Shareholders wealthier under Cyrus Mistry’s regime

Equity market investors rewarded Tata Group companies in terms of increase in market capitalisation as profitability and debt situation of the group improved substantially after Cyrus Mistry became chairman of the group on December 28, 2012.

Market capitalisation of 24 Tata Group companies soared 49 per cent since Mistry took over the reins. Except Tata Coffee, Tata Power, Tata Steel, Tata Global Beverages, Tata Teleservices Maharashtra and Automotive Stampings and Assemblies, the rest 18 companies have seen an increase in market capitalisation since December 28, 2012.

The group on the whole has outperformed the benchmark index and broader indices (BSE 100 and BSE 500) significantly. While S&P BSE Sensex has given returns of 28 per cent, the other two indices have gained 29 per cent and 34 per cent, respectively.

The star performers that boosted the investors wealth are TCS (by over ₹2 lakh crore) and Tata Motors (more than ₹24,000 crore).

“Cyrus Mistry’s focus has been on de-leveraging and profitable growth across group companies. The group is also selling unviable assets, such as they are doing in Indian Hotels, Tata Chemicals and Tata Communications. The group was aggressive in mergers and acquisitions in the past,” said the head of research of an Indian broking firm who did not wish to be named.

According to G Chokkalingam, Founder of Equinomics Research, “Topline growth slowed down mainly due to slowdown in the world economy. Market capitalisation increase is linked more to the broader market movements. Sensex bottomed out at 18,800 in March 2013, while it hit all-time high levels of close to 30,000 in March 2015.”

Consolidated net profit of the group grew at a compounded annual growth rate 36.8 per cent in FY13-15 after witnessing a decline of 25.5 per cent in FY11-13. Profitability surged as a result of improvement in the bottom line of Tata Motors and reduced losses at Tata Steel.

The group also improved its debt situation substantially, led by Tata Power and Tata Motors. Total debt and net debt grew at CAGR of 9.2 per cent and 5.5 per cent respectively, in FY13-15 compared to over 16 per cent in FY11-13.

However, the group’s revenue growth slowed to 11.4 per cent CAGR in FY13-15, compared to 18.1 per cent CAGR in FY11-13. The company’s net sales growth slowed down on account of weak performance by frontline companies, such as Tata Steel, Tata Motors, Tata Power and TCS. These companies accounted for 87 per cent of total revenues of the group.

While TCS’s revenue growth was affected following the rupee bottoming out to an all-time low of 68.8 per cent in August 2013, other overseas operating companies especially, Tata Steel’s Corus felt the squeeze of the global economic slowdown.

Excluding TCS, net sales growth of the group was lower at 9.7 per cent CAGR in FY13-FY15. But profitability growth at 93 per cent CAGR in FY13-15 was very strong, thanks mainly to lower base as cumulative profit, excluding of TCS, had declined 85 per cent in the FY11-FY13 period.

In the first half of FY16, the good performance of the two financial years was negated a little. Consolidated net sales and net profit at 15 out of 24 Tata Group companies declined 2.4 per cent and 18.5 per cent year-on-year, respectively. For the rest nine companies, standalone sales and net profit declined at a higher rate of 9 per cent and 30 per cent, respectively.