Leading management consultancy McKinsey & Co has recommended that the Tata empire should be divided into three broad groups, consisting of its five core companies, infotech and telecom companies, and service companies like Indian Hotels and Tata Services respectively.
McKinseys preliminary report, which will be submitted after three weeks, describes the Tata group as an unfocused conglomerate. The report calls for the Tatas to restructure to focus on core activities. McKinsey has identified the groups core activities as steel, automobiles, tea, power, telecom, software, and services like hotels.
The report has suggested that the Tata companies should be categorised into three groups. The first group should consist of the Tatas five major companies, namely Tata Iron & Steel Company (Tisco), Tata Engineer-ing and Locomotive Company (Telco), Tata Tea, TEC and Tata Chemicals. The second group should be made up of telecom and infotech companies like Tata-IBM, Tata Elxsi and Tata Infotech, while service companies like Indian Hotels and Tata Services should make up the third group.
The report also recommends that the Tatas should divest their stake in other non-core companies like Voltas, Rallis and Merind at an opportune time and price. The Tatas had sought McKinseys services to help streamline the groups operations late last year.
The Tata groups activities currently span 11 sectors, including metals and associated industries, automobiles, energy, engineering, chemicals and pharmaceuticals, consumer products, services, agro industries, informa- tion technology, exports and overseas operations and finance.
The Tata group currently consists of 50 companies, with a total equity capital of Rs 1,767 crore. The groups net worth is Rs 13,339 crore, while the total combined borrowings of the group companies amount to Rs 11,581 crore. The total assets of the Tata group are worth Rs 24,930 crore, with a combined profit of Rs 2,509 crore.
Tata supremo Ratan Tata has repeatedly asserted that all Tata companies should be within the top three in their sector of operations. The companies which fail to meet this criterion after a certain period of time are expected to be hived off. ``These (companies) are expected to go...Otherwise they could prove to be a drag, a source commented.
Besides streamlining group operations on the lines of McKinseys recommendations, the group is also keen to enhance the shareholder value of individual companies. ``Nowhere in the world do companies support such extensive diverse activities as the Tata companies. This means that the shareholders return of investment is low, a source pointed out. The group companies are also looking at restructuring internally to increase productivity and decrease costs. ``Telco is looking at reducing costs by Rs 250-300 crore, while Tisco has set a target of reducing costs by Rs 150 crore, said sources.
