Tata Group Companies: Holding The Flag High
Dalal Street Investment Journal|Vol. 36. No. 22 • SEPT 27 - OCT 10, 2021
If ever Tata Group is in the news, it’s always for a positive reason, except for the time when the departure of Cyrus Mistry created a big shake-up. In fact, betting on any of the Tata Group companies always makes good investing sense. Armaan Madhani explains what makes the group retain its leading edge in such a globally competitive business scenario. The article also presents recommendations for a couple of individual Tata Group companies whose stocks will add some shine to your portfolio
Armaan Madhani

In 1868, Jamsetji Nusserwanji Tata aka the father of Indian industry bought a bankrupt oil mill and converted it into a cotton mill, kicking off Tata Group’s journey. Today, there are 28 publicly listed Tata companies with a combined market capitalisation ₹22.2 lakh crore as on September 8, 2021, making it India’s largest business conglomerate with products and services in over 150 countries along with operations in 100 countries across six continents. Each Tata company or enterprise operates independently under the guidance and supervision of its own board of directors. Tata Group is the country’s third-largest employer after the Indian Railways and defence forces. The group leads the nation in 10 diverse business verticals.

Consider this: HDFC Group is the second-largest Indian business group with a market capitalisation of ₹16 lakh crore followed by Reliance Group at ₹15.7 lakh crore. You would be amazed to know that the market capitalisation of Tata Consultancy Services (TCS) alone is worth more than the combined market capitalisation of HCL, Mahindra and Mahindra, Jindal and Vedanta Group. Guided by the motto of ‘Leadership with Trust’, Tata Group’s companies believe in the long-term development of value for all its stakeholders worldwide. A high degree of emphasis on ethos, quality, innovation, sustainable activities as well as business evolution – these are just a couple of the tags which the Tata brand has been pegged for.

A True Leader

In the 30 years after India’s economic liberalisation, the Tata companies have created more wealth for shareholders than other large conglomerates in India like Reliance, Aditya Birla as well as similar conglomerates in other countries including General Electric, Mitsubishi, Siemens and even Berkshire Hathaway. The Tata Group companies have efficiently managed to survive the pandemic, emerging unscathed, resilient and stronger. Robust economic recovery in global markets, grand commodity up-cycle, mass vaccination drives, reviving domestic consumption, strong sectoral tailwinds, consistent earnings’ growth, cost rationalisation measures, improved operating leverage, deleveraging trends, smooth integration of acquired companies, ameliorating profitability and strengthening of the balance-sheet has led to re-rating of several Tata Group companies, thereby furnishing a fillip to investor confidence.

Shares of 27 of the 28 Tata Group listed companies have soared during the year. The multinational conglomerate has added a market value of USD 84.75 billion since the beginning of the year on the back of share price gains ranging from 15 per cent to 375 per cent. Tata Consultancy Services was the top contributor to the gains, with its share of the group market capitalisation at a whopping 52 per cent followed by Tata Steel (16.22 per cent), Tata Motors (6.75 per cent), Titan Company (5.07 per cent) and Tata Consumer (4.1 per cent). Six of the group companies have climbed over 100 per cent during the year while nine have jumped by 50 to 90 per cent. As many as 12 entities witnessed their share price rise 15-45 per cent. Rallis India is the only Tata Group stock that has failed to deliver returns during the year.

Change of Leadership

In 2016, the Tata Group found itself in a pickle with the sudden announcement of the then Chairman Cyrus Mistry’s exit and a public fallout. Natarajan Chandrasekaran, Chief Operating Officer (COO) of TCS was handed the reins of the salt-to-software conglomerate, who became the first non-family professional to head the venerable Tata Group. Recently, on February 21 2021, Chandrasekaran completed four years at the helm of India’s biggest conglomerate and has successfully pivoted the group in the right direction, making it more organised and structurally sound. The fact that market capitalisation of Tata Group companies has more than doubled since Chandrasekaran took charge is testament of his 3S strategy i.e. simplification, synergy and scale working wonders. To quote an excerpt from an interview of N Chandrasekaran with Business Today, “When I started in 2017, I had said that brand, trust, standard and heritage are the biggest strengths of the group. And whenever you have a group which has such a large presence and strong history of more than 150 years, you should expect that there will be complexity. So, I had proposed a strategy of simplification, synergy and scale. We evaluated the number of entities and their businesses. Besides, we focused on balance-sheet fitness and financial returns.”

Growing Market Share

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