Reimagining Tata group

Bombay House needs to take a hard look at its strategy

Bombay House, the Tata group’s headquarters, needs to come up with a new recipe for growth to keep the group on top of India’s private sector league table. Consider the numbers: The group has always been over-dependent on Tata Consultancy Services (TCS), but that seems to have increased rapidly in recent years. In 2017-18, the software major accounted for over 90 per cent of the combined dividend income that Tata Sons received from listed group companies. Also, TCS made up for nearly three-fourths of the combined market capitalisation of the top 10 companies; this share was just about 60 per cent in February 2017, when Natarajan Chandrasekaran took over the reins at the group. This makes the group vulnerable, as volume growth in the global information technology services business is now down to single digits, making it tough for companies such as TCS to keep growing fast. So some of the other engines of the group have to start firing.

The only one to do that at present is Titan, which is the second-most valuable company in the group accounting for nearly 10 per cent of the combined market capitalisation of all group companies and ahead of much bigger entities such as Tata Motors, Tata Steel and Tata Power. Titan carved out its own niche without requiring much help from the holding company. There is an important lesson here for the Tatas, which exited several consumer-oriented businesses such as cosmetics, pharma, paints and soaps in 1991, as they didn’t fit in with its then strategy of globalising to create world-scale companies. In a step towards reducing the group’s dependence on India, the Tata group went on a series of overseas acquisitions, spending around $30 billion, buying nearly three dozen businesses. The strategy did pay off in terms of revenue growth, but the flip side was that they proved to be too costly. The acquisitions were largely funded by debt, the servicing of which continued to be a burden. In the last 10 years, the group has lost market share to rivals in steel, commercial vehicles, passenger cars, beverages, and hotels. The group is now a market leader only in IT services, commercial vehicles (with reduced market share), air conditioners, jewellery, watches and inorganic chemicals, including table salt.
 

Mr Chandrasekaran, who embarks on his third year as group chairman, seems to have realised the need for change. That explains his emphasis on reducing cross-holdings and the number of subsidiaries within operating companies. The group is also increasingly looking at home markets, as its strategy of going global has not yielded much returns. Some of the key decisions in his two-year tenure include the transfer of Tata Steel Europe (Corus) to a joint venture with Thyssenkrupp; exiting mobile telecom and selling oil and gas company Tata Petrodyne. But that may be just the first step. As the success of Titan and Voltas shows, a lot of the market value creation has taken place in the consumer sector with the proportion of consumption in India’s gross domestic product rising over the past decade. Mr Chandrasekaran would need to target a higher share of the consumer’s wallet through organic and inorganic routes in both the online and physical worlds. And for this he should focus on building strong domestic consumer-facing businesses. Among the other challenges he faces is turning around loss-making units such as Jaguar Land Rover and ensuring the right capital allocation for growing businesses.