One year at Tata Sons: Chandrasekaran cuts group flab, eyes profits

Twelve months may be a short time in the life of a 150-year-old conglomerate, but there has hardly been a dull day since N Chandrasekaran took charge as chairman of Tata Sons, the group’s holding company.

Since he stepped into the corner office on February 21, 2017, Chandra, as he is popularly called, has been firing on all cylinders — from untangling cross-holdings among listed group companies, to selling non-profitable and non-core assets, to ensuring profitability and consolidation top the agenda of most companies.

Some notable examples include charting an amicable settlement between Tata Teleservices and DoCoMo and the subsequent divestment of Tata Teleservices’ mobile business to Bharti Airtel; transferring Tata Steel’s European assets to a joint venture with Germany’s ThyssenKrupp; overseeing the turnaround of Tata Motors’ domestic operation; and approving the land demerger at Tata Communications. The most significant, however, was reduction of cross-holdings and the roll-out of a strategic agenda on simplification of the group — which comprises more than 100 companies.

“He was expected to do some out-of-the-box thinking, as he came in when the group was going through a challenging time. One of the things that really shook corporate India was the deal Tata Sons did with Bharti,” said Arun Kejriwal, director Kris Capital. “A combination of effort, focus on returns and, not to forget, favourable market conditions helped him.”

The equity market has endorsed the steps taken by the group companies under Chandra’s leadership, with the stock price of most of the Tata companies outperforming the broader market. Tata Consultancy Services, Tata Motors and Tata Power were exceptions among major group companies.

The combined market capitalisation of 27 listed Tata companies is up 14 per cent since February 21, 2017, to Rs 9.6 trillion now against a 17.4 per cent appreciation in the benchmark BSE Sensex during the period. However, if TCS and Tata Motors are excluded, the group market capitalisation is up 40.5 per cent.

Some of the star performers include Tata Steel (up 53 per cent), Titan (up 76 per cent), Tata Global Beverages (up 89 per cent), Indian Hotels (up 33 per cent), Voltas (up 59 per cent), Trent (up 28 per cent), and Tata Elxsi (up 32 per cent), according to Capitaline data.

Chandra started his innings by settling the long-standing dispute with Japanese partner DoCoMo. On February 27, barely a week after taking charge, Tata Sons and NTT DoCoMo told the Delhi High Court they had reached a settlement concerning enforcement of an arbitration award.

The deal with ThyssenKrupp in September 2017, creating Europe’s second-biggest maker of steel, was yet another milestone.

Having put the house in order in Europe, which had been a drag on Tata Steel’s consolidated balance sheet, the company is now looking to strengthening its domestic operations. Tata Steel is one of the front-runners in the bidding process for Bhushan Steel as well as Bhushan Power & Steel, both firms are undergoing bankruptcy proceedings. Successful deals will make Tata Steel the largest steelmaker in the domestic market once again.

“Within the year-long timeframe, one is clearly seeing a lot more financial discipline among group companies. The emphasis on key financial ratios such as return on capital employed has never been so high,” said a senior executive at a fund house invested in Tata group companies.

Together, the Tata group stocks would have generated more wealth but for the underperformance of Tata Motors, which has seen a 28 per cent decline in its market cap due to a poor show by the Jaguar Land Rover (JLR) division. The unit accounts for more than 90 per cent to the profit pool.

The maker of Jaguar luxury sedans and Land Rover premium sport utility vehicles, which has been churning out profits consistently for the past seven years, has of late been facing headwinds owing to weak market conditions in some of JLR’s key markets. In the December 2017 quarter, JLR dragged down Tata Motors’ consolidated net profit of Rs 12.12 billion, eclipsing the turnaround in the domestic operations that reported a profit of Rs 1.83 billion after five quarters of losses.

The sharp growth of 16 per cent in Tata Motors consolidated net revenue was led by a volume surge in the Indian business under the leadership of Chandra and Guenter Butscheck, managing director and chief executive at Tata Motors.

The marathoner is just in the initial lap of a long marathon ahead. But both insiders and outsiders are giving him a thumbs up. “Profitability and growth seem to be the mantra for the one-year-old chairman,” said a Tata group insider.

Tata Sons on Deal Street 

Tata Steel

Taking the industry by surprise, Tata Steel emerged as the highest bidder for Bhushan Steel with an offer of Rs 360 billion and a 12.5 per cent equity stake to lending banks. By leading the race for Bhushan Power & Steel, it will get two strategic plants in east India. It is raising Rs 120 billion by way of a rights issue, which will help it become India's largest steelmaker,  pipping JSW Steel.

Tata Steel Europe

Chandrasekaran concluded talks initiated by former chairman Cyrus Mistry on the merger of Tata Steel Europe with Germany's ThyssenKrupp. This will help Tata Steel reduce its financial commitment to the European operations after a disastrous financial performance since its $12-billion acquisition in 2007 

Air India

Chandrasekaran has said Tata Sons will look at the acquisition of Air India after the government decided to reduce its stake. The group owns stakes in two airlines in India — Air Asia India and Air Vistara. With air traffic growing in the double digits, Chandra will have to take a call whether Air India fits into Tata's strategy in aviation 

Tata Teleservices

One of the first hotspots that drained Tata Sons’ financial resources was the wireless telephony business. Entry of Reliance Jio made matters worse for small players like Tata Teleservices. Chandrasekaran decided to sell the business to Bharti Airtel for free. It also repaid Rs 170 billion of bank loans after a fund infusion from Tata Sons.