Ratan Tata’s successor, Cyrus Mistry, has some dirty work to do

Yet soon Mr Mistry will be not the pupil but the head man. In many ways he inherits a success. Mr Tata took over a slumbering conglomerate just as India’s economy was opening up in the early 1990s. On his watch, the Tata group survived a sudden battering of competition and then, in the 2000s, went global with more $20 billion of deals. There have been triumphs, including the rise of TCS, India’s leading technology services firm, and the takeover of Jaguar Land Rover (JLR), a British carmaker. Mr Tata has not avoided controversy entirely: he was one of many powerful figures secretly recorded speaking to Nira Radia, a notorious lobbyist in the graft-ridden mobile-telecoms sector, although the conversation in question was anodyne. But broadly speaking Mr Tata has been a beacon of honesty at a time when crony capitalism has become a problem in India.

However, the worst-kept secret in Indian business is that Tata has lots of dud, indebted operations. Mr Tata loved machines and design but arguably neglected corporate re-engineering. Tata is a federation with stakes in firms that usually have other investors. Tata Sons has 182 subsidiaries. Because its main holding company is not listed, Tata need not publish accounts on a “consolidated” basis (ie, adding everything up), as other conglomerates do. Its overall performance is thus murky.

What Ratan didn’t do

To address this The Economist has aggregated the results of the 14 biggest operating companies (excluding Tata’s financial operations), some of which are listed. These appear to account for about 95% of the group’s sales. The sums involve some guesswork, but are a guide.

The good news for Mr Mistry is that Tata’s overall profitability is passable, with a 10% post-tax return on its $58 billion of capital employed. This figure is buoyed by its technology arm, TCS, and by Tata Motors, which owns JLR. Judged by the stockmarket value of its firms, too, Tata has done fine, largely thanks to TCS.

The bad news is that much of the group is in poor shape. In the year to March 69% of capital employed failed to make a return of 10% (see chart 1). Half of this lazy capital sits in Tata Steel. Its Indian operation is broadly healthy and investing a lot. But in 2007 it made a huge, ill-timed purchase of Corus, a British firm which, like its European peers, is in trouble. Another fifth sits in an electricity unit committed to building a big power plant which, like many rivals’, will lose money at today’s coal prices.

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