Ratan Tata will end a 50-year run in one of India's oldest business empires today. He will hand over the reins of the Tata Group to Cyrus Mistry.
Ratan Tata took over as the chairman of the group in 1991 and in the last 21 years has steered the company through turbulent times and is credited with taking the group global. But, in the last two decades, the perception that is widely spoken about is that the Tata Group hasn't been a wealth creator for its shareholders. But numbers tell a different story. CNBC-TV18's Sajeet Manghat reports.
The group’s marketcap was around Rs 7,943 crore. Now, it’s more than Rs 4.62 lakh crore. If you look at the annual returns, CAGR over the period of time, since 1991, the Tata Group has given a return of nearly 20.8 percent while the Sensex and the Nifty have given returns of 13.6 percent and 13.47 percent respectively.
One can argue that most of the returns are coming from TCS. But when we remove TCS, the group’s return comes to 16.78 percent. So, irrespective of TCS, the Tata Group has outperformed the Sensex and the Nifty.
Most of the growth has come in the last decade or so, since 2001. That’s when the acquisition strategy started playing out. The group went global in terms of acquisition. You look at Tata Group from 2001 onwards, the return, on a CAGR basis, is 30 percent as compared to Sensex’s 15.67 percent and Nifty’s 15.21 percent. In the last decade, TCS got listed on the exchanges. So, we though returns might be because of that. But if you remove TCS, the return comes to nearly 22 percent for Tata Group, 15.67 percent for the Sensex and 15.21 percent for the Nifty.
One argument, which people can make, is that return on capital employed might be lower for Tata Group. But that’s primarily because of the expansion plans and acquisitions. If you add TCS to it, it is a decent return on capital employed. But if you remove TCS, the capital employed is a tad lower. But you can attribute that to acquisition and expansion strategies. When companies go for expansion, the return on capital does go down.
Cyrus Mistry will have to find few other gems within Tata to bring in another TCS for the company, for the group so that it creates much more wealth.