Tata’s portfolio power still just about adds up

May 24, 2016

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Tata’s power as a portfolio manager still adds up. India’s most respected business name has hit a rough patch with problems at its British steel unit. The performance of the group’s ten biggest listed companies, ranging from beverages to hotels, has been a mixed bag since Chairman Cyrus Mistry took charge at the end of 2012. Yet when viewed as a collective, Tata’s performance looks better.

Mistry runs Tata Sons, the group’s unlisted holding company, which holds stakes in a range of group companies. Tata Sons is itself two-thirds owned by philanthropic trusts endowed by members of the founding family. Interests in finance, defence, satellite television, and real estate are in private hands. But most of the group’s large businesses – a combined market value of $111 billion – are publicly listed.

The portfolio includes some well-known headaches. Tata Steel, which acquired its European assets in 2007, has a negative total shareholder return of 21 percent since Mistry took charge compared to a 31 percent positive return for the MSCI India Index. Other companies like Tata Power and Tata Global Beverages have fared as badly, or even worse. Meanwhile, returns from Tata Chemicals, watchmaker Titan, and Tata Motors, which includes the UK-based Jaguar Land Rover, have barely matched the Indian benchmark.

This is partly down to business cycles. Yet performance might have been better if Mistry had acted faster to cut Tata’s ties to its UK steel business, acquired by his predecessor. Similarly, he could have been swifter in appointing a new chief executive to Tata Motors – the position was vacant for two years following the sudden death of the previous chief. Concern about the group’s global reputation with various stakeholders appears to slow down big decisions.

Yet the crown jewel of Tata’s empire makes up for shortfalls elsewhere. Tata Consultancy Services, the $73 billion IT group, is India’s biggest company by market value and four times the size of any other listed Tata entity. It has returned 110 percent on a total return basis. This sheer size means that, weighted by market capitalisation, Tata’s top ten companies have collectively outperformed the index by more than 50 percentage points. From the perspective of a portfolio manager, Tata’s performance stacks up.

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