Tata Sons, holding company of the diversified Tata conglomerate, wrote off Rs 28,651 crore on its telecombusiness in the previous financial year, lowering its net profit by 76%, according to recent filings.
Pressure will now mount on chairman N Chandrasekaran to start showing growth and profits, said fund managers tracking the group.
“Next fiscal onward, our focus will be on growth, and cash flows will stay ahead of capital expenditure,” said a top group official. Some steps have already been taken. Under Chandrasekaran, the group agreed to sell the mobile service business of Tata Teleservices — struggling to stay afloat amid competition and heavy debt — to Bharti Airtel.
Write-offs on the balance sheet for its bleeding telecom arm are expected to be completed by March 2019, said a person with knowledge of the conglomerate’s strategic blueprint. “Other capital infusions to scale up businesses will also be done this year,” the official added.
On a consolidated basis, Tata Sons posted a 14% rise in total revenue to Rs 1,96,903 crore in the year ended March 2018, from Rs 1,73,178 crore in the previous year. Profit after tax declined to Rs 4,379 crore, from Rs 18,432 crore, after exceptional items worth Rs 21,216.2 crore, compared with Rs 7,352.7 crore a year ago, Tata Sons said in filings with the Registrar of Companies.
The group took initiatives during the previous year to consolidate its stake in Tata companies to simplify cross-holdings and help provide cash for entities wanting to cut debt and make investments, it said. Profit on the sale of investments during the year mostly included that held in Tata Consultancy Services, amounting to Rs 8,929 crore.
Profit on buyback of 3.6 crore TCS shares was about Rs 10,262 crore.
Since Chandrasekaran took over as chairman in January 2017, he has urged the group’s chief executives to focus on core businesses and tap the huge opportunities within India, a marked shift in the business strategy to focus on the domestic market, which he is bullish about, top officials said.
“There are quite a few fledgling companies that will contribute in a few years. Insurance, steel, hotels and retail clusters will take off significantly to contribute to group profits. The chairman is taking strategic decisions with an eye on the future,” said a Tata insider.
All group operating companies are already cutting down on small, unscaleable businesses and subsidiaries. Tata Sons is talking tough on performance and capital allocation, asking CEOs for better returns on capital employed.
Tata Sons is the parent of more than 100 group companies that make products ranging from steel to salt, with their combined annual revenue exceeding $100 billion. The subsidiaries pay dividend to the holding arm. Tata Sons derives the lion’s share of dividends from cash-rich TCS, the largest group company, which generated consolidated revenue of $19 billion in the year ended March.
“Our concern is the group’s overdependence on TCS for profitability. Tata Sons has to focus on creating another company that will match TCS in growth and revenue,” said the CEO of a leading domestic investment fund.
Tata Trusts and group companies hold about 79% equity stake in Tata Sons, with individual investors — including the Tata family — holding the rest.
Tata Sons has sought shareholder approval to change status from a public company to become a private limited company. Its standalone revenue includes dividend from group companies and brand equity subscriptions.
On a consolidated basis, profit depends on the performance of 218 subsidiaries, 34 joint ventures or associates and yields in equity investments, according to filings. Tata Sons recently approved a plan to invest Rs 10,161crore in the group’s finance, insurance, defence, realty and retail companies. – Gadgets Now