Dilemma of the new Tata chief

Tata Group is more than an institution—it is an economy in itself with revenue of close to Rs 7 lakh crore from a host of diversified businesses and a market cap of around Rs 7.77 lakh crore. However,this ‘mini-economy’ marginally under-performed the broader indices like BSE500 in the last 10 years. While the marketcap of BSE500 went up by 226% from Rs 31.40 lakh crore in January 2007 to Rs 102.33 lakh crore now, the combined market cap of listed Tata Group companies moved up by 213% in the same period from Rs 2.48 lakh crore to Rs 7.77 lakh crore.

Can the new leadership ponder over new thinking to augment the wealth of the shareholders? In the last two decades, for example, many individual entrepreneurs built fabulous businesses in terms of size and faster growth, outperforming wealth through equities in areas like banks (Kotak), pharma (Sun Pharma), diversified FMCG (not just tea & coffee alone) and on-line stores/portal. Can Tatas think of diversifying into such fast growing businesses, which primarily bank on India’s growth story? Can they think of diversifying into virtual stores away from the physical stores?

Can they think of consolidation within the group to minimise the costs and maximise the profits? Does it make sense to run similar businesses under multiple entities? We have giant Tata Steel on the one hand and smaller metal-related companies like Tata Sponge and Tata Metalik on the other. Similarly, we have TCS versus Tata Elxsi, Titan versus Trent, Tata Communications against Tata Teleservices, etc.

Business restructuring is another area, which could make a big dent in the shareholders’ wealth going forward. Europe doesn’t have any comparative advantages at all when compared with markets like India for the steel business. Neither the European steel market nor its economy is growing faster than India. Moreover, the European market doesn’t have any comparative cost advantages like cheap laboror easy access to inputs like iron ore. Can shedding the steel business there and refocussing in India to get back Tata’s past glorious market share in the Indian steel business make sense to escalate the shareholders’ wealth?

The entire IT industry is impacted by the base effect—over $108 billion annual IT exports base is struggling to grow dollar revenues in double digit. Recently, the IT majors’ rupee revenue growth also slipped into single digits. Does it make sense to think of inorganic route to growth? Successful solutions for some of these thoughts could make fabulous wealth for the shareholders of this most trusted ‘mini economy’.

The writer is founder & managing director, Equinomics Research & Advisory Pvt Ltd