Management

Andy Mukherjee is a Bloomberg Gadfly columnist covering industrial companies and financial services. He previously was a columnist for Reuters Breakingviews. He has also worked for the Straits Times, ET NOW and Bloomberg News.

Ratan Tata should cross his fingers and hope he gets lucky the second time around.

Now that he has chosen another successor, after dumping the previous one, the 79-year-old can go back to his day job for the last three months: fighting the jilted Cyrus Mistry to retain control of the sprawling Indian conglomerate.

Natarajan Chandrasekaran, the heir apparent, may be Tata Group's first chairman from outside the tightly knit Parsi business community, but he's no stranger to the $103 billion empire. He runs the software unit that earns most of its cash. As chairman of Tata Sons, the group's holding company, Chandra -- as he's known -- will now be on the other side of the equation, allocating capital to businesses as far-ranging as auto, aviation, hotels, tea and telecom.

Now Turn This Around
India's Tata Group has lagged behind rival conglomerates
Source: Bloomberg
Note: Market capitalization-weighted average price of 22 Tata Group stocks and eight Kumar Mangalam Birla Group shares.

But that comes a little later. Chandra's first task will be to assuage shareholders and employees made jumpy by Ratan Tata's October move to oust Mistry. The sacked chairman, who had just spent four years in the top job, also happened to be the second-biggest owner of the enterprise: Mistry's family controls more than 18 percent of the unlisted holding company.

Naturally, he didn't go quietly. Ratan Tata succeeded in fending off Mistry's proxy challenge at the publicly traded companies. But the war is far from over. Tata vs. Mistry has now shifted to the courts, where Mistry is trying to prove that members of Tata Trusts, the two-thirds owners of the holding company, were running roughshod over shareholders of listed entities.

While Ratan Tata seeks to reassert the charitable institutions'  legal and moral right to direct the group's affairs, Chandra has to open the door for a compromise.

One way may be to take Tata Sons public, which would give Mistry an exit option. That's less awkward than trying to find a sovereign fund to buy out a spurned executive who's raised the threat of $18 billion in potential asset writedowns. Besides, having access to outside equity at the holding company level would improve the group's financial flexibility, and allow it to invest confidently in newer businesses.

The Crunch to Come
Tata Group's refinancing requirements will bunch up four years from now*
Source: Bloomberg
*Data for loans and bonds, based on currencies of original contract.

Before that, Chandra has to cut the group's $40 billion debt load. Saying adieu to a floundering mobile-service business would make sense. Selling or shuttering the domestic passenger car business -- or taking Jaguar Land Rover out of Tata Motors Ltd. and listing it in London or Hong Kong -- could be another way to unlock value.

Finally, Chandra must do something about Tata Consultancy Services Ltd., of which he is CEO.

The software company is used by Tata Group as an ATM, but perhaps not for long. The business faces an existential threat in India. Clunky in-house applications at global corporations are giving way to leaner digital technologies. Clients won't pay for 100 techies if, thanks to robotics, only 80 are needed. Incoming U.S. President Donald Trump might choke off work visas for Indian engineers in their most crucial market.

Big, bold acquisitions may have been outside his reach as long as Chandra ran TCS. As group chairman, he'll need to demonstrate dealmaking skills.

In the end, it's probably better that Ratan Tata stuck to a known quantity. A high-profile outsider (names like PepsiCo Inc. CEO Indra Nooyi and former Vodafone Group chief Arun Sarin did the rounds) might have boosted the group's global profile. But the loosely held empire works best when it's assured of long-term stability in its Bombay House headquarters.

Chandra, 53, is eight or nine years younger than Nooyi, Sarin and Ralf Speth, the chief of Jaguar Land Rover. In more ways than one, he's the safe choice.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Andy Mukherjee in Singapore at amukherjee@bloomberg.net

To contact the editor responsible for this story:
Paul Sillitoe at psillitoe@bloomberg.net