India’s oldest and most storied business empire; salt to software conglomerate – the Tata Group, has taken a decision (perhaps a wise one) to cut back its sprawling business and reduce the group’s debt by avoiding big ticket acquisitions and preferring to grow its businesses organically instead.
Debt has become a defining issue for some of India’s biggest companies as the government cracks down on bad loans following a decade of expansion. The most obvious example being Anil Ambani’s group which relied on high leverage to expand its operations, only to see their businesses hit following a crackdown on bad loans by the government. Considering that the Tata Group’s overall consolidated debt has bloated in excess of ₹ 2,77,000 crore, which is the largest among India’s conglomerates; the company’s blueprint for reducing some of it is well founded.
To give you a break-up of the figures, the group’s three most indebted companies; Tata Steel, Tata Motors and Tata Power contributed in excess of 80% to its overall debt and a concentrated effort is being made to deleverage some of that.
It can be clearly observed that Tata Motors and Tata Steel (which contribute far in excess of 50% of the group’s debt for both years) is the pain point. On the other hand, Tata Consultancy Services (TCS), which is by far the conglomerate’s most profitable entity, is not riddled with debt and contrarily stands almost debt free.
After more than a decade of big ticket acquisitions which include Tata Motors’ acquisition of British luxury carmaker Jaguar Land Rover in 2008 for $ 2.3 billion, Tata Powers’ acquisition of Wellspun Renewables Energy for roughly $ 1.4 billion in 2016 and Tata Steels’ ambitious purchase of European steelmaker Corus Steel in 2007 for $ 12.9 billion and its most recent successful acquisitions of Bhushan Steel and Usha Martin via Insolvency proceedings; the group’s total debt had swelled to a fat ₹ 3,19,000 crore or ₹ 3.19 trillion by the end of fiscal year 2018. What didn’t help was Tata Steel’s failed attempt at a joint venture with German steelmaker Thyssenkrupp which failed to get the European regulators’ nod amid anti-trust concerns; a deal that would have helped transfer some of its debt and deleverage its balance sheet. However, a focus on improving operating metrics and organic growth coupled with a strategy to avoid costly acquisitions has seen the overall debt reduce to ₹ 2,77,000 crore or ₹ 2.77 Trillion by the end of the March 2019 fiscal; which is a reduction of roughly 13%.
At the helm of the $ 110 Billion Tata Sons, which is the holding company of the Tata Group and holds the bulk of its shareholding, sits a 30 year veteran – its highly competent Chairman Natarajan Chandrasekeran. Being an avid long distance marathon runner, Chandra, as he is fondly referred to by colleagues, is always focused on long term planning and financial health of the company. He was handpicked by Ratan Tata to succeed Cyrus Mistry, who was ousted in October 2016 following a feud with the board of directors. The aim of the restructuring was to prune the 100 or so operating companies under the group’s umbrella to a more manageable number under 10 verticals while simultaneously reducing debt to a more manageable level and making a provision for succession planning. Under the watchful eye of Mr Chandrasekeran, that seems probable in the near future.