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The New Raj At Tata (Int'l Edition)


International -- Asian Business: INDIA

THE NEW RAJ AT TATA (int'l edition)

Its chairman lights a fire under the lumbering group

Shareholders of Indian Hotels Co. have always known that the company's corporate parent was the Tata group, the Bombay-based conglomerate that has the best-known name in Indian business. However, Tata's influence on the hotel operator had always seemed remote--until the annual meeting of Indian Hotels in October. Instead of chatting cozily over tea with longtime chief Ajit Kerkar, investors found themselves in the stern presence of Ratan N. Tata himself, chairman of Tata Sons. Just weeks before, Tata also became chairman of the hotel company--and then forced Kerkar into retirement. At the meeting, Tata told shareholders how much he now had to do to get the hotel chain in shape.

Many of the shareholders were amazed: They didn't really think that the hotels needed fixing. However, Ratan Tata doesn't just want to upgrade the hotels. The new chairman has a far bigger ambition: to rein in the executives who run the Tata companies like independent fiefdoms, impose some strategic direction on his sprawling empire of 84 companies, increase the shareholdings of the Tata clan in these companies--and enormously enhance his own position.

Seen in that light, Ratan Tata's moves at Indian Hotels are just skirmishes in a much bigger battle to impose the largest restructuring ever on the 140-year-old group, which has some $10 billion in annual sales. And deposing the popular Kerkar is a signal to the other chiefs that at Tata, it's no longer business as usual.

SLEEPY STOCK. Whether Ratan, now 59 and in his sixth year as chairman, can pull all this off is unclear. But in a rare interview, Ratan Tata argues that with increasing competition and globalization, his companies must change now or risk becoming also-rans. "I'd like it to be a coherent group that's within the first three in any of the businesses we are in in India," he says. He also thinks that the foreign institutional investors now looking at the shares of Indian companies want a lot more clarity from Indian management before making a big commitment.

Shares of a number of Tata companies, in fact, have lagged the overall Indian stock market, even though the best-known have turned in respectable profits (table). While Tata stocks are considered risk-free investments, many mutual-fund managers and foreign investors don't see much potential for big gains. Fund managers say that many of Tata's businesses are too mature and in highly cyclical sectors. Investors also want the group to play more to its strengths. "Just a handful of the 84 companies account for the bulk of [sales], and Tata needs to focus on those," says Bharat Shah, chief investment officer of Birla Capital Asset Management. Shah thinks that the conglomerate should be pushing its excellent software businesses, for example, before Indian rivals catch up with them.

Certainly, focus is what the Tata companies lack. The group's businesses include steel, trucks, energy, air conditioners, fertilizers, paint, cosmetics, yarn, tea, hotels, software, and consumer finance. Many of the smaller companies, such as Tata Special Steels and air-conditioner maker Voltas, are lackluster performers. Although Ratan Tata technically controls all of these concerns through the holding company of Tata Sons Ltd., his family's stock holdings in Tata Sons is actually only 3% or so.

Because of that slender stock position, Ratan has had to rely mostly on family prestige as the source of his authority. However, that approach could get more difficult soon, since India's securities laws will soon make takeovers easier, and the Tata companies could become targets. Ratan Tata himself could become vulnerable to ouster by the group's largest, but so far passive, shareholder, construction magnate Pallonji S. Mistry, who has bought up 17% of Tata Sons. If Ratan Tata is unable to make a success of his restructuring, business circles whisper that Mistry could install himself as head of the Tata group. Neither Mistry nor Tata would comment on this idea.

With such an urgent agenda, Ratan Tata is working at top speed to consolidate his position and his empire. In a controversial plan, an $85 million rights offering in 1995 raised funds to help Tata Sons acquire more shares in group companies where its stake was low. Ratan Tata is forcing a number of top executives at the companies to retire at 65, then putting in his choices as managing director--while naming himself chairman. Corporate sources also say consultants McKinsey & Co. have advised a major reorganization of the group into more focused industrial, consumer, and technology divisions, with the smaller Tata companies perhaps going by the board.

BIG GAMBLE. Although Ratan Tata confirms that he has retained McKinsey, he won't comment on the report. Yet he is clearly building up the key parts of his empire. At Tata Iron & Steel, he is spending almost $3 billion to overhaul steel operations and cut labor costs. Titan Industries Ltd., a watchmaker in the group, has invested more than $30 million to make a splashy foray into Europe. At its 154-hectare plant in Pune outside Bombay, truckmaker Tata Engineering & Locomotive is producing India's first indigenous small car, the Indica, to compete with the Maruti, a car made locally by Suzuki in a joint venture with the government. Many auto analysts are skeptical of the Indica's success, since Tata will have to face off against Suzuki as well as Ford, General Motors, Hyundai, and Daewoo. Ratan Tata has staked his reputation on it, however, and gives the $470 million project much of his time.

Opinion varies on Ratan Tata's bold moves. Corporate historian Gita Piramal, who has researched the Tata family and companies, says that Tata is showing a clarity of thought that has not been evident in the group for some time. Others feel that Tata is getting rid of his best managers unnecessarily--and not grooming the next generation of executives to take over. Some Tata shareholders are also annoyed with Tata's plan to charge companies a fee for using the Tata brand name. Others point out that the intensely private Ratan lacks the charisma of JRD Tata, his predecessor and uncle. That's a potentially serious flaw, since Ratan will have to persuade shareholders and managers to sign on to his new vision of the company.

But for now, Ratan Tata still has the authority to remake the companies that bear his name. As India business changes, it may be his last chance.By Manjeet Kripalani in BombayReturn to top


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