Tata investors make bullish bets on Chandrasekaran era
Rise 9-17 per cent, fuelling hopes Chandrasekaran’s elevation could amount to a game changer
Ever since the first whiff of N Chandrasekaran’s imminent rise, the Tata group's front-line stocks have been rallying on hopes that his elevation to chairman of Tata Sons could be to a game changer. Experts say the ascension not only brings clarity on how the group will function ahead, but also opens up the possibility of lifting profits once again. “Though Chandra is seen as a typical Tata-trained man, I'm sure he will replicate Tata Consultancy Services' success in other group companies,” a chief executive of a domestic brokerage says. “If Tatas can break from the tradition of a nonParsi heading the group, they would also learn to give up their sentiments to correct their past mistakes,” he adds.
Two things have gone down well with investors, who have bid up the group’s front-line stocks by 9-17 per cent ever since the first signs of Chandra’s rise. First, his emphasis on improving profitability eases up shareholders who now see the group's financials improving a great deal going ahead. This is extremely critical as the pool of 23 listed Tata group stocks have seen combined net profit increase by only 3.8 per cent CAGR (compound annual growth rate) in FY12-16. Total debt, on the other hand, has risen nearly seven per cent CAGR during this period. Among marquee companies, net profits of Tata Steel, Tata Power, Indian Hotels, and Trent have taken severe knocks. Tata Motors and Tata Communications have been under stress, too. "Each of these companies has enough problems. Like with Tata Motors, the Indian operations need serious attention and it is constantly ceding its market share to rivals. For Tata Power, the fate of its Mundra plant remains shaky. The pressure around Tata Steel is well-known,” a fund manager says. “With signs of patience running thin, investors will be willing to give Chandra 12-18 months for corrective action," he adds.
A research head at a brokerage echoes this view: "Until now I was asking clients to avoid Tata group stocks, for not delivering on fundamentals. With a change in leadership, I am also changing my stance." He advises investors to allow Chandra at least 6-12 months for financials to improve. “Unless an investor has a long-term horizon, buying Tata group stocks, barring Tata Consultancy Services, doesn’t make sense at current levels,” he says.
Second, the Street would also watch whether the new boss can dispose of non-performing acquisitions of Tata Chemicals and Tata Global Beverages, and whether he can quickly resolve Tata Steel's problems in Europe.
“If he is successful in selling
Experts say Chandra ascension not only brings clarity on how the group will function ahead, but also opens up the possibility of lifting profits once again
any of these assets within a year, you can expect all laggard Tata stocks to be re-rated immensely. It would mean Chandrasekaran has better negotiation power with Tata Sons’ board,” says Ambareesh Baliga, a stock market expert. Experts also point out that, apart from listed stocks, the Street will keep on eye on how problems at Tata Teleservices get resolved. They are also betting on Chandra's approach to cash management and asset allocation.