InvestorQ : Why is the Tata group looking at cutting down on the number of companies in the group and how would the restructuring be done?
Arya Nanda made post

Why is the Tata group looking at cutting down on the number of companies in the group and how would the restructuring be done?

Anjana Aiyar answered.
2 months ago

In the last couple of years, the Tata group has already undertaken a restructuring of its group companies and reduced some of the overlapping businesses. For instance, in March 2022, the group announced the merger of Tata Coffee into Tata Consumer Products. Earlier, the salt business of Tata Chemicals had been merged into Tata Consumer portfolio. In fact, this phase started off in 2018, when Tata group had consolidated the defence business units of various companies under a single head, Tata Aerospace and Defence. The idea was to have scale to bid for large government contracts, which were being farmed out.

In the latest development, Tata Steel Ltd has just approved the merger of 7 of its subsidiary and associate companies into itself. Now out of these 7 companies, 4 are already listed companies. For instance, Tata Metalics, Tata Steel Long Products (formerly Tata Sponge Iron), Tinplate Company Ltd and TRF Ltd; all listed companies are being merged into Tata Steel in a pre-agreed swap ratio. Post the merger, these 4 companies would ceased to be listed on the stock exchanges. Of the other 3, Tata Steel will pay cash for 1 company while the other two are already wholly owned units of Tata Steel.

Here is the grand plan that Tata group has laid out for consolidating the various companies under manageable units. For instance, the group aims to reduce the 29 listed companies of the Tata group to 15. In addition, there are more than 60 unlisted companies and its numerous subsidiaries which would also be realigned towards simplifying the overall business structure of the Tata group, for reduction of costs, for better sharing of common facilities and for value chain synergies and control over the input and the markets.

Going ahead, some more major realignments are likely to happen. For instance, TCS, Tata Elxsi and Tata Digital may be combined into a single entity. Also its automotive franchises like Tata Motors, Automotive Stampings & Assemblies Ltd and Automobile Corp. of Goa Ltd. As the Tatas have already announced, the airline franchises of Vistara, Air Asia and Air Indi may be combined into a single entity to take on competition. Of course, the retail consolidation will entail combining the likes of Titan, Trent, Infiniti Retail (Croma) and the consumer electronics division of Voltas. Tata Neu may also fit into this story.

Here is the broad moral of the effort. For a long time, it is just a handful of companies like TCS, Titan, Tata Motors and Tata Steel that have driven most of the stock market value. With the consolidation along similar lines, the contribution is likely to become more balanced.