bolder steps because true value in today's environment will not only be created from incremental innovation, but the bolder and bigger strides that we take," he said.
Mistry said each of the group companies is charting its own strategy and growth story, with the focus on sustainable and profitable growth.
On some group companies having taken on significant debt, he said: "This has to be seen in the context of business growth, increasing cash from operations and capital projects under way which will lead to future growth. As the group has been growing significantly in the past, the total capital employed has also grown. Proportionately, there has been an increase in debt."
Over the last three years, Mistry said, the gross debt across the group has gone up by about 2 per cent per annum in US dollar terms while cash and equivalents have grown at over 10 per cent, leading to a decline of 3.3 per cent in net debt.
As of March 2016, the group's net debt stood at about USD 24.5 billion. Capex on an average was USD 9 billion in each of the last three years. In 2015-16, cash from operations at USD 9 billion a year exceeded the capex.
"At the group level, therefore, the aggregate debt is not something I feel concerned about... Of course, for a more meaningful discussion, these numbers would require to be viewed at each company's level," Mistry reasoned.
The group invested Rs 4,15,000 crore (USD 79 billion) by way of capex over the last decade. Of this, Rs 1,70,000 crore (USD 28 billion) was invested in the last three years alone.
"We recognise that growth has to be a function of the operating cash flows we generate. At the group level, over the last three years, our operating cash flows have grown by over 30 per cent CAGR," the chairman stressed.
"At the group level, we are focused on helping our companies earn this right by building strong operational cash flows and looking at their capital structures."
He has a word of caution though: Capex should not be looked in isolation from investment in talent, brands and technology, marking them as true differentiators in future.
"We are building the Tata group of the next 150 years," he said.
Tata group's international revenues are close to 70 per cent of its composite turnover. Also, a majority of the group's capital expenditure in the last three years has been in international geographies.
With the opening up of two new markets of Iran and Myanmar, several of Tata Group firms are "gaining traction there".
"We continue to remain open to growth opportunities in India and overseas through the organic route and through acquisitions," he said.
On speculation that Tata group would now focus more on its Indian operations rather than international businesses after Brexit-like events, he said, "I cannot emphasise enough that this is far from truth."