Tata group continues to battle legacy issues; TCS remains prime cash cow

Ex-TCS, group posted net loss for the third straight year in FY21

Nearly a decade after the retirement of Ratan Tata from the group and almost five years after the ouster of Cyrus Mistry from Tata Sons, India’s largest business conglomerate in the private sector continues to be bogged down with legacy issues.

If the earnings of Tata Consultancy Services are excluded, the group’s listed companies reported a net loss on a consolidated basis for the third consecutive year in FY21. Ex-TCS, the group listed companies, reported a combined net loss of Rs 3,405 crore in FY21, up from a combined loss of Rs 2,996 crore a year before. Including TCS, the group’s listed companies reported combined net profits of Rs 29,025 crore last financial year, marginally down from the Rs 29,344 crore a year before.

As a result, the group’s fortunes remain tightly linked to the performance and cash flow of TCS, which reported net profits of Rs 32,430 crore in FY21, more than the combined earnings of the other group companies.

The group’s financial ratio improved for the third consecutive year in FY21. Ex-TCS, the group companies’ consolidated returns on capital employed (RoCE) improved to 5.4 per cent in FY21, up from the 3.8 per cent a year earlier but less than half the Sensex companies’ RoCE of around 11 per cent. Including TCS, the group had a combined RoCE of 11.2 per cent, up from 10 per cent a year ago. (See the adjoining charts.)

Balance sheet deleveraging

On the brighter side, the group showed the first signs of balance sheet deleveraging after a decade of debt expansion. The group’s combined borrowing was down 4 per cent year-on-year in FY21, the first such decline since FY10. The decline was led by Tata Steel, which used the upturn in the steel cycle to repay nearly Rs 28,000 crore worth of debt last financial year. 

Tata Steel reported a sharp jump in revenues and profits in FY21, thanks to a global rally in steel prices in the second half of FY21. As a result, the group companies’ combined gross debt declined to Rs 3.35 trillion at the end of FY21 from Rs 3.49 trillion a year earlier. 

The group’s gross debt to equity improved to 1.18X in FY21 from 1.27X a year earlier, while the net debt to equity ratio improved to 0.91X from 1.05X a year ago. Nearly 90 per cent of the group's gross debt is accounted for by Tata Motors, Tata Steel, Tata Power, TTML, and Indian Hotels. In contrast, Titan, Tata Consumer, Voltas, Tata Elxsi, Tata Chemicals and Tata Investment Corp have minimal debt or are debt-free.

Automotive and telecom post big losses

Tata Motors, Indian Hotels, and the listed telecom venture, Tata Teleservices (Maharashtra), however, remain the weak spots for the group. Big losses at these three companies undid the gains posted by firms such as Tata Steel, Tata Consumer, Voltas, and Tata Elxsi. Tata Motors reported a net loss of Rs 13,452 crore in FY21 due to the asset write-down at its British subsidiary Jaguar Land Rover. This was the third net loss for the auto major in as many years.

Continuing losses at Tata Motors remain the single-biggest headache for Tata Sons. The auto major accounts for more than a third of the group assets and 40 per cent of the combined borrowing of all group listed companies. Tata Teleservices (Maharashtra) (TTML), on the other hand, reported a net loss of Rs 1,997 crore last financial year due to low revenues and high operating costs.

Covid-19 hit on retail biz

The group retail ventures -- Titan and Trent -- were also affected by the pandemic last financial year. While Trent reported a net loss in FY21, its first in seven years, Titan reported a sharp 42 per cent year-on-year decline in net profit. The revenue loss at Titan was, however, averted due to a sharp rise in the prices of gold jewellery last financial year. Analysts, however, expect a recovery in FY22 as retail operations normalise in the country.

Tata Power, the third-most indebted company in the group, reported a double-digit rise in its net profit in FY21, but its earnings remain low compared to its debt and capital employed. It reported RoCE of 6.65 per cent in FY21 lower than 6.9 per cent a year ago. In all, six listed Tata companies reported a net loss in FY21 against four in FY20.