Consumer, technology ventures created wealth for Tata

It isn’t really remarkable that Tata group companies have seen a 60-fold rise in their combined market value from Rs 8,000 crore to over Rs 4.9 lakh crore over a 20-year span, under the stewardship of Ratan Tata. Tata took over the reins right at the time when India was ushering in its first wave of reforms in 1991.

Over the next two decades, as the rising tide lifted all boats, India’s private sector flourished and managed to expand as much as Tata companies did.

But what is remarkable is the group’s swift move into high gear in the new millennium. Many listed companies in the Tata group have turned out to be significant wealth creators in the past decade. Combined, they expanded their market capitalisation at 38 per cent per annum from 2002 to 2012.

This soundly trounces the rest of India Inc which expanded at about 28 per cent a year.

Technology wave

It was not just the Tatas’ mega global acquisitions that put the wind in the group’s sails. It was also the ability of the group to change, and change dramatically with the times.

First, the group rode the technology boom, adding significant stock market muscle through the listing of Tata Consultancy Services in 2004. It also entered new technology areas such as hardware (CMC) and telecommunications (VSNL) through buyouts as an early mover.

Next, it trained its sights on the great Indian consumption story. It set about getting a firm foothold in businesses that would cater directly to consumers, and not to India’s industrial houses.

It was Titan Industries, Trent, Tata Coffee and Tata Global Beverages that led this charge.

Consumers first

Some of these companies made unrelated forays. Titan’s diversification from watches to jewellery and then to accessories may have been quite difficult to rationalise, but they worked by putting the company one step ahead of consumer trends. Others, like Tata Global Beverages and Tata Motors, also shifted focus from their manufacturing operations to a more direct interface with consumers. For Tata Global Beverages, it was an exit from the plantations business and the acquisition of Himalayan, Tetley and other global brands that completed the transformation into an FMCG company with much higher profitability than before.

For Tata Motors, it was a shift from heavy vehicles to passenger cars, which were less cyclical and growing faster. The acquisition of Jaguar Land Rover cemented this position. For Voltas it was a move into room air conditioners.

Sea change

Nothing illustrates the Tatas’ penchant for change better than the transformation in the profile of its listed companies since 1991.

In 1991, the group was an unabashedly industrial group, with businesses such as steel, power and trucks contributing nearly three-fourths of its total market value.

Then, both the technology and consumer businesses put together made up less than 10 per cent of the Tata market cap.

Today, Tatas’ technology business led by TCS accounts for 54 per cent of the group’s market cap. The consumer businesses account for 30 per cent. The industrial component, with firms like Tata Steel, Tata Power and TRF, has been reduced to 14 per cent.

This also explains how the Tatas managed to accelerate their wealth creation in the last 10 years.

By now, everyone acknowledges that if there is one segment of the Indian economy which has remained resilient to the increasingly frequent downturns, it is consumer spending. It is on this trend that the Tatas have successfully piggybacked.

As he steps down this week, Ratan Tata’s legacy is that he transformed the Tatas into a business group that also makes steel.

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