AT THE ANNUAL general meeting of Tata Motors in August 2020, Tata Group Chairman N. Chandrasekaran faced flak from irate shareholders for the automaker’s huge losses, mounting debt, non-payment of dividend for four consecutive years, and the massive dip in investor wealth. Tata Motors’ share price had crashed to ₹65 due to the lockdown impact in April 2020 — the level it was in July 2009.
In his response, Chandrasekaran stuck to what he called “transformative initiatives”, including Tata UniEVerse, an electric mobility ecosystem — from charging infrastructure, battery packs and cells and electric motors, to customised financing options. Tata Motors had launched the electric versions of Tigor and Nexon by then. The 58-year-old chairman also announced the automaker’s plan to bring down debt to near-zero from around ₹62,000 crore in three-four years.
Less than a year since then, the perception about Tata Motors has changed drastically, thanks, in part, to its mega electric vehicle [EV] plan of launching 10 models by 2025. The result: Tata Motors’ stock hit an all-time high of ₹530 in November 2021.
However, the changes didn’t happen in a day. Since Chandrasekaran took over as chairman of the Tata Group in February 2017, he has been peddling transformation in each company and vertical, slowly and gradually. The pandemic just gave a boost to the process.
Tata Steel, struggling with its European business, shifted its focus to the Indian market; Tata Power decided to bid farewell to coal-fired power generation and build a portfolio of renewables; consumer businesses were brought under Tata Consumer Products (TCPL); TCS stressed on Cloud and borderless workspace solutions.
As part of the overarching strategy, the group companies combined their capabilities in each such initiative. Tata Motor’s EV play has been expanded with charging point support from Tata Power and storage battery innova- tions of Tata Chemicals. The financial services capabilities of Tata Capital, Tata Asset Management and the two insurance joint ventures are being combined to provide digital offerings as well as build Tata Payments. The technological and IT resources from various companies, including TCS, are being used to build the Super App. Manufacturing experience has been pooled to form Tata Electronics. Combining its aviation businesses with the recently acquired Air India, the group is also looking to conquer the skies.
The 10 Tata companies in the Fortune India 500 list improved their combined consolidated sales by a marginal 1.23% to ₹6,73,795 crore in 2020-21 despite lockdowns and other restrictions. However, combined profit slipped 2.35% to ₹31,602 crore. TCS continued to be the biggest contributor to the group’s profit with ₹32,430 crore. The market expects a surge in profitability with the turnaround of Tata Motors, which posted a net loss of ₹13,451 crore and ₹12,070 crore in FY21 and FY20, respectively. In addition, Tata Steel is in an upward cycle and posted a profit of ₹9,768 crore and ₹12,548 crore in Q1 and Q2 FY22, respectively. Overall, in the first half of FY22, the 10 Tata companies posted a cumulative profit of ₹33,911 crore, compared to ₹4,471 crore in the same period last year. The aggregate market cap of the 10 companies stood at ₹21.28 lakh crore by October-end.
Reloading Growth
Before Chandrasekaran took over, group companies were facing a host of legacy issues. The dismal performance of Tata Motors’s passenger vehicle business, losses at Tata Steel Europe and Tata Power’s 4,000-MW Mundra
plant, and the troubles at the overseas businesses of Indian Hotels and Tata Chemicals were bogging down the group’s profitability.
Initially, Tata Steel wanted to exit its European business (erstwhile Corus Plc.) to prevent accumulating losses on its books. When it failed, the com- pany tried to form joint ventures with European steel makers. But every plan hit a dead end, forcing the company to launch a loss-minimising plan.
T.V. Narendran, CEO and MD, Tata Steel, says the process of continuing to transform the company’s European operations has been going on for some time. “We separated the UK and the Netherlands business pretty much. The Netherlands has always been self-sufficient and will continue to be so. The UK business is also pretty much close to that,” he says.
In the last 20 years, Tata Steel’s India business has typically been 20% of the Ebitda margin during a down trend, and 40–45% during the upcycle. Narendran says the India business is now in an upcycle. The Europe busi- ness typically reports Ebitda margins of 5-20%. “We have been more single- digit than double-digit. But now the Netherlands business is more in the 16-18% range. The UK business is also more Ebitda positive — in the 5-7% range,” he adds.
In its October report, S&P Global says Tata Sons will likely provide extraordinary financial support to Tata Steel, if required, in times of financial stress. “Tata Sons and its subsidiaries and associates have become a more cohesive group in recent years. This is reflected in increased ownership across entities, perceived influence over financial policy,” it said.
