Has Chandra been able to beat market expectations since he took over as Tata group chairman?


The market cap of the Tata group’s listed companies has risen at a faster clip than the Nifty during Chandra’s stint. The dependence on TCS for profits continues, but customer-facing businesses have gained

REUTERS/Danish Siddiqui - RTX2YOBJ

REUTERS/Danish Siddiqui – RTX2YOBJ

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Natarajan Chandrasekaran (Chandra) took office as the Chairman of the Tata Group nearly four years back on 21st February, 2017. Post a very successful stint at TCS, hopes were running high from the first professional non-family boss of the Tata empire. Has he lived up to those elevated expectations?

At first glance, taking a rather simplistic approach, he seems a clear outperformer. The market capitalisation of the listed entities of the Tata group in the past four years (from 21st Feb 2017 to 12th February 2021) has risen at a CAGR (compounded annual rate of growth) of 20.7 percent, handsomely beating the annualised Nifty return of 14.2 percent over this period. More importantly, in each of the past four years, the combined market capitalisation of the group has risen faster than the Nifty. So markets are a satisfied lot with the Tata Group’s overall performance.


Source: Moneycontrol Research

Of the twenty seven listed companies considered for this analysis, twenty had outperformed the benchmark Nifty in the first year of Chandra’s stint. The second year was subdued at the bourses and only five companies managed to outperform the Nifty. However, the number of outperformers rose sharply to ten in the third year and the past one year saw almost fifteen Tata group companies doing better than the benchmark.

In fact, in thirteen companies of the Tata group, if investors had put money at the start of Chandra’s stint, the annualised return over the past four years would have been better than the Nifty.


Source: Moneycontrol Research

But where was the Chandra touch?

To answer that question, consider that a dozen companies of the group continue to account for close to 98 percent of the group’s market capitalisation.

Tata 3

Source: Moneycontrol Research

At the start of Chandra’s innings, the bulk of the group’s market capitalisation ( over 85 percent) was contributed by four companies–TCS, Tata Motors, Tata Steel and Titan. As we stand now, these four companies continue to contribute close to 86 percent of the group’s market capitalisation. However, the myriad issues that were plaguing Tata Motors in the past couple of years resulted in its share falling significantly, whereas the smart transition to digital clearly worked for TCS. Thus the erosion in Tata Motors was compensated by TCS, with Tata Steel almost hovering at the same level. The noteworthy gainers have been the consumer facing businesses.  These include Titan, the crown jewel, along with Tata Consumer that now houses the food and beverage businesses, and Voltas, that has carved out a place for itself in the competitive air conditioning market. These success stories suggest Chandra’s steering has been in the right direction.

But is he quite there?

The answer is: it is still a work in progress. Let us look at the profitability of individual Tata group companies. In the past four years, a steady performance was seen in TCS, Tata Consumer, Tata Elxsi, Tata Metaliks and Nelco whereas significant improvement was seen in Tinplate, Titan and Indian Hotels. Tata Motors and Tata Steel, two of the key legacy businesses, were volatile. So in terms of overall contribution to group profitability, the overdependence on TCS remains, as the consumer facing businesses are yet not large enough to do any heavy lifting.


Source: Moneycontrol Research

Except for year 2, where both Tata Motors and Tata Steel did well, the group continues to rely heavily on TCS, thanks to mishaps in some legacy businesses, with the consumer facing businesses making their presence felt only gradually.

In fact, these two legacy companies are the key contributors to the group leverage, that has only risen over the years. The group’s consolidated debt to equity ratio of its listed companies that was close to 1.19X in March 2017, has barely fallen to 1.07X at the end of FY20, thanks to the burgeoning debt levels of these old Tata companies.


Source: Moneycontrol Research

The Tata boss knows very well what needs to be done and is awaiting a more supportive global environment to put his plans into action. Meanwhile the task of making the group more agile, nimble footed and of exploiting group synergies to respond to a technology-driven dynamic market environment continues. Summing up, while the report card at the end of four years prima facie is that Chandra has been just a market performer so far, there could be surprises in store for investors, going ahead.

(For a detailed qualitative analysis of what surprises are in store for investors, do keep an eye on our next piece: Four years of Chandra: the hits and the misses)