Tata Sons, the holding company of the Tata Group, sold close to 25 million shares in Tata Consultancy Services (TCS) in the 2008 financial year, raising Rs 2,500 crore to increase stakes in other group companies like Tata Steel, Indian Hotels, Tata Power, Tata Tea and Trent.
Tata Sons posted its best-ever results in FY08 — total income of almost Rs 4,500 crore and net profit of Rs 3,780 crore, which translates into an earnings per share (EPS) of Rs 91,155, and reserves of over Rs 15,000 crore.
So, where was the money spent? The directors’ report of Tata Sons throws some light. “...the dividend income, supplemented by the profit made on sale of investments, was utilised to augment the resources of the company for increasing the long-term investments in promoted companies. In addition, significant investments were made to increase the shareholding in several listed operating Tata companies…” Among the listed ones, Tata Sons significantly increased its stake in Tata Steel, Indian Hotels, Tata Power, Tata Tea and Trent. The book value of Tata Sons’ investments increased by almost Rs 10,000 crore in FY08 to over Rs 23,000 crore. While it held a healthy cash and bank balance of Rs 3,600 crore, the company’s debts increased by a whopping Rs 4,500 crore to almost Rs 9,000 crore. Over Rs 5,000 crore of this is unsecured loans, including a Rs 1,250 crore debenture issue. Tata Sons also raised just over Rs 2,500 crore by issuing preference shares to two trusts - Jamsetji Tata and Navajbhai Ratan Tata Trust.
There is no major change in the equity shareholding pattern of Tata Sons, with Sir Dorabji Tata and Sir Ratan Tata Trust continuing to hold over 51 per cent in Tata Group’s holding company. Tata Sons has over 100 subsidiaries, of which over 80 are unlisted. Most of the big unlisted subsidiaries are incurring big losses. The biggest of these, Tata Tele, incurred a loss of over Rs 800 crore in FY08. Direct-to-Home venture Tata Sky’s FY08 performance was almost as bad as FY07. The Group’s life insurance joint venture with AIG also posted losses, of over Rs 200 crore, though its revenue increased by over 50 per cent. Its general insurance JV did marginally better, with a net profit of Rs 12 crore, though revenue growth was quite unimpressive.
Retail chain Chroma, too, continued to bleed, increasing its losses by three times over FY07. Notwithstanding these losses, Tata Sons made significant investments in these companies, since most of these are start-ups. Notable among them are Tata Realty & Infra, where Tata Sons pumped in over Rs 1,700 crore, and Tata Capital, which received over Rs 570 crore in equity investment from Tata Sons.
The rationale? Tata Sons’ Directors Report justifies the investment in these words: “Tata Capital, a 100% subsidiary, has to be capitalised to focus on retail finance, corporate finance, distribution and broking, wealth management, private equity, merchant banking and rural finance.”