IN AUGUST, at one of his last shareholder meetings as the chairman of Tata Sons, Ratan Tata sat on a stage in Mumbai, dressed immaculately, chewing sweets and looking deeply uneasy as the audience flattered him. An ancient fan from Bengal blurted into a microphone: “You are an icon.” A woman with thick glasses broke down, croaking: “You’re the most refined, cultured, humble chairman.”

To Mr Tata’s right, watching it all, was Cyrus Mistry, twirling a biro and wearing a poker face. On December 28th the 44-year-old Mr Mistry will take over as boss of the 144-year-old group. It is India’s largest conglomerate, with sales of $100 billion, just over half of those beyond India, spanning everything from outsourcing to steel, luxury cars and salt. Succeeding Mr Tata, a revered figure in India who has held the reins for 21 years, is one of the hardest jobs in the world. Mr Mistry, who has an Irish passport, is the first non-family member to hold the post, although he is not quite an outsider. Like Mr Tata he is from Mumbai’s tight-knit Parsi community. His family, which made its fortune in construction, owns 18% of Tata Sons, the group’s main holding company, and has been an investor in it since the 1930s.

When Mr Tata asked Mr Mistry to join the board back in 2006, his reply was deferential. “I look forward to contributing in whatever way I can to the fructification of your vision,” he wrote. Since being unexpectedly selected a year ago Mr Mistry has played second fiddle. He has been mum in public. The two men, says a friend, have worked in an “extraordinarily close” way, co-ordinating their diaries daily. Mr Mistry is said to have declined a recent invitation to meet a foreign head of state because Mr Tata might not be present.

Yet soon Mr Mistry will be not the pupil but the head man. In many ways he inherits a success. Mr Tata took over a slumbering conglomerate just as India’s economy was opening up in the early 1990s. On his watch, the Tata group survived a sudden battering of competition and then, in the 2000s, went global with more $20 billion of deals. There have been triumphs, including the rise of TCS, India’s leading technology services firm, and the takeover of Jaguar Land Rover (JLR), a British carmaker. Mr Tata has not avoided controversy entirely: he was one of many powerful figures secretly recorded speaking to Nira Radia, a notorious lobbyist in the graft-ridden mobile-telecoms sector, although the conversation in question was anodyne. But broadly speaking Mr Tata has been a beacon of honesty at a time when crony capitalism has become a problem in India.

However, the worst-kept secret in Indian business is that Tata has lots of dud, indebted operations. Mr Tata loved machines and design but arguably neglected corporate re-engineering. Tata is a federation with stakes in firms that usually have other investors. Tata Sons has 182 subsidiaries. Because its main holding company is not listed, Tata need not publish accounts on a “consolidated” basis (ie, adding everything up), as other conglomerates do. Its overall performance is thus murky. What Ratan didn’t do To address this The Economist has aggregated the results of the 14 biggest operating companies (excluding Tata’s financial operations), some of which are listed. These appear to account for about 95% of the group’s sales. The sums involve some guesswork, but are a guide. The good news for Mr Mistry is that Tata’s overall profitability is passable, with a 10% post-tax return on its $58 billion of capital employed. This figure is buoyed by its technology arm, TCS, and by Tata Motors, which owns JLR. Judged by the stockmarket value of its firms, too, Tata has done fine, largely thanks to TCS.

The bad news is that much of the group is in poor shape. In the year to March 69% of capital employed failed to make a return of 10% (see chart 1). Half of this lazy capital sits in Tata Steel. Its Indian operation is broadly healthy and investing a lot. But in 2007 it made a huge, ill-timed purchase of Corus, a British firm which, like its European peers, is in trouble. Another fifth sits in an electricity unit committed to building a big power plant which, like many rivals’, will lose money at today’s coal prices.

The biggest stinker is the mobile-telecoms arm. The Indian industry is a mess, thanks to graft and a price war. Tata has staggered on despite a low market share and about $3 billion of losses since 2007. The hotels operation, which runs the famous Taj in Mumbai, is less comfortable for bean-counters than for guests. After an acquisition spree, it barely breaks even. In all, nine of the 14 units reviewed returned less than 10% in fiscal 2012. Tata’s total net debt is $26 billion. This is a manageable two times gross operating profit, but is skewed towards the weakest firms. Whereas TCS has net cash on its books, steel, telecoms, power and hotels are heavily indebted.

