Tata Group’s Silent Transformer

SOON AFTER THE first lockdown was announced in March 2020, Tata Sons chairman N. Chandrasekaran called on group patriarch and chairman of Tata Trusts Ratan Tata. “Chandra, we have to do something, this is going to be a big problem,” Tata said. Even before Tata Trusts and Tata Group companies came together to pool resources, Ratan Tata had already activated the trusts to allocate ₹500 crore towards relief operations. Chandrasekaran urged group companies to contribute another ₹1,000 crore, putting together a total corpus of over ₹1,500 crore towards Covid relief. He then sat down with group CEOs to make a to-do list for employees and the public.

“It’s not the money, but spirit of the people,” says Chandrasekaran. “No one realised that it was going to be a global pandemic. The world economy was brought to a standstill in two weeks. It was hard to imagine. Roads were empty everywhere in the world. No flights took off. Nobody travelled outside their homes. Hospitals were full.”

Besides its social commitments, the group, which has more than 9,00,000 employees in over 30 operational companies across six continents, had the tough job of digitally connecting its employees to restart business. Also, capital had to be conserved to meet fixed costs during the lockdown. Finding markets for products was another task.

Chandrasekaran, who is a keen marathoner and trekker, knew that the best view comes after the hardest climb. “I should say that it’s almost a decade or several decades of experience all packed in a couple of years,” he quips. Even though Covid was one of the hardest tests of his leadership, Chandrasekaran’s real skills were tried in businesses where he found opportunities in the middle of challenges.

The group increased its revenues to $128 billion in FY22 from $106 billion in FY20, despite the troubles of the pandemic and geopolitical issues, including the Russia-Ukraine war. The 29 publicly listed Tata companies had a combined market capitalisation of $311 billion as on March 31, 2022. Tata Sons, the holding company of the group, recorded a 164% rise in net profit at ₹17,171 crore in FY22, thanks to the share buyback and huge dividends received from TCS.

Chandrasekaran says the pandemic period accelerated four key trends — digital adoption, resilient supply chain, sustainability and health and wellness. The Tata Group was one of the first movers in creating a collaborative digital workspace. Flagship company TCS, where Chandrasekaran was CEO before he took over as chairman of Tata Sons, had already deployed the resources to build Secure Borderless Workspaces (SBWS), which eventually became the digital ecosystem for work from home (WFH).

The lack of resilient supply chains was another problem the group faced during the pandemic. A quality supply chain is the backbone of any economy. “India has the market as well as the scale to become the hub of the supply chain for the world,” says Chandrasekaran. TCS and Tata Communications already offer supply chain solutions, including processes, technology, and network. The group is expected to integrate its supply chains further to maximise efficiency.

As sustainability became a talking point during the lockdown, the group doubled its commitment, pushing companies to come up with a plan. “In South Bombay, you could hear the birds chirping in the morning. Jalandhar residents woke up to a view of the Himalayan range 160 km away. You could see clear sunrises and sunsets. It triggered the awareness for sustainability and it will get accelerated,” says Chandrasekaran. According to him, focus on health, wellness and safety is a key trend. “Most business solutions will have wellness and it will get deeply embedded in everything you do.”

The Metamorphosis

Ever since Chandrasekaran took over as chairman in February 2017, the group has focused on 3S — simplification, synergy, and scale. Group companies have simplified their business structures and expanded the scope and scale by modernising traditional businesses and adding new ones. Similar businesses like consumer and retail, financial services, and aviation and defence were regrouped under 10 verticals to achieve synergy related benefits.

To address the issue of legacy assets, products or services burning a hole in the group’s balance sheet, Chandrasekaran drew up a plan. According to it, Tata Motors stopped production of Nano cars, while Tata Tele exited the consumer telecom business. Tata Sons paid ₹5,850 crore to Japan’s NTT Docomo to buy back the latter’s stake in Tata Tele, and ₹38,000 crore towards debt payments and spectrum liabilities.

Recently, Tata Steel separated its profitable Netherlands business from the loss-making U.K. unit. The company is currently in talks with the U.K. government for support to convert its units, including the aging Port Talbot facility, into sustainable technologies. It is looking to convert Port Talbot into a scrap-based electric arc furnace since the country has ample scrap available, and has already pursued several initiatives to de-risk the business, particularly across procurement and supply chain. Tata Steel is also investing in technology and digitisation to drive productivity and improve resilience.

Another loss-making unit was Coastal Gujarat Power Ltd. (CGPL), a Tata Power-owned electricity generation company. Lenders are likely to take a haircut on their ₹8,000 crore loans to CGPL in order to revive the continuous losses incurred by the plant since its inception. The unit is currently operating at 60% of its capacity after Gujarat and Maharashtra agreed to source electricity at a higher price.

