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| The Enigma
called Pallonji Mistry |
| Despite being one
of the richest Indians and the single largest shareholder
of Tata Sons, Pallonji Shapoorji Mistry has preferred
to remain in the shadows. But soon, he may not be
able to. |
| by Indrajit Gupta and T. Surendar |
|
 The
entry of his son, Pallonji Mistry, marked a turning
point in the group’s business. In 1970, Mistry
decided to expand the group’s construction
business to the Middle East by bidding for the Sultan
of Oman’s palace. He also built the International
Airport in Delhi and the World Trade Centre in Mumbai.
But for the most part, the group was largely family-run,
with an overwhelming majority of employees from
the Parsi community.
Till the end of the 1960s, the investment in Tata
Sons couldn’t have earned Shapoorji and his
son very much. Except that a seat on the Tata Sons
board did bring considerable respectability, which
a construction contractor couldn’t have otherwise
earned. “It gave the Mistrys their place in
the sun,” says an ex-director of Tata Sons.
As a mere holding company for the group, Tata Sons
did not have any operating income to speak of. Besides,
because it had a very low stake in the major group
companies like Tisco, Telco, Tata Chemicals and
Voltas, there wasn’t much dividend income to
speak of either. That also meant that the two charitable
Tata trusts remained under-funded. That’s why,
in 1968, the Tatas decided to kick off Tata Consultancy
Services under the Tata Sons banner. Under F.C.
Kohli’s leadership, TCS started delivering
profits from the second year onwards, the real import
of the decision is being felt now, as the preparations
of TCS’s IPO gather steam. Today, TCS accounts
for as much as 95% of Tata Sons revenues of Rs 3,328
crore. A recent exercise valued TCS at Rs 32,000
crore. When Tata Sons offloads 10-15% stake in TCS
through an IPO, the four Tata trusts and Pallonji
Mistry will end up hitting the jackpot. Think about
it this way: if the TCS IPO takes place soon, Mistry
will probably end up making more money from the
Indian software boom than anyone apart from Wipro
chairman Azim Premji.
Mistry is keen to cash in on the TCS IPO. In fact,
he wanted to do so even earlier, back in 1999. FormerTataSons
directors say that Mistry did bring up the matter
of the TCS IPO with the board. But chairman Ratan
Tata had other ideas and was unwilling to commit
to any dates.
Even now, when the same news is doing the rounds
once again, last week in a television interview,
Tata Sons director Ishaat Hussain clearly maintained
that the company had not worked out any timetable
for the IPO. Given the size of TCS’ public
issue, this tentativeness isn’t entirely surprising,
especially since a host of market related factors
could easily queer the pitch. But that’s just
half the story. In 1999-2000, when the tech boom
was at its zenith, chairman Ratan Tata could have
easily plumbed for the IPO and commanded more than
twice the current valuation. So why didn’t
he?
That’s because he had very little choice. In
1991, when he took over the mantle from JRD, he
had quite a battle on his hands. Ratan realised
that he had inherited a rather disparate group,
with every group company pulling in different directions.
Moreover, Tata Sons had very low stakes in the group
companies, often no more than 2-7%. That meant that
any of the leading group companies like Tisco and
Telco could be the target of a hostile takeover.
But in 1995, internal calculations showed that the
Tatas would need Rs 700 crore to shore up their
stake in the group companies to a safe level. Some
part of it would come from the profits that Tata
Sons would earn from TCS.
In September 1995, Tata Sons also pushed through
a controversial Rs 300-crore rights issue. As per
law, none of the Tata trusts could directly participate
in the rights issue and, thus, had to relinquish
their shares. Instead, Ratan asked all the major
group companies to subscribe to the rights issue
at a premium. The move was criticised by analysts
because they felt the group companies had no business
to divert their capital instead of investing it
in long-term growth.
