Tata Sons, which began its Rs 10,000 crore-equity infusion plan two years back, seems ready to wind up the process by year-end, with bold and fresh investments in their group entities.
The revival plan is a part of Chairman N Chandrasekaran’s plan to align the capital structure and strengthen the conglomerate’s balance sheets. It involves strategic investments in highly leveraged companies, including Tata Capital, Tata AIG General Insurance and Tata Housing.
Funds have also been infused in private airlines Vistara and Air Asia, as well as to revive the debt-laden Tata Teleservices which once operated the DoCoMo towers.
Exactly what needs revival?
Sources close to the corporation told reporters that the infusion will be completed this year. The point of this entire exercise, according to some of them, was to improve the debt-to-equity and EBITDA-to-debt ratios.
“The capital structure of most of the companies is on track. The cash flows have improved as a result of the strategy,” a source aware of the group’s game plan told the Hindu Business Line.
Tata Sons’ overall investment across the group’s multiple entities, in the last two years alone, stands at Rs 10 billion. And that was just to clean up the balance sheet. To speed up growth, Tata Sons is raising funds to help entities like the two airlines execute their respective growth strategies.
A portion of these funds has reportedly come from selling off TCS shares worth ₹9,000 crore last year; TCS is the conglomerate’s top performing group company.
Tata Sons recently announced it would funnel an additional ₹50,000 crore into resurrecting their telecom business – Tata Teleservices. The mobile business under Tata Teleservices was bought off by Airtel after reaching an agreement with the Japanese joint venture partner NTT DoCoMo.
Game plan for group entities
Fresh investments like these, coupled with strategies aimed at synergising the group’s companies have helped to align them to the core business model. In a major reconfiguration, all of Tata’s group entities have been brought under 10 broad verticals since last year.
This has yielded positive results for some of the highly leveraged entities, helping them get back on track. For example, the group consolidated its real estate and infrastructure verticals, in order to scale and simplify further. Another instance was bringing Tata Chemicals’ consumer business, which mainly oversees the Tata Salt segment, under Tata Global Beverages.
The revival plan has also included a simplification of the group structure, by reducing cross-holdings between group entities. Chandra ensured that Tata Steel no longers holds equity in 13 other listed Tata entities, which it did even 2 years back. According to some reports, 85% percent of this exercise has been completed across the group. The remaining will be done by the year-end.
A review on which businesses to retain and which ones to divest is still pending.
Growth, profit and loss
With the capital restructuring phase almost over, sources claim Chandra is pushing the group companies to get into growth mode. “Fresh investments to be made by Tata Sons will only be aimed at entities driving growth,” one of the sources told the news publication.
Since the strategy seems to be paying off, Tata with the overall debt-to-equity ratio dropping below 1, is gearing up to chase growth.
But that doesn’t mean everything has been smooth-sailing for the group. In February 2019, homegrown auto major Tata Motors promised to take decisive action after its Jaguar Land Rover unit posted weak sales, resulting in the biggest-ever quarterly loss in Indian corporate history in Q3:18-19.
Chandra directed the company to cut costs and improve cash flow which reportedly paid off; in the next quarter, profit fell less than expected and the British luxury car-maker appreciated the impact of tighter control on expenses which helped it ride out the economic slowdown due to Brexit.
Furthermore, in line with the synergy model, Tata Motors is itself undergoing a massive overhaul of its country-wide sales network. By next year, it is expected to have all its future products on just two platforms — Omega and Alpha. Currently, it has over 790 dealerships across the country
Another one bites the dust
Meanwhile, Vinod Kumar, Managing Director (MD) and Group Chief Executive Officer (CEO) of Tata Communications, becoming the fourth senior official to quit the company in the last two and a half years.
Anil Sardana (Tata Power), Rakesh Sarna (Indian Hotels) and Brotin Banerjee (Tata Housing ) had also quit long before their tenure as CEOs were up.
Kumar had joined Tata Communications (formerly called VSNL) in 2004, which was around the time the company began its international operations. His resignation comes a week ahead of Tata Communications annual shareholder meeting next month, which is probably when more details of the revival plan will emerge.
Prarthana Mitra is a Staff Writer at Qrius.com
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