Tata Power, meanwhile, is in a complete makeover mode. It is rapidly growing its renewable capacities and focussing on transition to an ‘asset- light’ business model. It is also scaling up customer-facing businesses such as power distribution, solar rooftop, solar microgrid and solar pumps, besides launching large-scale solar projects and new services, including EV charging and home automation. It plans to expand its renewable portfolio to 15,000 mega watt (MW) from the current 2,637 MW by 2025, and also wants to hive off its renewable business into an infrastructure investment trust and rope in strategic investors.
The company is implementing its 2.0 strategy, says Praveer Sinha, CEO and MD, Tata Power. “A critical element of the strategy is to strengthen the balance sheet of the company so that it becomes a robust platform for growth. Significant deleveraging has been achieved by divesting identified non-core investments. The company has also made significant progress in the divestment process of the remaining non-core investments and monetisation of its ‘green’ business portfolio,” he adds. However, according to analysts with financial services firm IIFL, the company will have to do a lot more to improve the strength of its balance sheet, cash flows and return ratios.
The other group companies, too, are reinventing themselves. Tata Chemi- cals has reorganised its businesses under four verticals — Agri Sciences, Nutritional Sciences, Material Sciences and Energy Sciences — as part of its strategy to build a science and chemistry focussed company. The sale of its consumer business, which includes branded salt, spices and pulses business, to Tata Consumer Products (formerly Tata Global Beverages) has led to the reprioritisation of its business. The energy sciences vertical plans to build facilities for manufacturing storage battery and battery recycling.
Tata Motors’s EV play has received a big push with the $1-billion investment offer from TPG Rise Climate and Abu Dhabi-based ADQ. The private equity giants will get 11%-15% stake in the new entity, while they complete the investments in two tranches in 2022. The investment will value the new passenger EV company at $9.1 billion.
Consumer Is King
Noel Tata, Chairman of Trent Ltd., is excited about the future. “The modern retail market in India is still significantly unorganised and we see much growth potential in the coming years,” he says. Trent, which operates stores, including Westside, Zudio, Star, Landmark and Utsa, plans to embark on a rapid expansion drive after proving the viability of the particular retail concept with a limited portfolio of stores.
The retailer integrated the stores with the e-tailing of Westside products in FY21 to capitalise on the opportunities in the modern market. “With a collection of differentiated retail concepts, Trent is seeking to address this opportunity and we continue to witness very encouraging trends and traction for our offerings,” Noel Tata tells Fortune India.
Most Tata firms have turned into opportunity hunters. Tata Consumer Products’ CEO and MD Sunil D’Souza says the company has put in place building blocks for a future-ready organisation by strengthening digital and accelerating innovations. “We made value-accretive acquisitions and expanded our portfolio to include breakfast cereals and nutritious snacks.”
Tata Consumer Products was formed in February 2020 to spearhead the FMCG ambitions of the group. “Despite the challenges posed by Covid-19, supply chain disruptions and a volatile environment, we have delivered strong growth consistently. Both our tea and salt businesses in India have recorded double-digit revenue growth and significant market share gains,” says D’Souza. The company has strengthened its e-commerce capabilities. In Q2 FY22, its e-commerce sales rose 39% year-on-year.
Understanding the customer needs differentiated another consumer products business of the Tatas, Voltas. Pradeep Bakshi, MD and CEO, Voltas India, says the company has launched a new range of products and has introduced new features in existing ones, to cater to the health-conscious consumer in the new normal. “The newly introduced range of PureAir ACs that have UVC LED systems, which quickly disinfects the indoor air, is one example. Our new range of UV-based air, duct and surface disinfectant solutions also received positive response.”
Tech Drivers
The group is driving a digital-every-where strategy since Chandrasekaran, former CEO of TCS, was elevated to the top post. All Tata companies will be driven by artificial intelligence, data analytics, Cloud computing and machine learning. But core technology companies have a greater role to play in the transformation mission.
TCS has invested in Business 4.0 transformation, a framework built on four pillars — Cloud, agility, automation and analytics. It also introduced the Secure Borderless Workspaces model to enable remote access to employees post-Covid. According to an Axis Securities research report, TCS has built a resilient business structure through multiple long-term contracts it has won from the world’s leading brands. “With the growth in volumes and efficient execution, the company is expected to regain its operating margins at the desired level of 26-27%,” it adds.
Tata Communications has also been working on enhancing customer expe- rience. “Our next phase of transformation will come from sharper products and the shift to a more enhanced platform proposition,” says A.S. Lak- shminarayanan, MD and CEO, Tata Communications.
Another technology team is working under Chandrasekaran’s guidance to build the country’s biggest Super App — which will have categories such as electronics, groceries, fashion and lifestyle, beauty, travel, health, education, and entertainment. Tata Digital has acquired Big Basket to ramp up the offerings. There’s more in store.