TCS and JLR, 2 jewels in the Tata crown

It won’t be unfair to say that the Tata group would have been in a similar situation as that of many financially-stressed groups, were it not for the profits and cash flows of Tata Consultancy Services (TCS) and Tata Motors’ Jaguar Land Rover (JLR) division. 

Including all companies, the Tata group has one of the best financial ratios and is among the lowest leveraged among the country’s top family-owned groups. In FY16, the group’s listed companies reported a combined return on equity of 18.2% & #8211; nearly double that of other large conglomerates. At 15% return on capital employed was also among the highest in the industry. The group’s net debt-to-equity ratio at 0.73 in FY16 was at nine-year low and among the lowest among top business groups. 

The group financial picture, however, takes a U-turn if we exclude the numbers for TCS and Tata Motor's JLR division.

In FY16, these two companies accounted for 55% of the group's combined revenues, 69% of their operating profit, all the net profit and 80% of all equity dividend paid by group companies in the last financial year. Excluding TCS and JLR, the group companies reported a net loss of Rs 160.7 crore last year. 

On the balance sheet side, TCS and JLR together accounted for 56.3% of the group average net worth (or equity) in FY16 & #8211; 76% of all group cash and equivalents, but contributed nothing to the group debt. Net of their cash and equivalents, TCS and JLR are debt-free and actually have negative debt. 

Excluding the numbers for TCS and JLR, the group’s net debt and leverage ratios zoomed to an all-time high of 1.9 in FY16 while return on capital employed declined to 5.8%.

The Tata Sons statement had on November 10 had said that the over-dependence on TCS over a long period of four years, which was not only disturbing but needed corrective action. Tata Sons had also said that TCS and JLR were two jewels in the Tata crown, which Mistry had inherited, and cannot take credit for their success. 

This analysis is based on the financials of the 18 key listed Tata group companies excluding their listed subsidiaries. The difference between Tata Motors’ consolidated and standalone financials has been taken as a proxy for its JLR division.

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