Friday, 28 October 2016

TCS, Most precious Tata group's company

Not withstanding Cyrus Mistry's unethical outbursts & revelations in his leaked email to Tata Sons board members, all is not well in Tata Group of companies.

  • Excepting JLR, Tetley, TCS most of the other companies are incurring losses or struggling with below the mark performances during the past 10 years.
  • IHCL, Tata Steel Europe, Tata Motors, Tata Power Mundra, Tata DoCoMo, Tata Capital are facing troubles.
  • Air Asia and Tata Docomo are entangled in legal battles.
  • Nano car is consistent loser with no sight of profitability, but is surviving due to emotional reasons of Ratan Tata.
  • TCS is facing several visa related cases in USA.
  • Nano car project is losing money consistently. 
  • This has resulted in their net worth lower and increased debt.
  • However increased valuations enabled cushion to absorb shocks without revamping companies.

If there was no TCS, there is no Tata Group worth talking about. TCS grew 10 times in 10 years.
  • Tata Consultancy Services (TCS), which has become the darling of the bourses over the last decade, accounts for 60 percent of the group's market valuation and nearly 75 percent of its net worth. Put another way, the worth of the rest of the group is a third of TCS.
  • TCS crossed a market capitalisation of Rs 5,00,000 crore at a time when the market value of the rest of the group was all of Rs 3.4 lakh crore (see table). 
  • TCS's market-cap was more than the next four Indian IT majors (Infosys, Wipro, HCL Tech and Tech Mahindra) put together.
  • Tata Steel was the bedrock on which the group was originally built, TCS is the muscle that now bankrolls the group in substantial measure.
  • The group, however, got its act completely right with its acquisition of Jaguar Land Rover (JLR) which has been very profitable - profitable enough to rescue the mother company (Tata Motors) from huge losses in the domestic auto market.
  • Tata Power got done in by its massive port-based Mundra project that was to be based on "cheap" imported coal. But cheap turned expensive when Indonesia began taxing coal exports heavily. The net result was Tata Power now has a huge debt overhang of more than Rs 33,000 crore and weak profitability. Servicing the debt is one huge task.
  • The group also has to buy out Japan's DoCoMo from Tata Teleservices- at a possible exit price of Rs 7,200 crore.
  • The JLR acquisition would not have been possible without the cash flows from TCS. DoCoMo cannot be bought out from Tata Teleservices without TCS money. Tata Steel's huge debts cannot be amortised merely with earnings in steel. A big chunk, nearly Rs 30,000 crore, falls due in 2015, says the BS report. While some of the money may come from selling off non-core assets or from improved cash flows from the European operations, it is the TCS money muscle that really backstops the flagship's financial burdens.
  • In July and August, TCS will pay out Rs 12,750 crore as dividends, of which over Rs 9,300 crore goes to Tata Sons, the owner of TCS and group holding company. It is these dividends from TCS that have enabled Tata Sons to keep investing in group companies and raise larger amounts of debt to fuel the group's growth or staunch its losses.
  • Maybe it's time to make TCS the flagship of the Tatas. 

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