Shapoor Mistry's Solo Race

The 158-year-old Shapoorji Pallonji (SP) Group faced a double loss in 2022— passing away of group patriarch Pallonji Mistry in June and death of his youngest son Cyrus in a road accident in September. Pallonji Mistry, even at 93, was active in strategic affairs, while Cyrus was executing financial and business restructuring to reduce the group's debt burden.

Now, Shapoor Mistry, the eldest son of Pallonji Mistry, has taken up the responsibility of helming the nearly $30-billion revenue diversified engineering and construction group, which owns an 18.41% stake in the $130-billion Tata Group. "Shapoor is driving the businesses alone at a time when cash flows are insufficient for debt repayments. However, he has restructured the business and passed on responsibilities to his son and Cyrus's two sons," says a senior banker.

Consolidated external debt of flagship Shapoorji Pallonji And Company Pvt. Ltd. (SPCPL) fell ₹15,300 crore from ₹37,170 crore on August 31, 2020, to ₹21,870 crore on December 31, 2022, says ICRA. The agency expects that the debt will be further reduced through asset divestment.

In FY21, the brothers, Shapoor and Cyrus, decided to re-engineer the group by creating two separate structures for real estate and infrastructure — SP Finance and SC Finance. All their diverse businesses were earlier housed under SPCPL. The aim was to improve operating cash flows as return on investment in long-lead businesses like infrastructure and real estate has timing mismatches. S.P. Finance and S.C. Finance will be overseen by an advisory board with four family members, Shapoor and his son, Pallon, and late Cyrus Mistry's two sons, Firoz and Zahan. The Mistry family envisages a two-tier structure similar to what is followed by major companies in Europe. It is expected to separate the responsibilities of management and promoters, who will act as custodians of wealth. The reorganisation is expected to be completed by September.

However, ICRA expects that delay in securing working capital limits would have impacted engineering, procurement and construction operations in FY23, resulting in modest profitability and muted debt coverage. SPCPL, the holding company, had sought one-time resolution of its obligations under Covid-19 relief regulations of Reserve Bank of India in September 2020. In March 2022, the group said it had settled debt with a one-time payment of ₹12,450 crore to all 22 lenders.

Soon after, in June, the group raised ₹14,300 crore from private investors and high networth individuals by pledging shares of Tata Sons and Afcons. The non-convertible debentures, which have a maturity of 2.5 years, offered a yield of 18.75%. The investors included Cerberus Management, Davidson Kempner, Varde Partners and foreign banks such as Deutsche Bank, Standard Chartered and Nomura Holdings. In September 2021, the group had sold its majority stake in consumer durables company Eureka Forbes to U.S.-based private equity fund Advent International for ₹4,400 crore. This was soon followed by sale of 40% stake in Sterling & Wilson to Reliance New Energy Solar for ₹2,850 crore. Cyrus Mistry took the lead in negotiating the deals.

Founded in 1865, the SP Group has built a number of iconic structures, including the RBI building in Mumbai and the distinctive Tower Wing of Mumbai Taj Mahal Palace Hotel. The group has projects in 40 countries and is working on extending its presence in Asia, Africa and Middle East. Tata Sons is its primary investment. Philanthropic trusts own 66% of Tata Sons' equity capital. Tatas and Mistrys had a cordial relationship until Cyrus Mistry was dismissed as Tata Sons chairman in 2016, sparking a legal spat between the families.

The SP Group — which has 15 companies across engineering & construction, infrastructure, real estate, water, energy and financial services — reported a 12% rise in gross revenue from its five biggest companies in FY22 to ₹13,656 crore. The gross profit of the group was ₹108 crore, compared to a loss of ₹450 crore in FY21.

On business front, the group has submitted expression of interest for ₹4,700 crore New Delhi Railway Station reconstruction project. Larsen & Toubro is also in the race along with eight other infrastructure companies. It has developed infrastructure assets in power (hydro, oil & gas), ports & terminals (onshore and offshore), transportation (rail and road) and natural resources across the world. It has built over 4,500 lane km of roads and over 100 km of elevated and underground metro rail in India. It constructed Vallarpadam Rail Bridge (eight kms) at Kochi in 2010 in a record time of 27 months. It's one of the longest railway bridges in India and involves a 4.62-km elevated structure. It has also constructed the Nagpur Metro, which was inaugurated in 2022 and has India's first four-level transportation corridor. It is also setting up four desalination plants in Gujarat.

However, the group has not been able to fully monetise real estate and infrastructure assets yet as these capital-intensive sectors were hit by slowdown before the pandemic.