The matter was vigorously debated internally in
the Tata group too. Eventually, the group companies
picked up, albeit reluctantly, a collective stake
of 12.77% in Tata Sons. This was less than what
the Tata trusts had relinquished. So how would Ratan
fill up the gap? That’s when Tata had to fall
back on the cash rich Pallonji Mistry to bail him
out. In an agreement hammered out at that time,
Mistry would subscribe to somewhat more than he
was entitled to, thereby raising his stake from
17.45% to 18.37%. Since one of the family members
probably did not have the funds, he would relinquish
his share, allowing the family’s stake to fall
from 3.84% to 3.01%.
Today, as the TCS IPO draws near, it’s payback
time for the Mistry and the Tata group firms for
helping Tata Sons in times of distress. Both will
get an exit option at lucrative prices. Simultaneously,
Tata Sons has also initiated a separate share buyback
programme to offer an alternative exit option to
shareholders. As part of that plan, Mistry’s
investment companies, Cyrus Investments and Sterling
Investments (which hold the Tata Sons shares) along
with each of the Tata group companies will participate
in a Tata Sons buyback programme, which will open
an exit option for them.
Then, Tata Sons will transfer TCS to a wholly-owned
subsidiary, Orchid Print, that will be renamed Tata
Consultancy Services. The decks have just been cleared.
Two weeks ago, the Mumbai High Court gave Tata Sons
the permission to go ahead with the transfer. Tata
Sons will hold 90% of the equity of TCS, while Tata
Sons shareholders will independently hold the balance
10%. Now, if Tata Sons were to offload 10-15% of
its stake in TCS, it would get Rs 3,200 crore-4,800
crore as consideration. This will partly be used
in paying dividends to its shareholders, including
Pallonji Mistry. Apart from that, if Mistry were
to sell off his own 1.8% in TCS (which is what he
gets once TCS is transferred to Orchid), he will
get a cool Rs 600 crore. Finally, if Mistry decides
to accept Tata Sons offer to buy back the shares
he holds in the Tata group holding company and sells
back just 20% of his 18.63% stake, he would net
about Rs 1,100 crore, assuming that the buyback
price is at least Rs 8,00,000 per share (sources
say that this is the price Tata Sons offered to
buyback its shares). Of course, the buyback is valid
only if the IPO goes through. But that wait may
not be long. Ratan Tata has already said that the
TCS prospectus will be ready in the next five weeks
or so.
For Mistry, the pot of gold could now be almost
within reach. It is possibly the moment that he
had been waiting for a while now. If the cash infusion
comes through, there’s every chance that we
will hear a lot more about the Shapoorji Pallonji
group. There are enough signs that the group is
readying itself for a big push. Mistry’s sons,
Shapoor and Cyrus, are in the saddle, while he is
playing the role of a behind-the-scenes adviser.
The businesses have been divided among the brothers.
Professional CEOs are also being hired to give the
group a makeover.
Last year Mistry acquired Forbes Gokak when Tata
Sons divested its stake in the textile and textile
manufacturing company. Under Shapoor’s leadership,
there are now plans afoot to smartly leverage the
money flowing in in a variety of ways. Broadly,
retailing and entertainment will be the key thrust
areas. Two weeks ago, Rajan Kaicker, one of its
new CEOs, unveiled DhanDhanaDhan, an online lottery
through a tie-up with an old hand in the lottery
trade. Of course, the family was nowhere to be seen
at the launch. Sources say the Rs 550-crore Eureka
Forbes, a 60:40 joint venture between Forbes Gokak
and Electrolux, has drawn up a plan to set up a
countrywide multibrand appliance stores chain.
Since the late 1990s, the group’s construction
business has been under pressure. “A new class
of players like Mumbai-based JMFC snatched away
nearly five large flyover projects right under our
nose,” admits Zafar Iqbal, former chief executive
of Shapoorji Pallonji’s real estate business.
It didn’t help that the group tended to concentrate
only on Mumbai. That’s why in 2000, in an opportunistic
move, Cyrus picked up a controlling stake in Afcons,
a leading infrastructure firm.
Insiders say there is much more in store. Clearly,
the construction contractors are finally beginning
to morph into industrialists. After all, money does
talk. |
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