Tata firms beat peers in 2021; TCS share in group's combined m-cap falls

Combined m-cap of listed Tata players, excluding TCS, is up 102% this year, so far

Tata Consultancy Services’ (TCS’) contribution to the group market capitalization (m-cap) has declined to a decade low of 58.2 per cent, on the back of a sharp rally in the share prices of other key group companies, such as Tata Steel, Tata Motors, and Tata Power. TCS accounted for 67 per cent of the group m-cap at the end of December 2020 and record 75 per cent at the end of March 2020.

The combined m-cap of listed Tata companies, excluding TCS, is up 102 per cent in the current calendar year, while that of TCS is up 26 per cent. The entire group market cap is up 49 per cent year-to-date (YTD), against a 28 per cent rally in the benchmark BSE Sensex.

These Tata companies had a combined m-cap of Rs 23.08 trillion on Thursday, up from Rs 15.57 trillion at the end of December 2020 and Rs 9.19 trillion at the end of March 2020.

Tata companies, with the exception of TCS and Tata Communication, have outperformed their industry peers. The mid-size Tata Elxsi has topped the charts with a 241 per cent rally in the share price YTD, against a 44.5 per cent jump in the BSE Information Technology index.

Still, TCS continues to drive the group profitability and is likely to remain the single biggest source of dividend for Tata Sons for a considerable duration. In Q1FY22, TCS accounted for nearly 64 per cent of the group’s combined net profit. In FY21, group companies would have reported a net loss on a combined basis, but for TCS. 

Among the big-size group companies, Tata Power has been the biggest outperformer, rallying 194 per cent YTD, against a 70 per cent rise in the BSE Power index. The company closed Thursday’s trade with a Rs 71,000-crore m-cap, sharply up from around Rs 24,200 crore at the end of December last year.

Global automaker Tata Motors has been another big outperformer; it has witnessed a 170 per cent YTD rise in its share price against just 27 per cent rally in the BSE Auto index. The company closed Thursday’s trade with a Rs 1.9-trillion m-cap (including its DVR shares), up from Rs 1.14 trillion at the end of December 2020.

Tata Steel, on the other hand, is up 113 per cent YTD, against an 85 per cent rise in the BSE Metals.

Other group firms that have witnessed a sharp rise in their share price and m-cap in 2021 include Titan Company (up 64 per cent against a 52 per cent rally in the BSE Consumer Durable), Tata Chemicals (up 127 per cent YTD versus a 74 per cent rally in the BSE Basic Materials), Voltas (a 60 per cent rise YTD versus a 52 per cent jump in the BSE Consumer Durables), Trent (up 68 per cent YTD, against a 28 per cent rally in the Nifty Consumption), and Tata Consumer (a rise of 44 per cent versus a 21 per cent jump in the BSE FMCG).

According to analysts, investors are betting on a remarkable improvement in revenues and earnings of the group’s brick and mortar companies over the next few years. “There is an expectation that companies like Tata Motors, Tata Chemicals, and Tata Power will make big gains from their investment in various components of the emerging Electric Vehicle ecosystem in the country. Tata Power has also benefitted from a sharp turnaround at its Mundra power plant due to a rise in power rates in the past few months,” says Shailendra Kumar, CIO Narnolia Securities.

Investors' bullishness about the prospects of Tata companies is evident in their stock valuation.

Tata companies, excluding TCS, are now trading at a price-to-book value of 5.1x – the best in at least 15 years and up nearly four times from 1.2x at the end of March 2020. In the past 15 years, these companies traded at a P/B ratio of 2.3X on average.

Business Standard did not use price-to-earnings ratio because of big losses incurred by Tata Motors and Tata Steel in the past.

Tata Motors has emerged as the top seller of EV cars in the country and last week, it sold $1 billion worth of stake in its EV business to TPG Group for an overall valuation of around $9 billion. It was nearly half the company’s overall m-cap before the deal announcement.

Tata Chemicals, on the other hand, has announced plans to manufacture Lithium-ion batteries using the technology developed by Indian Space Research Organisation (Isro). Tata Power, meanwhile, plans to set-up a nationwide network of EV charging stations.

Analysts say that these initiatives have led to a re-rating of these stocks as investors globally are making long-term bets on green-energy companies.

But they underscore that with the exception of Tata Steel and Tata Consumer, other performing group companies are yet to report a big jump in revenues or earnings. For example, brokerages expect Tata Motors to report a rise in its net loss in Q2FY22 due to higher costs and a slow rise in vehicle sales.