Tatas now only half as small as PSUs

Over 10 years, Tata group companies’ investment in fixed assets increases at 24% CAGR; non-banking & financial PSUs’ rises at 10.8%

Government-owned companies’ grip on the Indian economy, very firm 10 years ago, seems to have somewhat loosened over the past decade. Central public-sector undertakings (excluding banks & financial companies), which in 2002-03 were seven times bigger than the listed Tata Group companies in terms of gross block — total investment in fixed assets like plant, equipment & machinery — are now only twice as big.

In 2012-13, the combined gross block of India’s 47 listed non-financial PSUs stood at Rs 7.83 lakh crore, while the 28 listed Tata Group companies invested Rs 3.64 lakh crore. The corresponding figures in 2002-03 were Rs 2.81 lakh crore and Rs 41,400 crore, respectively.

The Tata group’s fixed assets in 2012-13 would be even higher, at around Rs 4.5 lakh crore, if its large unlisted firms (such as Tata Teleservices, Tata Sky, Tata AutoComp Systems, Tata Projects and Tata Housing) and its holding company, Tata Sons, were included.

The figures for PSUs would also rise if unlisted firms like Rashtriya Ispat Nigam, Hindustan Aeronautics Ltd, Airports Authority of India, Numaligarh Refinery and Singareni Collieries were taken into account.

Nearly half the PSUs’ total gross block is accounted for by oil & gas companies like ONGC, Indian Oil, BPCL, HPCL and GAIL. For the Tata group, Tata Steel and Tata Motors account for two-thirds of the group’s investment in fixed assets — their foreign subsidiaries, Tata Steel Europe and JLR, alone account for more than half the total.

Over the past decade, there has been a rapid expansion in the Tata group’s balance sheet, especially because of a series of big-bang foreign acquisitions and faster organic growth by Tata Motors and Tata Consultancy Services. During this period, the gross block of listed Tata Group companies has risen at a compound annual growth rate (CAGR) of 24 per cent — more than twice the 10.8 per cent rate for PSUs. If these rates were to be the same over the next decade as well, Tata might exceed PSUs to become India’s largest business group by 2022-23.

The group’s companies like Tata Steel and Tata Power — which compete with PSUs like SAIL and NTPC in the domestic market — have narrowed the gap with their respective state-run peers over the past 10 years. While Tata Steel’s domestic operations are just a shade smaller than SAIL’s, the asset base of Tata Power has increased to half that of NTPC (from a fifth in 2002-03).

Analysts attribute this to Tata Group’s aim of becoming globally relevant in all the sectors they operate. “For over a decade now, the group has followed the strategy of giving key businesses a global scale. It has been fairly successful, with a strong backing from its holding company,” says G Chokkalingam, founder, Equinomics Research & Advisory.

Over the past 10 years, Tata Sons’ investment in various group companies (including the unlisted ones) has jumped a little more than eight times to Rs 43,000 crore at the end of 2012-13 — at a CAGR of 22.7 per cent.

Tatas’ ability to take risks, successfully, is visible in a rapid rise in the group’s net worth, or the shareholder equity. Since 2002-03, the group’s combined net worth has increased at a CAGR of 21.1 per cent to Rs 1.71 lakh crore (including Tata Sons).

TCS has played an important role in this — the dividend the IT service provider paid last financial year accounted for nearly 55 per cent of Tata Sons’ total revenues.

In comparison, the government has shown little enthusiasm in backing PSUs’ growth ambitions. The combined net worth of PSUs has risen at a CAGR of 13.2 per cent during the past decade.

This was partly due to the state-run firms’ poor profitability and the government’s insistence on higher dividends. In the past 10 years, PSUs’ net profit has grown at a CAGR of 10.3 per cent, while their dividend outgo has grown at a CAGR of 12.6 — this translates into slower growth in retained earnings (8.6 per cent).

Tata Group has been more efficient on this account, despite a tough operating environment for key group companies like Tata Steel, Tata Power and Tata Motors’ commercial vehicle business. The group’s combined net profit has expanded at 20.2 per cent a year since 2002-03, while its retained earnings have grown at 19.6 per cent during this period.

Also, Tata companies, including Tata Sons, have been more aggressive in leveraging their balance sheets to grow faster. The group’s total borrowings have risen at a CAGR of 30 per cent during the past decade, against 17.5 per cent growth for PSUs. With an average debt-to-equity ratio of 1.1x (adjusted for cash & equivalent on books), a typical Tata Group company is more leveraged than PSUs (0.6x).

Analysts say Tatas could sustain their current pace of growth, provided the group’s “cash cows”, such as TCS and Tata Motors, continue to deliver. PSUs, on the other hand, are hamstrung by poor profitability of oil & gas PSUs, especially due to fuel subsidies.