A year on, Chandra shines bright

N Chandra seka ran, who complete say ear as Tat a Sons chairman on Wednesday (February 21), is turning out to be lucky for India’ s largest private sector business group. After years of losing money on two of the group’ s biggest bets—the global steel business and domestic passenger cars—there are strong sign sofa revival in both businesses.

Tat a Steel reported a net profit for the third consecutive quarter in October-December 2017, after posting losses in seven of the nine preceding quarters. While it still has a lot of ground to cover, with accumulated losses of nearly ~152 billion at the end of September, Chandra could not have asked for a better beginning from the company that accounts for about 37 percent of the group’ s consolidated debt.

The Tat as have also impressed Indian car buyers with a new range of passenger cars and, as a result, Tata Motors’ domestic business reported a net profit after six quarters of losses. The commercial vehicles demand, too, picked up during the December 2017 quarter.

A financial turn around in these two companies has come as as hot in the arm for Chandra, given their central position in the group’ s finances. Tata Steel is the group’ s most indebted firm, while Tat a Motors brings inn early 45 percent of the group’ s consolidated revenues and has the biggest visibility among global consumers with Jaguar Land Rover. The two accounted for nearly three-fourths of the group’ s listed companies’ debt and fixed assets during the first half of 2017-18 and nearly two-thirds of the group’ s combined revenues during the period.

“Initial signs have been positive, with Tata Motors’ domestic business turning profitable and Tat a Steel showing strong gains from a turn around in the global steel cycle. The group’s cash cow, Tata Consultancy Services (TCS), remains steady, though its pace has slackened. This augurs well for the financial health of the group in the near- to-mid-term,” said Dhananjay Sinha, head of research, Emkay Global Financial Services. This provides Chandra an opportunity to fix legacy issues facing the group. For nearly a decade now, the group’ s consolidated finances were clouded by a continued poor showing by these two companies. For example, Tat a Motors’ domestic business reported losses in the last four financial years, while Tat a Steel has been losing money outside India for seven consecutive years.

This increased financial burden on Tata Sons, the group holding company, which, in turn, disproportionately depended on cash flows (read dividends) from TCS to keep group finances steady. Now that these behemoths are on the mend, analysts expect Chandra to direct Tata Sons’ resources to expand the group’s footprint in the domestic market.

Under Ratan Tata, the group was one the largest outbound investors from India, with billions of dollars invested in creating a global footprint in industries ranging from steel to automobiles, and chemicals to hospitality to non-alcoholic beverages. This made the Tatas India’s most globalised business group with overseas markets accounting for nearly 60 per cent of the group’s ~6 trillion revenue in 2016-17.

Market analysts and minority shareholders were, however, not impressed as most global ventures, except the JLR division, failed to be value accretive. Worse, they saw it as a distraction that cost the group growth opportunities in the domestic market. “In the last few years, the group has lost market share in steel, automobiles, hospitality, telecom, non-alcoholic beverages and power.

This has to change as the Indian economy is expected to grow faster than the rest of the world in the foreseeable future,” said an analyst at a foreign brokerage on condition of anonymity. Market experts also expect more financial conservatism after years of mergers and acquisitions led growth financed through a mix of debt and cash flows from TCS.

“The group needs to fix its capital allocation strategy as most of the large group companies, with the exception of TCS and Titan, have failed to generate sufficient returns on the capital shareholders have entrusted with them,” said G Chokkalingam, MD, Equinomics Research & Advisory.

Chandra seems to be listening and has already made his first move by divesting the loss-making mobile telephony business and shifting the focus of group companies from expansion to consolidation and asset rationalisation.