The 'MYSTERY' Trigger

I feel sorry for Cyrus Mistry. All he will be remembered for will be this unceremonious exit. He is probably India's John Sculley (Apple CEO who fired Jobs & then was fired by Jobs). Sculley was fired in 1993 & paved way for the return of Steve Jobs. Apple generated a return of 24% CAGR from 1993 to 2017 going from a market cap of $4 Billion to $730 Billion, creating more wealth in absolute terms than any enterprise ever ! While Sculley was inducted into Apple's Hall of Shame & credited(read blamed) for the delay in this wealth creation. The wealth creation has been considered a 'given'. Mistry will be honored in the same manner though I think both deserve more. Here's why:-

=> Not only were they achievers but were handpicked almost seduced to join these firms by the top honcho

=> They were ethical & strong headed, infact strong headed enough to take on the honcho

=> Their decisions were logical, backed by numbers & conviction. More often then not, an unbiased board sides with them rather than the promoters.

=> They have taught priceless lessons & forced the top honchos out of their comfort zone towards better practices.

=> Most importantly they begin a culture where the unquestionable becomes answerable. The practices/decisions which were wrong yet accepted now raise eyebrows. Even the most ordinary shareholder might just question Mr. Ratan Tata at the next AGM about capital allocation. This is no ordinary change & will keep the management on their toes for a reasonably long time. 

The Mistry impact is already visible on some legacy issues.

HOLDING STRUCTURE

My Professor at XLRI, Mr. Ram Kumar Kakani wrote a paper back in 2005 on the complex holding structure that the Tata Group has. I still remember his expression when we asked him how he managed to unravel this mystery. Data was not as freely available but let me add a picture from his paper, which is probably worth a million words. For more details google the author, it has some more insights on Indian business families & their holdings.

This structure has been around for a very long time(infact has become more complex) & listed firms have had oodles of capital blocked in unproductive/ unrelated investments while the Tata's have done charity at the expense of their shareholders. Maybe Jamshedpur should be called Shareholder-pur or something. The Mistry shakeup & the backlash thereafter has resulted in this being questioned.

http://www.thehindubusinessline.com/companies/tata-sons-may-embark-on-8000cr-group-revamp/article9569862.ece

DIVESTMENTS

After decades of aggressively acquiring assets in the thirst to grow big & spreading its footprints at any price, finally some prudence has returned & economically nonviable business & assets are being disposed.

=> Tata Chemicals has sold the Urea business. This company practically lost the last decade to the Bruner Monde acquisition & the regulated fertilizer business. The high growth areas like FMCG & speciality chemicals were neglected while peers raced ahead.

=> Tata Steel's leveraged acquisition of Corus had the potential of bankrupting the group. Thankfully it's pairing assets now at what seems distressed valuations but I feel the buyer will be the one distressed in the longer run.

=> Indian Hotels has sold the Taj Boston & its stake in Orient Express(now Belmond). An elaborate restructuring was planned based on an objective assessment of each property which has been put on hold for now but am sure will be discussed again & again if not executed.

STRATEGIC REVAMP    

=> Tata Chemicals is focusing on FMCG & specialty chemicals where ROE's are stronger.

=> Tata Motors is phasing out the Nano which took up so much management time, effort & PR budget over the last decade. Much better products with far lower PR efforts have been launched & are tasting success. It is renegotiating wages & has rolled out a VRS thus moving to a leaner & more efficient model.

=> Indian Hotels is re-branding its properties under the Taj brand and doing away with Vivanta & Gateway.

While Mistry is gone his exit has given a good entry point. I don't mean to rub 'Desh ka Namak' into his wounds but his efforts in Tata Chemicals might have changed the course for the company. Unfortunately not many will acknowledge this mystery trigger in the future. I wish he makes a coup, it's still just a $2 Billion company & would be poetic justice to see this Sculley get a bite out of this Apple.