PremiumBoth on the balance sheet and on the personnel front, companies other than TCS are finally beginning to make a mark. This may well be a bigger risk reducer for Tata Sons in the long run than its ongoing programme of consolidation and restructuring
A funny thing has happened on the way to results season this year. After nearly one and a half decades, Tata Group “crown jewel" TCS has been displaced from its throne as the most profitable entity within the group. The new alpha in the Tata pack, it turns out, is also the oldest company within the Tata portfolio – Tata Steel.
Tata Steel has already logged profits of ₹31,914 crore in the first nine months of the fiscal through March, higher than TCS’s profits of ₹28,490 crore. That this trend is likely to be maintained when the Tata Steel board meets on May 3 to take on board the consolidated numbers for the year is evident from the agenda, which not only includes a dividend pay-out but a share split as well.
This is quite a turnaround from just five years ago when Tata Steel posted a loss, was struggling under a mountain of debt and was equally hard-pressed by the downturn in global commodity prices after the previous commodities super-cycle ended around 2008. TV Narendran, MD of Tata Steel and the only Cyrus Mistry appointee to have continued in a key role even after Mistry’s ouster, has managed to even generate net positive flows from Tata Steel’s Europe operations, while domestic profits are thriving thanks to market protection from Chinese rivals through anti-dumping duties and cheap iron ore from captive mines.
The fact that a legacy company from the old economy part of the Tata empire has emerged as the big cheese, even as the group plans a major digital thrust, is a valuable reminder – to both investors and the Tata leadership – that even if the future battles for the customer’s mind and wallet-share are to be fought in the virtual world, legacy companies like Tata Steel and Tata Motors form a critical-and-valuable part of the real-life, brick and mortar world in which the consumer actually lives. This is something that Natarajan Chandrasekaran, chairman of Tata Sons, may now have to keep in mind as he restructures and rebuilds the group for the future.
TCS has been the cash cow for Tata Sons, giving a predominant share of its income: Tata Sons received nearly ₹22,500 crore from TCS last year – ₹11,371 crore as dividend from its TCS stock holdings and ₹11,121 crore from a share buyback by TCS.
Chandra has turned to TCS – and TCS executives – to deliver on his ‘One Tata’ vision for the group. His digital vision for the group will be driven by TCS veteran Pratik Pal, the new head of Tata Digital, the apex entity for the group’s digital assets. AS Lakshminarayanan, CEO and MD of Tata Communications, and N Sivasamban, CEO of Tata Communication Transformation Services (TCTS) are also ex TCS. Even last week’s management rejigs at the group’s latest acquisition Air India featured many faces from TCS. Importantly, though, there were managers from other Tata entities as well. While Chandra himself is helming Air India in the absence of a CEO, Tata Steel HR head Satya Ramaswamy is the new CHRO at Air India, the former head of strategic initiatives at Tata Digital is the airline’s chief digital officer, while a team from Taj Hotels is working on improving passenger amenities.
Both on the balance sheet and on the personnel front, companies other than TCS are finally beginning to make a mark. This may well be a bigger risk reducer for Tata Sons in the long run than its ongoing programme of consolidation and restructuring.
