Tata group companies have performed well in the period since N Chandrasekaran took over as Tata Sons chairman. During this period, the Sensex has risen from 28,761 points to 50,889 points. However, the Tata group relied heavily on its IT company Tata Consultancy Services (TCS). TCS is the group’s most valuable company and TCS ‘contribution to Tata Sons’ outstanding performance is notable.
The Tata group underperformed during the last four years under the leadership of Chandrasekaran but now the fortunes of the group depend more on the performance of TCS than ever before. The total market capitalization of the group’s listed companies nearly doubled during the last four years, while the benchmark Sensex registered a growth of just 77 per cent during this period.
The overall market capitalization of the 16 major Tata group companies (excluding listed subsidiaries of these companies) on Friday stood at Rs 16.8 lakh crore. This is almost double the market capitalization of Rs 8.45 lakh crore when Chandrashekaran took over the Tata group on 21 February 2017.
TCS shares in Tata group companies have outperformed and their market capitalization has increased nearly 2.5 times in the last four years. TCS accounted for 78 per cent of the total market capitalization growth of Tata group companies over the last four years. As a result, the Group’s financial position today is more dependent on TCS than it was four years ago. The software company accounts for about 68 per cent of the group’s total market capitalization, which stood at 57.4 per cent in February 2017.
Despite significant gains in the share of Tata Motors, Tata Steel and Tata Consumer in recent months, their total market capitalization is significantly lower than TCS. TCS is largely dominated by a significant contribution to the profitability of the group. Excluding TCS, other companies have reported losses during the last three years. For example, the Tata group companies, excluding TCS, reported a net loss of Rs 3,077 crore in FY 2020, while their net loss was Rs 3,753 crore during the first nine months of April to December 2020.
The group companies Tata Motors and Tata Steel reported a significant improvement in profits during the December 2020 quarter but group companies, excluding TCS, reported losses. The group’s debt level has also been registering a steady increase during the last four years. Tata group listed companies, excluding TCS, reported a debt burden of Rs 3.2 lakh crore at the end of September 2020 from Rs 2.5 lakh crore at the end of March 2017 and Rs 2.3 lakh crore at the end of March 2015.
Net debt (cash and cash equivalent assets minus gross debt) has increased significantly since 2017 on the books of Tata group companies, excluding TCS. It was Rs 1.76 lakh crore at the end of March 2017, which has increased by nearly 51 per cent to Rs 2.66 lakh crore by the end of September 2020. As a result, the integrated debt vs. equity ratio for non-TCS companies increased to 1.62 times at the end of September 2020 from 1.4 times at the end of September 2017.