Dalal Street reacts with shock and disbelief to Cyrus Mistry replacement

Market analysts and business watchers reacted with shock and disbelief to the news of replacement of Cyrus Mistry as the Tata Sons Chairman in less than four years after he took over the reins of the 150-year old group on December 28, 2012.

However, some analysts and observers of the group said the Tata Group did not quite see any major turnaround under Mistry, as widely expected, and except for TCS and to some extent Tata Motors, almost all other business of the conglomerate – be it Tata Steel and any other – actually went downhill.

The Tatas on Monday announced that Mistry was stepping down as Chairman and Ratan Tata had returned to take over the role in the interim. A three-member panel comprising Venu Srinivasan, Amit Chandra and Ronen Sen has been entrusted with the task of finding a new Chairman within four months.

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Mistry is the scion of the Shapoorji Pallonji Group, which the biggest shareholder of the Tata Group. He had joined the Tata Group board in 2006 and became Chairman in December, 2012.

“It is surprising and worrisome,” said Swaminathan Aiyar, Consulting Editor, The Economic Times. While Aiyar accepted that Mistry had a challenging task to usher in changes in an empire known for stability, continuity and high values, with no major experience in managing such a big business, he looked at sea in the new role.

There was also speculation that within the group some of the changes that Mistry wanted to bring in did not go down well with some of the senior managers within the group.
Some media reports said the principal shareholder of the Tata Group, Tata Sons, recommended the change in the chairmanship “in the long-term” interest of the group. It also suggested that the move was sudden and unplanned.

“Trying to change the culture in a group like the Tata is a challenge,” said T Mohandas Pai, former Infosys leader.

Analysts agreed that apart from TCS, most big Tata group firms – be it Tata Steel and Tata Power – have been more of wealth destroyers for investors over the past few years, with some of the recent acquisitions like Tata Corus going wrong. However, JLR has proved an asset for Tata Motors.

At the same time, stocks of some of the smaller entities such as Tata Elxsi (up 515 per cent), Tata Communications (up 197 per cent), Indian Hotels (up 109 per cent), TCS (up 104 per cent), Tata Motors (up 85 per cent) and Tata Chemicals (up 84 per cent) have actually performed very well over the past four years.

“Mistry had been brought in to hold the group together and lead a turnaround, but we did not see much of anything and he seemed to have kept doing much of the same,” Pai said.

Since he took over, Mistry had tried to systematically build his team, but an entity like the Tatas required 15-20 years to change the culture, which he failed to bring about, some Tata observers said.

“Cyrus had a different approach to handling things. He was consolidating the Tata businesses by selling non-crore businesses and was concentrating on the high-margin businesses. Tatas are good as humans, but in business cycle, they are bit lavish,” said AK Prabhakar, who heads IDBI Capital.

Mistry was the sixth chairman in the history of India’s most prestigious business conglomerate.

Some observers said it was also possible that Mistry himself lost interest. “One has to look into what Tata Sons were seeing, or whether Mistry himself lost interest. Maybe Tata Sons was trying to change things too fast for the culture of the organisation,” Prakash Diwan of Altamount Capital Management.