When Ratan Tata took over the reins of the Tata Group from JRD Tata in 1991, the conglomerate was an India-focused enterprise with a presence across nearly every sector of the economy: from steel and automotive to chemicals, cement, power, paints, soaps, cosmetics, tea and coffee, pesticides, pharmaceuticals, software, electronic hardware, consumer durables, printing, publishing, hospitality…..
Ratan Tata had inherited a profitable and financially robust enterprise, yet the group lacked cohesion and a unified long-term vision.
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At the time, the 34 listed companies in the group had reported combined net sales of Rs 8,992.8 crore in 1990-91 (FY91), with a net profit margin of 5.83 per cent. The group’s combined market capitalisation stood at Rs 8,688.6 crore, and total assets were Rs 10,871 crore at the end of March 1991. This translated into a respectable return on equity of 16.1 per cent and a debt-to-equity ratio of 1.16x.
Tata Motors was the group’s largest company by revenue, generating Rs 2,072 crore in FY91, followed closely by Tata Steel at Rs 1,991.5 crore. However, Tata Steel led in net profit with Rs 160.1 crore, followed by Tata Motors at Rs 142.1 crore. Tata Steel also had the highest market cap of Rs 3,653.5 crore, while Tata Motors came in second at Rs 1,788.3 crore as of March 1991.
In fact, 33 of the 34 listed group companies (with the exception of Tata Elxsi) were profitable in FY91, with returns on equity ranging from 2.5 per cent in Rallis India to 53 per cent in Tata Metals & Strips, which is now part of Tata Steel.
Despite this profitability, the various group companies operated more like a loose federation rather than a cohesive entity guided by a common vision. This lack of alignment became a significant issue in the era of economic liberalisation, which introduced Indian businesses to global competition for the first time in 50 years. The 1991 economic reforms also opened doors for hostile takeovers, a threat for the Tata Group given Tata Sons’ relatively low stake in its key listed companies.
Ratan Tata’s first task was to prepare the group for the new economic era defined by globalisation and freer capital flows. However, many of the group’s key companies — such as Tata Steel, Tata Motors, Tata Power, Tata Chemicals, Indian Hotels, Voltas, and Tata Tea (now Tata Consumer) — were founded in an era of licence raj and price restrictions.
Ratan Tata set the group on a new growth trajectory. His 21-year tenure as Tata Sons chairman can be divided into two distinct phases.
The first was a clean-up and consolidation phase from 1991 to the early 2000s, during which he divested or exited from businesses in consumer segments such as TOMCO (oils and soaps), Lakmé (cosmetics), Merind (pharma), Tata IBM and Tata Telecom (electronics), and ACC (cement).
This was followed by a period of rapid growth, fuelled by transformative overseas acquisitions that turned key companies — Tata Steel, Tata Chemicals, Tata Tea, Tata Motors, and Indian Hotels — into global competitors in their respective segments. As a result, Tata became India’s most globalised business group, with international markets accounting for nearly two-thirds of its consolidated revenue by FY13, when Ratan Tata retired. This was a significant leap from its minimal global presence in FY91.
The result? Tata group’s combined net sales were up 12.6 times between FY03 and FY13 compared to the 4.3X growth between FY91 and FY03. Similarly, the group profits were up 6.3X between FY03 and FY13 compared to 4.5X between FY91 and FY03.
By FY23, Tata Group’s combined net sales had risen to Rs 4.85 trillion, from Rs 38,521 crore in FY03 and Rs 8,993 crore in FY91. The group’s net profit surged to Rs 16,142 crore in FY13 from Rs 2,654 crore in FY03, with total assets reaching Rs 5.21 trillion in FY13, up from Rs 58,000 crore in FY03.
The rise in market cap was equally remarkable, increasing 25.2 times between FY03 and FY13, compared to a 2.3x growth between FY91 and FY03. This was driven largely by the public listing of Tata Consultancy Services (TCS) in 2004, which doubled the group’s market value in FY05 compared to the previous year.
Ratan Tata’s tenure wasn’t without challenges. Many high-profile acquisitions were debt-financed, straining companies like Tata Steel, Indian Hotels, Tata Tea, and Tata Motors, particularly in the aftermath of the 2008 financial crisis. Consequently, the group’s return on equity fell to 11.6 per cent in FY13 from 25 per cent in FY06, while the debt-to-equity ratio climbed to 1.34x from 0.52x. Excluding TCS, the group’s financial metrics in FY13 were worse than when Ratan Tata assumed leadership.
What saved the day for Tatas was TCS , which, post its listing, turned into the biggest free-cash flow generating machine in corporate India’s history. The steadily growing quarterly dividend payout from TCS allowed Tata Sons and other group companies to fund their big-ticket acquisitions without breaking a sweat.
First Published: Oct 10 2024 | 4:01 PM IST