During the 1990s, when the group was fighting for survival, Mr Tata emphasised good returns. But discipline has slipped (see chart 2), as a recent burst of dealmaking has highlighted. Both Tata Communications, a fixed-line telecoms business, and Indian Hotels, are indebted and underperforming. Yet both have flirted with ambitious takeovers this year, of Cable & Wireless Worldwide, a British telecoms firm, and Orient Express, an American-listed hotel chain. One Tata divisional chief says the spectacle of dud bits of the empire on a shopping spree has been “surprising”. Overall Tata’s foreign dealmaking in the past decade, from steel to tea, has had mixed financial results.

Tata is hardly India’s only flabby conglomerate (see article). A stereotypical Western boss would first tackle Tata Steel Europe, which despite several handouts from its new parent, desperate cost-cutting and an effort to modernise its plant, has heavy debts and lost almost $1 billion last year. The conventional option would be a default and debt-for-equity swap, reducing Tata’s stake. The next step would be to sell or dismember Tata’s telecoms units. The managers of the hotels and drinks divisions would be given a rocket. The pace of foreign deals would be slowed and Tata Sons would shore up the balance-sheets of its indebted firms with cash raised by selling a slug of its 74% stake in TCS, which is worth $34 billion (more than the group’s net debt). The Jack Welch comedy club This is the sort of approach that Tata veterans disdain. They see the “kill, cure or sell” philosophy of famous Western managers of conglomerates, such as Jack Welch of GE, as comically macho and short-sighted. One divisional head admits: “Return on capital is not at the centre of our business. Our purpose is nation-building, employment and acquiring technical skills.” This benevolence even applies to staff abroad. Embattled Tata Steel Europe has 33,000 employees. Yet even this executive hopes and predicts that Mr Mistry will shake things up. The new man will have a fortune at stake through his family’s holding in Tata Sons. Mr Tata’s personal investment in the group was relatively small and his authority was instead underwritten by his chairmanship of the charitable trusts that own 66% of Tata Sons’ shares. One of the group’s biggest investors says: “There is now someone with a lot of personal wealth invested…there’ll be an increased focus on return on capital.” In the past Mr Mistry’s family pushed for Tata Sons to pay higher dividends and for TCS to be listed to help crystallise its value.

Mr Tata chose Mr Mistry for his good character. Yet even if Tata has a higher purpose than mere shareholder value, bad performance is not in its interest: its businesses are there to generate profits for its charitable trusts to distribute, rather than to be charities themselves. The potential to boost profits and hence money for good causes is huge. If the group’s underperforming units managed to make a return on capital of 10%, Tata’s total profits would be 40% higher.

Time for refreshment Mr Mistry may have no choice but to take action. Several of the smaller underperforming units, such as hotels, may struggle to service their debts on their own. The two big problem businesses are nearing crunch points which will force Mr Mistry to decide whether he wants to continue writing cheques to cover their losses. In March 2014 Tata Sons may be obliged under a put agreement to buy back a 26% stake in its main mobile arm, owned by NTT DoCoMo, a Japanese operator. If this happens, it is likely to cost billions of dollars. Tata Steel Europe will face a big debt-refinancing in 2015. It is classed as junk by the credit-rating agencies, suggesting they think Tata’s patience and purse are finite. If Mr Mistry wants to confront these problems, will he have the authority? Just as Mr Tata found when he took over in 1991, asserting control over such a sprawl is hard. Several firms, including TCS, are run pretty independently. Under Mr Tata the group’s central functions were weak. He ruled by personal authority and by chairing some subsidiaries’ board meetings or by placing his allies on those boards. Mr Mistry has taken over many of Mr Tata’s directorships but he will surely try to beef up the centre. Complicating things further, most of Mr Tata’s key lieutenants are past or near retirement age. Though a competent bunch, they may not be keen to jump to Mr Mistry’s command. However, their departures over the next couple of years will free him to hire his own hands. The other unknown is Mr Tata. He is set to remain as chairman of the charitable trusts that own most of Tata Sons. That might allow him to block controversial decisions. Mr Tata is self-effacing, but also passionate. The hope is that he limits his influence to the business he knows best and loves most, which is cars, and otherwise grants his successor freedom of manoeuvre.

Few think Mr Mistry will turn into Mr Welch. One bigwig who has debated Tata’s future with him says he wants to tackle telecoms and hotels but will not cause a rupture. “For the next year or two Cyrus will depend on Ratan. He won’t take decisions without getting advice from Ratan or consulting him behind the scenes.” With good health Mr Mistry could be the boss for decades. The trick will be to take a diplomatic path while not shying from hard decisions.

At the shareholders’ meeting, after sobbing and listing Mr Tata’s virtues, the woman in glasses added that “Cyrus has all those qualities too.” Mr Mistry would be a great figure were he a clone of Ratan Tata. But he is not. He is his own man and as he takes the hot seat at India’s biggest firm, he must back his own judgment.