Tata Group Chairman, Mr Cyrus Mistry’s statement last week broaching the issue of exiting businesses brings the 150 year old behemoth at a crossroad.\u00a0The statement seems to mark a shift in group’s strategy from expansion\/acquisitions to consolidation as driver of growth.\u00a0None of the chairman had openly talked about the need to trim down the portfolio\u00a0so far.<\/p>\n
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Tata Group is among the oldest business groups in the country with an aggregate revenue of about 6.6 lakh crore (FY15). It has 29 listed companies and over 100 operating companies within\u00a0its fold. The largest of these are Tata Motors, Tata Steel and TCS, the top three accounting for nearly 75% of groups’ revenue. About 2\/3rd of group’s revenue comes from international operations even though the share in profits is much lesser. This is the result of an aggressive overseas expansion strategy undertaken during last decade, most of them during 2005-07, the peak of domestic as well as global growth.\u00a0While the strategy paid considerable dividends, it also left some scars in the form of Corus, which Cyrus Mistry is now trying to repair. Asset wise, even though there are some dark spots, aggregate net debt of the group at about Rs 1.6 lakh crore against total asset of over Rs 7 lakh crore doesn’t look a big challenge.<\/p>\n
Despite the formidable standing as a group, there are\u00a0a number of group companies which have a small presence in their segment. Average revenue of group companies excluding the top seven is less than\u00a0Rs 4,000 crore, just 1.5% of the revenue of the largest group company..! Similarly, average market-cap of companies excluding top seven is less than\u00a0Rs 4,000 crore putting them in the category of small\u00a0cap stocks. These 22 companies have an average share of less than 0.5% of the m-cap of whole group.<\/p>\n
It is this that probably Mistry had in his mind when he told\u00a0the in-house magazine,”One needs to confront the challenging situations facing some of our businesses and ultimately this would entail hard decisions on pruning the portfolio”.\u00a0His words in some ways is a reminder of Jack Welch’s philosophy, CEO of GE from 1981 to 2001. He said\u00a0GE\u00a0would remain in a business only if it is\u00a0among the top 3 companies and exit the rest, earning him the nickname “neutron Jack”..!\u00a0The position of Tata Group probably is\u00a0not much different from that of GE then and accelerating the pace of growth of the group would need some\u00a0tough decisions.<\/p>\n
In fact, Mistry has already begun the job\u00a0with a number of\u00a0write-offs.\u00a0The write-off relate not only to Corus but\u00a0also to Tata Chemicals, Indian Hotels etc.\u00a0Write-offs is an act of cleaning up the balance sheet of a business\u00a0entity and helps in sale or easier integration of the unit within the overall business portfolio.<\/p>\n
Cyrus Mistry, still in his forties,\u00a0has many more decades ahead of him to learn and take the group forward. Going by the past four years, it would not be surprising if he overshadows the achievements of past in the decades to come…<\/p>\n
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Tata Group Chairman, Mr Cyrus Mistry’s statement last week broaching the issue of exiting businesses brings the 150 year old behemoth at a crossroad.\u00a0The statement seems to mark a shift in group’s strategy from expansion\/acquisitions to consolidation as driver of growth.\u00a0None of the chairman had openly talked about the need to trim down the portfolio\u00a0so […]<\/p>\n","protected":false},"author":8,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[856],"tags":[114,185,279,344,724,737],"class_list":["post-10729","post","type-post","status-publish","format-standard","hentry","category-corporate","tag-average-size","tag-consolidation","tag-expansion","tag-global","tag-strategy","tag-tata","membership-content","access-restricted"],"yoast_head":"\n