In addition to resolving long-pending issues, Chandrasekaran pooled resources to identify business opportunities. The launch of the Nexon and Tigor EV versions has given the company a significant head-start in the electric vehicle business. In October last year, a group of investors led by TPG Rise Climate agreed to invest ₹7,500 crore in the EV subsidiary of Tata Motors for 11-15% stake. The deal valued Tata’s EV business at $9.1 billion.

One of Chandrasekaran’s key projects, Tata Neu, the Super App launched in April, is expanding its offerings by adding Titan, Tata Motors and Air India to the platform. Its rewards programme NeuPass has already garnered around 27 million customers. Tata Digital, which owns Tata Neu, has a customer base of 83 million.

With the focus on sustainability and green power, renewable energy is another business of the future. Tata Power Renewables is looking to increase its assets to 20 GW from the current 5GW, besides being the market leader in the rooftop and electric vehicle charging space. In April, private equity investors BlackRock and Mubadala agreed to infuse ₹4,000 crore in Tata Power Renewables for a 10.53% stake, valuing the company at ₹34,000 crore.

In another deal, in June, Tata Motors and Japanese chipmaker Renesas Electronics Corp. formed a strategic alliance to design, develop and make semiconductor solutions to counter the global shortage that has hit automotive and electronics industries hard. Renesas will also collaborate with another Tata company, Tejas Networks, for implementing next-generation wireless network solutions for radio units — used in telecom networks — from 4G/5G to open radio access network (O-RAN). The group is also looking to establish an electronics manufacturing joint venture, which will assemble iPhones in India. Tata Group has already floated a new company for the electronics business, Tata Electronics.

Reviving Finance

When you don’t have debt, your money can do anything you want it to. Chandrasekaran has been clear about his financial strategy — draw the debt capital, which can create sufficient cash flow. Banks were ready to lend to Tata companies when the world was reeling under the pandemic, but Chandrasekaran was against the idea of adding financial liabilities when there was no visibility of business normalcy.

“When everybody was raising capital, we went with a contrarian view. We had a virtual meeting of all CEOs and we said we are going to manage with cash flows. We didn’t increase the debt in any of the companies. We had a strong financial discipline,” he says.

It yielded quick results. Tata Steel reduced its net debt by ₹50,000 crore to ₹54,504 crore in the 24 months till Q1FY23. The steelmaker paused the greenfield expansion at Kalinganagar, Odisha, and used the cash flow to repay debt. High steel prices in the last couple of years have also helped the company, which plans to spend ₹12,000 crore on capital expenditure in FY23. Of the total amount, ₹8,500 crore will be spent in India. The India business constituted 62% of FY22 steel deliveries at 18.27 million tonnes.

Similarly, Chandrasekaran wants to turn Tata Motors’ automotive business debt free by March 2024. The company, which had a net debt of ₹60,700 crore as on June 30, 2022, posted a net loss of ₹11,441 crore in FY22, primarily due to low Jaguar Land Rover (JLR) sales. Though analysts see zero debt as a highly ambitious target considering the rising competition in the EV space, especially for JLR, Chandrasekaran says the company is committed to restoring profitability as it returns to competitive growth and inflation stabilises. The automobile major is bringing an electric focus even to its commercial vehicles to increase market share. It recently unveiled its first small commercial vehicle, Tata Ace EV, and plans to bring out more soon.

Another group company, Tata Power’s debt reduction plan has, however, been delayed. At its AGM in July 2020, the company had announced a plan to bring down gross debt to ₹25,000 crore by March 2021 through the sale of non-core assets, equity infusion from Tata Sons and stake sale to investors. Before BlackRock-Mubadala released the first tranche of ₹2,000 crore in August 2022, Tata Power had a net debt of ₹42,343 crore.

Following the simplification strategy proposed by Chandrasekaran, Indian Hotels Company Ltd., the owner of Taj, Vivanta and Ginger hotel brands, is monetising non-core assets and unlocking value from unutilised assets under three-year plan Avhaan 2025. The plan includes selling hotels in towns and small cities and getting into management contracts with buyers.

Chandrasekaran is also bringing a customer-centric approach to group companies. In order to expand the group’s customer-facing businesses, Chandrasekaran merged the salt and pulses business of Tata Chemicals with the tea and coffee business of Tata Global Beverages to create Tata Consumer Products Ltd. (TCPL) in FY20. In 2021, TCPL expanded its portfolio by acquiring Tata SmartFoodz Ltd. from Tata Industries and Kottaram Agro Foods (the owner of the Soulfull brand). It is now planning to enter the home and personal care segment.

Tata Group has lined up $90 billion investment over the next 5 years to expand existing businesses and build new ones. As part of the plan, the group will undertake more acquisitions and greenfield expansions, besides increasing its footprint across new-age businesses.