Cyrus Mistry Accuses Ratan Tata of Using the Nano for Personal Gains: Tata Insiders Respond

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Ex-Tata Sons Chairman Cyrus Mistry swore to not go down without a fight when he was unceremoniously removed from the position owing to his alleged conflict with Mr Ratan Tata. The two sides have exchanged words since Mr Mistry’s ouster, hurling allegations at each other and making it a rather ugly spat for India’s largest conglomerate.

While all this is not news, we are compelled to write this story, as we received an official statement from the office of Mr Cyrus Mistry a while ago. In the statement, Mr Mistry is clarifying his position on certain remarks made by the current directors of Tata Motors in the company’s Annual Report. According to Mr Mistry, the report is suggesting that some of his observations or facts in ongoing proceedings are incorrect and careless.

Mr Mistry’s statement alleges that certain wrongdoings within Tata Motors in the past, some of which continue to date have brought the well-being of the organisation down, and continue to nail it. While Mr Mistry has raised a lot of issues in the rather long statement, a quick bullet point summary of the points he has mentioned are provided below

  • Lending without proper risk assessment to commercial vehicle buyers has tremendously increased non-performing assets in Tata Motors and Tata Finance, to nearly 4000 crore
  • Lack of investment in R&D and product planning for the medium and heavy commercial vehicle segment, which is the biggest revenue source for the company has caused a YoY drop of 35% in volumes
  • He talks about how he tried to keep the Nano project alive by introducing new variants, adding a new feature and making it more customer friendly by listening to user feedback. The sales, however, never picked up despite all the efforts, and that’s why he considered killing the model
  • He has accused Mr Ratan Tata of having a conflict of interest with Tata Motors in the supply of Nano body shells to Jayem motors where Mr. Ratan Tata has made investments in his personal capacity. This, according to him is the reason why the Nano production is continuing despite the product being a failure
  • He raised the question of the silence of board members on certain issues pertaining to full disclosure about the cost details of the Nano
  • Mr Mistry also talks about a large amount of capital raised from the shareholders, and the inability of the company to pay dividends to them
  • He also talks about the recent layoffs within the company, where loyal employees have been fired on a regular basis

Sources within Tata Motors were quick to respond to these allegations, stating;

  • All fall in Commercial Vehicle & Private Vehicle market shares happened in 5 years when Cyrus Mistry was at the helm
  • The Chairman’s letter clearly states operational weaknesses when Mr Mistry was running the show
  • The Nano constitutes a very small part of Tata Motors: Out of 280,000 cr revenues, only about 9000 cr is from Personal Vehicles and within that, the Nano contributed a very small amount
  • It was Mr Ratan Tata himself who had brought it to the attention of the Tata Sons board about his personal investment with Jayem and that there has been no commercial arrangement whatsoever between Tata Motors and Jayem. Also, no confidential information has ever been shared with anyone

Here’s the full text of the statement by Cyrus Mistry

On a review of the 2017 Annual Report of Tata Motors particularly the Directors’ Report signed by the current chairman Mr. N. Chandrasekaran on behalf of the entire board, I find references to the refutation of observations about specific facts.

The Report seeks to call some of my observations or facts asserted in ongoing proceedings, incorrect and careless. Therefore, it is important to set the record straight on such issues.

I have in my various communications highlighted areas of concern and potential conflict. These are all backed by documents as presented in my representations. I had highlighted the practice of lending without adequate risk assessment, particularly in the Nano and Small Commercial Vehicle segment. This caused a huge NPA loss in both Tata Motors and Tata Motor Finance, to the tune of nearly Rs. 4000 Cr. If we are to benchmark the gross NPA percentage as against any other finance company in the similar segment the difference would be in multiples. This easy finance artificially bolstered the market share figures and as soon as this was reigned in, we saw a steep drop in the volumes of Small Commercial Vehicles (SCV) and the Nano. In case of SCVs’, volumes fell by more than 50%.

This clearly has been the biggest reason for the market share loss but not the only one as there were many factors including, inadequate investments in the CV product pipeline etc. Continuing to impact even the first quarter of this year where we have seen significantly weaker volumes of Medium & Heavy Commercial Vehicles (M&HCV). Year on Year drop in this segment is 35% which is a higher drop than a close competitor. This indicates a further drop in market share in the M&HCV segment, which is the main source of revenue for the Indian operations.

As regards the Nano. The project as conceived was indeed brave. For a number of reasons, the car was not profitable many years. During my time as chairman of Tata Motors we tried to make significant products improvements based on market feedback such as an openable tailgate, power steering and an AMT version. All these initiatives did not bear fruit. It was only then that a unanimous decision was taken to discontinue the Nano Production. It has been almost one year since then.

In my representations, I had drawn attention to potential areas of conflict of interest in the supply of Nano body shells to Jayem motors where Mr Ratan Tata has made investments in his personal capacity, thus forcing the Nano production to continue on a subscale basis for almost one year after the original decision had been taken. As I understand the Nano today, continues to incur heavy losses. At the very least this continuous loss for nearly a year has depressed the share value by thousands of crores on the present PE multiple.

I am also surprised to see complete silence from the board when it comes to the issue of sharing confidential detailed cost information about the Nano Cars to Mr. R. Venkatraman who used to be on RNT associates and conflicted, which is substantiated by the e-mail trails in my submissions and available to the board.

Recently Tata Motors has raised a large amount of capital from the shareholders, the company has not been able to pay dividends to its shareholders and is undergoing a huge retrenchment of its loyal employees, is wholly irresponsible of the board not to take action so as to stem losses as soon as possible.

I raise these issues with a view to ensure such decisions in the future are taken with due regard to the consequences on all stakeholder I think it is the New Chairman Mr. N. Chandrasekaran and the board that should exercise proper care while making statements to ensure that they are responsible.

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