Chandrasekaran has been juggling capital allocation between write-offs and chasing growth, and the group has been investing heavily in its flagship businesses of steel, vehicles and power, though the benefits of these investments are still work in progress. Between FY17 and FY19, Tata Steel, Tata Motors and Tata Power have together employed Rs 74,000 crore in their businesses, even as consumer-focused group companies such as Titan, Trent, The Indian Hotels Company (IHCL) and Tata Global Beverages (TGBL) grew faster than them.
The group’s largest company TCS is the only flagship that has done well in recent times with its market capitalisation (m-cap) rising almost 80% since Chandrasekaran’s appointment. This has helped total m-cap of group companies to rise by 45% to Rs 12 lakh crore during this period. A top group official said Tata Sons will undertake some portfolio restructuring once immediate issues relating to Tata Steel Europe and Tata Power are solved.
“There are tough decisions that will be taken in terms of portfolio restructuring to reduce our corporate footprint to have a mix of growth and cash businesses,” the official said without giving a timeframe for the proposed business corrections that could take “a year more or immediate”.
“There is clearly growth in the domestic businesses of Tata Steel post the expansion and that’s a profitable business… more so, after we solve the Tata Steel Europe issues, which is guzzling a lot of cash,” the official said on condition of anonymity. “Same for Tata Power where all the working capital costs related to Mundra are being funded by non-Mundra businesses.”
Tata Sons will also launch Tata Digital — a new entity to incubate new digital businesses announced in August last year — in a few months, the official said.
“This is a test match for us, and we have to keep moving,” he said. “What we are seeking to do is create a balanced portfolio that will have capital-intensive businesses, consumer businesses and new-age businesses.”
Group watchers said the chairman would need five to seven years to get the group going in terms of growth. “It took a lot of approvals and time to demerge the consumer business from Tata Chemicals to build TGBL as the next big FMCG company. So many such efforts are in the works and will yield results. One cannot get impatient with effort of this magnitude,” the official said.
Former Tata Sons director R Gopalakrishnan said Chandrasekaran has adapted well to the challenges where his leadership and actions have been supported by the board. “For any new CEO, several deep challenges will await attention and action,” he said. “These have to be dealt with great care and sensitivity. So long as such items appear on the CEO’s attention screen, boards and shareholders grant time and space. This is the highly desirable characteristic of adaptive and long-life organisations.”
CONSUMER FIRMS TO THE FORE
While most flagships have been struggling, the group’s consumer firms have compensated for them. Top four valuecreating companies of the group in the past three years are Trent (+210%), Titan (+191%), Tata Global Beverages (+170%) and Voltas (+102%).
Trent and Titan have seen their sales grow at near 20% from FY17 to FY19. Voltas and Tata Global Beverages have grown relatively slower at low single digit, but better prospects have led to higher investor interest in them.
Tata Sons is doing all it can to solve immediate issues, a top official said. “Some changes are visible and some are not; there cannot be dramatic changes immediately,” the person said. “The group has also been distracted with a lot of legal issues relating to NCLAT (National Company Law Appellate Tribunal) and telecom AGR (adjusted gross revenue) which has been distracting.”
Over the last three years, major capital investment decisions taken by group companies include heavy investments in research and development for JLR of around £10 billion, and aggressive acquisition of Bhushan Steel for Rs 35,000 crore at the peak of steel cycle in 2018, which many analysts and industry peers feel the group has overpaid.
Tata Motors has employed more than Rs 2 lakh crore till date and its market capitalisation is only Rs 52,000 crore, down 65% in three years. It has massively underperformed peers including Mahindra & Mahindra and Maruti Suzuki.
Similarly, Tata Steel has employed Rs 1.8 lakh crore and its m-cap is only Rs 50,000 crore, down 6% in three years. It has massively underperformed peers including JSW Steel and Jindal Steel.
Tata Power has employed Rs 70,000 crore and its m-cap is Rs 15,000 crore, down 39% in three years. It, too, has sharply underperformed peers including Adani Power and JSW Energy.
The total net debt of all group companies stands at Rs 1.7 lakh crore as of FY19. “The net debt levels are at very comfortable levels. So that is clearly manageable and not a worry at all,” a Tata Sons official said.
Defending the group performance, a former Tata Sons official said a conglomerate like Tatas would have commitments in markets such as the UK that it cannot walk away from. The group has been criticised by watchers for committing to huge write-offs and impairments which it is felt should have been challenged legally. “It is very easy to sit in armchairs and make judgements, but please understand that the group is not a teashop,” the person said. “Tatas have been able to raise money even in the deepest financial crisis environment because of the values and commitment they stood for.”
Former Tata Brand custodian Mukund Rajan said, “The financial data demonstrates that the so-called ‘hot-spots’ identified by Cyrus Mistry across sectors like telecoms, steel, automobiles and power continue to present significant challenges for the Tata Group. A huge reliance on TCS’ fortunes is also evident. This is a time when one would hope the best minds available from all stakeholder groups come together as a team and work to address these issues, and, critically, sort out the corporate governance questions that loom large.”
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9 Comments on this Story
Sanjay Durgule332 days ago
टाटा मोटर्स मॅनेजमेंटचा मोठ्या प्रमाणात गैरव्यवहार असून टाटा सन्स पुरावे असून सुद्धा जाणीव पूर्वक दुर्लक्ष करीत आहे.त्यामुळे सामान्य भाग धारकांचे आर्थिक नुकसान होत आहे.टाटा ट्रस्टच्या प्रतिष्टेला अशोभनीय गोष्ट आहे.
H K Doshi332 days ago
In past Ratan Tata has created lot of debts for expansion and unfortunately economy could not develop hencegroup is under still heavy debts. Chandra could not able to reduce debts in flagship companies like Tata Steel, Tata Motors . This group has high leverage and follow old style of management .
Biju Pols332 days ago
Cyrus Misry was useless.Chandra is a proven CEO from TCS.