After TCS, Tata Motors propels growth for group

It is well known, that Tata Consultancy Services (TCS), with an over ₹5-lakh-crore market-cap, has always generated huge free cash-flows for the Tata group in the past, offsetting the weak performance of other companies within the group.

TCS sported a profit of about ₹19,000 crore in 2013-14 — equal to the profit reported by all other group companies put together.

Even so, this pales somewhat when compared to the company’s out-performance over other group companies last fiscal. In 2012-13, TCS’ profit was more than twice that of other Tata Group companies put together.

The narrowing of the gap this year is thanks to the better performance of Tata Motors.

Tata Motors has been putting up a good show in recent times — thanks to a phenomenal performance by the company’s JLR portfolio. When it acquired Ford’s Jaguar and Land Rover in a $2.3-billion all-cash deal in 2008, it found itself saddled with more than ₹20,000 crore of debt.

The company’s debt equity ratio spiked to 5.8 times in 2008-2009 from 1.3 times the previous year.

But JLR’s strong showing has helped the company bring down its debt equity significantly over the years — to just 0.8 times in 2013-14.

Over the last couple of years, Tata Motors edged up in its contribution to the overall group revenues as well as profits. From incurring losses in 2008-09, the company now contributes 38 per cent to the entire group’s profits.

Tata Motors also contributes significantly to the group’s cash holding, chipping in almost half of the ₹78,000 crore worth of cash generated in 2013-14 by the group.

An analysis of data collected for 27 listed group companies shows that Tata Motors has upped its game in the last couple of years, swapping places with Tata Steel as the group’s largest cash generator. Tata Steel, which contributed close to 54 per cent of the group’s cash in 2008-09, put in just 17 per cent in 2013-14.

While Tata Motor’s performance has perked up the Tata Group’s overall performance, TCS still remains the war-chest, with a cash mountain of about ₹14,000 crore in 2013-14.

TCS has been the leader within the IT pack, consistently reporting superior financial and operational growth than its peers.

The company’s healthy deal wins and broad-based performance across verticals and markets, has kept it miles ahead of its peers.

While TCS’ consistent performance and market share gains have found favour with investors, they have also made it the group’s most valuable company, churning out half of its profits.

Return on equity for TCS has been robust at 36-39 per cent over the last five years, and has been the largest source of dividend income for the group.

Recently, TCS announced a dividend of ₹45 a share (including a special dividend of ₹40), adding close to ₹6,500 crore to the coffers of Tata Sons, which holds 73.9 per cent stake in TCS.

This, along with the final dividend payout of ₹20 a share announced in the fourth quarter of 2013-14, has made Tata Sons richer by ₹9,400 crore, enabling the group to undertake investments in other group companies.