InvestorQ : With the management uncertainty in Tata Group, what happens to shares like TCS and Tata Motors? Should we sell out of these stocks?
Arya Nanda made post

With the management uncertainty in Tata Group, what happens to shares like TCS and Tata Motors? Should we sell out of these stocks?

Deepa Salunkhe answered.
2 years ago

The Tata group may be up against an immediate leadership issue with the appellate tribunal (NCLAT) ruling in favour of ousted chairman Cyrus Mistry. There have been fears that it could lead to weakened investor confidence in the group and many investors are wondering whether they should sell out for the time being. Nothing could be farther from the truth. Let me run you through the sequence of events. One of the worries is that the aggressive business transformation exercise undertaken by Chandrasekharan may slow down.

It may be recollected that while ordering the reinstatement of Cyrus Mistry, the NCLAT had termed the appointment of Chandrasekharan as “illegal". Of course, the Tatas will go to the Supreme Court and it remains to be seen whether and to what extent the NCLAT order is stayed by the Supreme Court on appeal. The bigger worry is that if the case drags along further then the position of Chandra may become slightly ambiguous and that could really impact the interests of the Tata Group. Let me tell you why.

Within a year of taking charge at the helm of Tata Sons, Chandrasekharan had outlined a plan to rationalize the group’s portfolio of companies. The plan was to drastically reduce the number of companies from the existing 110 to a maximum of up to six or seven companies only. This would be achieved through a mix of mergers, consolidation, restructuring of business and sale where it was not viable. On those lines, the Tata Group had exited the telecom business, merged the salt business of Tata Chemicals with Tata Global and many more are in the offing. That momentum could be lost for now.

The big profits and market cap of the group was only coming from TCS. To a lesser extent, market cap was also coming from Tata Motors and profits from Titan. However, the focus on just a handful of companies trying to pay for a portfolio of 100 companies just did not make sense. The need of the hour, which Chandra has been working on, is to bring them under common clusters to harness their full potential. Chandra has commenced an aggressive capital allocation drive to bolster businesses in sectors which the group has identified as growth areas.

There have been some great changes under Chandra. The net worth of 28 listed Tata group companies has jumped 24% between 2016 and 2019. At the same time, the group’s overall debt fell by more than 37% from Rs.499,000 crore in 2016 to Rs.312,000 crore in 2019. Based on the strong performance put up by the Tata Group under Chandra, it is surely a decision that has paid off and also has justified the change. In the larger business interests of the group, the decision looks justified. As for the NCLAT order, the outcome may be limited to giving an honourable exit to Mistry, which is par for the course. But long term negative implications for the Tata Group look unlikely.