How long can Shapoorji Pallonji support Cyrus Mistry's fight vs Tatas?

Cyrus Mistry former chairman of Tata sons leaves from Bombay House in Mumbai (Photo: Kamlesh Pednekar)

The 150-year-old Shapoorji Pallonji Group is going through a critical phase, with one of its major shareholders, Cyrus Mistry, in a bitter battle with the $100-billion Tata Group, once its large customer.

The financial health of SP Group, now led by elder brother Shapoor Mistry, would prove crucial if the former's battle with the Tatas drags for long. While recent financials show profits are shrinking and profitability under pressure, the group contends it is business as usual, citing orders worth a billion dollars won after the crisis broke, with more apparently on the way.

Asked if the group had enough financial strength to sustain the fight against Tata in the long run, a Shapoorji Pallonji spokesperson assured that "Shapoor Mistry and family are completely supportive of Cyrus Mistry's quest for governance".

Mistry's ascension to the chairmanship of Tata Sons in 2012 meant SP Group had to withdraw itself from lucrative Tata contracts. Shapoorji Pallonji said the Mistry directive to Tata group chief executives to refrain from awarding contracts to SP Group companies saw "the new order booking fall from over Rs 1,000 crore in 2012-13 to practically zero in 2015-16".

Following this, aggregate profits of the four large group companies -- Shapoorji Pallonji & Co (SPCL), Forbes & Co (FCL), Afcons and Gokak Textiles -- declined from Rs 214.3 crore in FY13 to Rs 108.8 in FY15.

The profit fall had come amid a significant spike in aggregate operating revenue to Rs 12,591 crore from Rs 9,909 crore during the same period, suggesting shrinking profitability.

The latest year has also been mixed, at best. While Afcons' net grew by 40 per cent to Rs 74.4 in FY16, FCL slipped into the red, booking a loss of Rs 32.3 crore. Gokak continues to be in the red reporting Rs 25.2 crore of loss in the first half of FY16. SPCL is yet to report the financials for FY16.

According to the spokesperson, for Shapoorji Pallonji Group, it was business as usual. "The Group has already won over $1 billion in new projects in four weeks and is in course to winning another $1 bn of projects in the next few weeks."

Referring to the 150-year track record, the Group said it "historically had a business independent of the Tata Group" and added, "Despite the (Mistry directive to Tata companies), Shapoorji Pallonji Group demonstrated a robust growth and is on course to achieving its targets for 2016-17 as well."

Credit rating agencies have been referring to the association with Tata Group and the shareholding in Tata Sons as a source of its financial strength. In a report earlier this year, CARE Ratings said, "The rating reaffirmation of the proposed long-term instrument of SPCPL principally derives strength from SPCPL being part of the resourceful Shapoorji Pallonji group (SP group refers to companies ultimately held by Mr Shapoor P Mistry and Mr Cyrus P Mistry) and the substantive financial strength of SP group by virtue of being the largest private shareholder in Tata Sons Ltd, with 18.37 per cent stake."

ICRA's October ratings reaffirmation report mentioned, "The ratings also take into account the group's strong investment portfolio, which comprises listed and unlisted equity investments, as well as land and property holdings. The group is the single largest shareholder in Tata Sons Ltd (TSL), holding company of the Tata Group, with an 18.37 per cent stake."

It is not yet clear what view the rating agencies would take on SP Group instruments, with relations between the two groups hitting a nadir and reports of the Tatas sounding out sovereign wealth funds to buy out the SP Group stake floating around. Analysts from rating agencies declined to comment.

SP Group also refused to comment on the impact of the adverse relationship on its businesses, saying this was "speculative".

As regards its holdings in Tata Sons, the group said it continued to hold 18.5 per cent, making it "the single largest private" shareholder. "It may be noted that the Tata Trusts are public charitable trusts and not private trusts. In addition, the Mistry family in their personal capacity also continues to hold significant investments. The current events do not in any way impact the business of the Group," the spokesperson added.

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