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Tata Motors board set for showdown today

 

The logo of Tata Motors

The logo of Tata Motors

 

  Nusli Wadia, an independent director on the board of Tata Motors, will back deposed chairman of Tata Sons, Cyrus Mistry at the Tata Motors board meeting on Monday, in an independent directors board meeting on Monday. Mistry is the chairman of Tata Motors board.

 

The meeting is scheduled to take place at the Bombay House — the iconic headquarters of the Tata group in Mumbai.

Besides Wadia, there are five independent directors on the Tata Motors board: R A Mashelkar, Subodh Bhargava, Nasser Munjee, V K Jairath and Falguni Nayar.

Seventy-two year-old Wadia, also the chairman of the Nomination and Remuneration Committee of Tata Motors, had given a good report on Mistry. A source on the board said he would support Mistry, based on his track record as the chairman of Tata Motors.

Munjee had supported Mistry at Tata Chemicals board meeting; Bhargava backed the former chairman at the Tata Steel board meeting on Friday. How the other three directors would vote is not known.

Tata Sons, meanwhile, has upped the ante and sought to convene an extraordinary general meeting of shareholders to oust Mistry and Wadia from the Tata Motors board. The Tatas own 33% stake in Tata Motors.

The independent directors of Indian Hotels and Tata Chemicals gave their full support to Mistry’s leadership, and had issued a statement in his favour to the stock exchanges in their fiduciary duty towards rest of the shareholders. In the case of Tata Steel, three of the six independent directors were against issuing a statement and were split.  

Just after he was ousted on October 24, Mistry had highlighted the massive losses faced by the company because of the loss-making Nano — a pet project of Ratan Tata.

The Nano project has lost between Rs 6,000 crore and Rs 7,000 crore since its launch. The investments in the project were over Rs 25,000 crore, a director on the board said. Nano is making a loss of Rs 1 lakh on each car produced by the company but it has been kept alive due to “emotional reasons”, the Mistry camp has said.

“The board was concerned about the Nano and we had discussed several options as it was losing money on every car and the inventory was only piling up. After sinking in Rs 6,000-7,000 crore in the Nano till date, what are the returns for the shareholders?” a Tata Motors director said. 

“The entire board is the owner of the decisions and not Mistry alone. If he is removed for underperformance then the entire board should be sacked,” he added.

The Nano was launched in March 2009 but it failed to generate sales because of its “cheap” price tag and better models from rivals such as Maruti.

Tata Motors, however, was saved by the timely acquisition of Jaguar Land Rover (JLR) in 2008. It is now generating considerable profit for the company.

In a communication to the Tata Sons board of directors, Mistry had warned about the challenging situation at Tata Motors, both on the commercial and passenger vehicles.

Historically, Mistry had said, Tata Motors had employed aggressive accounting to capitalise substantial proportion of the product development expenses, creating a future liability.

“Beyond this, the Nano product development concept calls for a car below Rs 1 lakh, but the costs were always above this. This product has consistently lost money, peaking at Rs 1,000 crore. As there is no line of sight to profitability for the Nano, any turnaround strategy for the company requires shutting it down,” Mistry had said.

“Another challenge in shutting down Nano is that it would stop the supply of the Nano gliders to an entity that makes electric cars and in which Tata has a stake,” Mistry had said.

Before 2013, in order to shore up sales and market share, Tata Motors Finance, a subsidiary of Tata Motors, had extended credit with lax risk assessment. As a result, the company’s bad loans mounted to being in excess of Rs 4,000 crore, Mistry had said. The Tata group said the success of JLR should also  be credited to Tata when the Mistry camp is accusing him of "legacy issues."