Mumbai: The Tata group, India’s largest conglomerate by revenue, will invest Rs.45,000 crore in the next two years across businesses and regions, newly appointed chairman Cyrus P. Mistry told employees in his first letter to them on Wednesday after taking over from Ratan Tata, who retired on 28 December.
Analysts said the investment plan announced by Mistry may be the first phase of realizing 75-year-old Ratan Tata’s vision of increasing the group’s turnover fivefold to $500 billion (around Rs.27 trillion today) by 2020, which the latter had elaborated on a few days before his retirement.
Mistry, chairman of Tata Sons Ltd, the flagship holding firm of the conglomerate, told employees that “plans for additional investment in excess of Rs.45,000 crore over the following two years” were already put in place. His purpose is “long-term stakeholder value creation”.
Mint reviewed a copy of the letter.
The corpus of planned investment will be utilized by the different entities under the Tata umbrella towards their “path to globalization” with “differing approaches to the spreading of risk, acquisition of technology, access to talent, and investment in long-term growth markets”.
Mistry added that over the last three years, the group had invested Rs.50,000 crore across businesses in India alone, creating primary employment for over 85,000 people and further secondary and tertiary jobs.
The 44-year-old son of Pallonji Mistry, Tata Sons’ single largest individual shareholder, said the conglomerate will remain committed to India, especially now that the emphasis on policy clarity and “a renewed thrust on economic reforms” were encouraging signs.
In addition, the group will also look at emerging countries such as those in Asia, Africa and parts of Latin America, adding to its existing presence in Europe and America.
Shishir Bajpai, senior vice-president at IIFL Private Wealth Management Ltd, said that the intention to invest Rs.45,000 crore over the next two years was a “big task that won’t be easy”, and that most of the investment may be for new acquisitions—of companies and resources such as raw materials for steel and power generation.
“I don’t think the Tatas are going to invest significantly further in Tata Steel and Tata Motors for now,” Bajpai said.
The conglomerate’s debt amounts to $26 billion. On the other hand, its 29 listed entities have a combined net worth of Rs.1.43 trillion, and cash and cash equivalents of Rs.36,289.38 crore, according to Capitaline data.
The Tata group’s closest competitor in India, Reliance Industries Ltd (RIL), intends to invest Rs.1 trillion in five years to diversify into new businesses, RIL chairman Mukesh Ambani had said during the company’s last annual general meeting in June. At the end of fiscal 2012, RIL had cash and cash equivalents to the tune of Rs.70,252 crore.
Tata Steel Ltd, which acquired European steel maker Corus Plc in 2007, is struggling to come to terms with the weak economic situation in Europe and the resultant slack in steel demand. The company had borrowed heavily to fund the acquisition.
Tata Motors Ltd, which acquired British car maker Jaguar Land Rover Plc (JLR) in 2008, has in contrast, reaped the dividends of the purchase. Robust JLR sales in emerging markets such as India and China have offset the weakness in the firm’s domestic passenger car division.
“The majority of this new investment may be directed towards Indian Hotels (which runs the Taj group of hotels), which has emerged as India’s largest hospitality chain. The idea may now be to make Indian Hotels one of the largest chains globally,” Bajpai said.
If global sentiment in the information technology sector improves, Tata Consultancy Services Ltd may also acquire some firms in emerging markets, he added.
Mistry spoke of “winds of change” that come along with the change of guard at Bombay House, the group’s headquarters in Mumbai, but reiterated that the core of the Tata group “must and will remain unchanged”.
He extolled the culture of innovation, quality and collaboration, and the “uncompromising adherence to a resilient value system”, which were fostered during Ratan Tata’s stewardship.
The new chairman also cautioned employees about the fate that meets corporations that are “happy with resting on their laurels” and “are weeded out by nimble competition that have sensed the pulse of customers with an emphasis on innovation”.
Mistry urged the group to be “relentless” in its pursuit of improving competitiveness and addressing the small issues that are often overlooked, but end up making a significant difference in the value proposition of our products and services.
In his farewell letter to the group’s 456,000 employees on 28 December, Ratan Tata had said that there would be “great pressure” on the conglomerate to reinvent itself in terms of business processes, to dramatically reduce costs, be more aggressive in the marketplace and to widen its product range to better address consumer needs.
He had also outlined some operational challenges that will face the group and his successor in coming days such as containing debt and working hard to retain margins.