After Indian Hotels, Cyrus Mistry aims at Tata Motors with Rs 4,000 crore NPA loss due lending practices

Key highlights:

• Tata Motors and Tata Motor Finance lending practices without adequate risk assessment led to huge NPA loss of nearly Rs 4,000 crore
• Tata Sons, saying that he had highlighted the lending practices without adequate risk assessment, particularly in the Nano and Small Commercial Vehicle segment
• He further added that this easy finance, artificially bolstered the market share figures

After taking dig at the management of Indian Hotels Company Ltd (IHCL) on Monday, Cyrus Mistry on Tuesday took a swipe another Tata Sons subsidiary, Tata Sons, saying that he had highlighted the lending practices without adequate risk assessment, particularly in the Nano and Small Commercial Vehicle segment which resulted in a huge NPA (non-performing asset) loss in both Tata Motors and Tata Motor Finance of nearly Rs 4,000 crore.

IHCL shares dipped 4% on BSE on Tuesday after the ousted chairman of Tata Sons took a dig at the company and pointed out 'errors' in the company's annual reports.

Like the statement on Monday, the former Chairman of Tata Sons stated that he refuted the observations about some specific facts in the 2017 Annual Report of Tata Motors and said that it seeks to call some of my observations or facts asserted in ongoing proceedings, incorrect and careless.

In the interest of setting the record straight on such issues he said that in his various communications has highlighted areas of concern and potential conflict in Tata Motors' management.

“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 4,000 crore. 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,” he said in the statement.

He further added that this easy finance, artificially bolstered the market share figures (of Tata Motors) 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%, he said.

Mistry said that this is clearly the biggest reason for the market share loss of Tata Motors, but not the only one as there were many factors including, inadequate investment 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,” he further said.

With regards to Tata Nano he said that while the project as conceived was brave, but for a number of reasons the car was not profitable for many years. While they made several improvements in the car based on market feedback, the initiatives failed to bare fruit. It was then that the decision was taken to discontinue the Nano.

However, it has almost been a year since this decision was taken but the production of the car still continues. He says that this is because potential areas of conflict of interest in the supply of Nano body shells to Jayem Motors where Tata Sons Emeritus Ratan Tata has made investments in his personal capacity. Thus forcing the Nano production to continue on a sub-scale basis for almost one year after the original decision had been taken.

Mistry said, “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 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.”

He further added, “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 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.”

Mistry further said that Tata Motors has raised large amount of capital from the shareholders and at the same time the company has not been able to pay dividends to its shareholders and is undergoing a huge retrenchment of its loyal employees. He said this is wholly irresponsible of the board not to take action so as to stem the losses as soon as possible.

He ended by saying, “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 N Chandrasekaran and the board that should exercise proper care while making statements to ensure that they are responsible.”

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