Tata
This document was uploaded by user and they confirmed that they have the permission to share it. If you are author or own the copyright of this book, please report to us by using this DMCA report form. Report DMCA
Overview
Download & View Tata as PDF for free.
More details
- Words: 1,432
- Pages: 4
April 1, 2009
TATA
Tatas : Facing Tough Times Since the beginning of 2008, the Tatas have been in deep trouble, following tight liquidity conditions, a depressed stock price, and erosion in investor confidence. Tatas, the largest private corporate group in India had started the year 2008 with a bang by spreading its wings globally with the big-ticket acquisition of iconic British marquees Jaguar and Land Rover (JLR) for $2.3 bn. And a year ago, in the largest ever merger of corporate India, Tata Steel, the world's 56th ranked steelmaker then, acquired Anglo-Dutch steelmaker, Corus, the ninth largest steelmaker in the world, for $12.1 bn. That was indeed a stupendous achievement for corporate India as it was for the first time India Inc. had forayed into the global arena in a big way. The deal had immediately catapulted the Tata Steel into the big league of global steel majors, comprising the likes of Arcelor-Mittal and POSCO. Those two big deals fetched the Tata Group the necessary global clout. But during the second half of 2008, problems started creeping into many Tata group companies. Tata's ordeal started when a violent political upheaval forced Ratan Tata, the Chairman of the Tata Group, to shift the company's prestigious Nano project from West Bengal to Gujarat. Afterwards, as the global financial meltdown set in, its various lines of businesses soon got affected. Finally, adding insult to injury, the terrorist attack on Taj Mahal Palace and Tower have put the Tatas on the backfoot. Cup of woes The Tata Group is the largest private corporate group in India in terms of market capitalization and revenues. Its business interests span across steel, automobiles, information technology, communication, power, tea and hotels. The group, with its headquarters in Mumbai, has a physical presence in more than 85 countries, spanning across six continents; and the various companies of the group export products and services across 80 nations. Whatsoever, despite a successful track record, the group has been severely plagued by a gamut of problems. Already the global meltdown has hit group businesses. The group is finding it difficult to access credit and equity markets as a result of the tight liquidity conditions, a depressed stock market and erosion in investors' confidence. The year 2008 has indeed been annus horribilis for the Tatas, with mishaps ranging from the trivial to the very serious. One of the biggest challenges that the Tatas confronted last year was a violent political agitation in West Bengal JMJKI
1
April 1, 2009
TATA
over land issue, which eventually forced Tata Motors to shift their prestigious Nano project from West Bengal to Gujarat. The small car project of Tata Motors started hogging the limelight ever since Ratan Tata had announced that his group would offer a car at just Rs 1,00,000 for the common Indians. Even the escalating crude oil prices and the tightening liquidity conditions did not deter the group's enthusiasm and so the deadline for the car was also intact. But the violent political protests caused a relocation and delay in the project. Even before the incidence of shifting the Nano project to Gujarat, the Tata group had been victimized by hoaxes, though of trivial nature. Last August, a fake press report stated that Tata Steel had frozen work on an Orissa port. The report said that Tata Steel had suspended work on the port as it could jeopardize the lives of the Olive Ridley Turtles. After the Nano imbroglio, the Tata Motors' $2.3 bn deal to buy JLR—completed in June last year—has backfired. The marquee luxury car maker JLR has reportedly approached the UK government for a £1-bn loan assistance to shore up its financials. A business entity, acquired and managed by a company in one country, seeking a bailout package from the government of another country, is a rarity. This bailout plea has peeved the British taxpayers, who are questioning its rationality. And analysts are continuing to give the thumbs down to Tata Motors' stock as the company's ordeals seem to be never ending. Analysts are skeptical about Tata Motors' ability to refinance the $3 bn bridge loans to finance the JLR deal with Ford. However, some analysts are sympathetic to Tata Motors, given the fact that, globally, the auto industry is going through a rough patch. But the abrupt and the secretive manner in which Tata Motors' JLR Division approached the UK government is what is disturbing the shareholders. Tata Motors had come out with a rights issue in October last year to finance the JLR purchase. But it struggled to finance the deal due to stock market slump and was bailed out by the founders and the underwriters. Now it is feeling the heat of slowing demand, and it has also shut down its commercial vehicle manufacturing plant for three days to avoid buildup of inventory. Again, ever since the acquisition of Corus, Tata Steel is riddled with high debt. Now it is plagued with low prices of steel and dissipating demand. Both Tata Steel and Corus are now mulling cost-cutting measures. In fact, Corus has already cut production by 30% and is likely to run into losses. According to the electronic edition of Britain's Daily Mail, Tata Steel Ltd. may merge Corus with itself in an attempt to curb costs. The report has further added that such a merger could put thousands of jobs at Corus in peril. Another serious concern the markets have had about overseas deals by the Tata group is its agreements with labor unions. According to an analyst with a foreign broker, the company has an agreement with JMJKI
2
April 1, 2009
TATA
Corus' unions that it will not engage in massive layoffs for a few years after the acquisition. In fact, this agreement is what is said to have caused the unions of Ford Motor Co.'s Jaguar-Land Rover to be comfortable with the Tata group. While such employee-friendly environment may not hurt Tata Steel's Indian operations, which has a competitive edge thanks to its captive resources, they would backfire in case of a commodity business like that of Corus. Moreover with the US companies cutting down on their IT spending or delaying outsourcing orders, Tata's IT arm, Tata Consultancy Services (TCS), had reported muted second quarter (July-September) earnings. Belt-tightening The $62.5 bn business conglomerate, which repeatedly hogged the headlines with its big-ticket acquisitions in the past two years, will now "put on hold any plans for acquisitions unless considered strategically critical," revealed an e-mail from Ratan Tata to the top management of the group's 98 companies and its elite decision making body, the Group Corporate Center. In this e-mail, Ratan Tata has also directed managing directors and chief executive officers of all companies to "expeditiously finalize pending loan and funding agreements, even if they involve accepting higher interest rates", while predicting a tough 12 months ahead. "Some of our companies with substantial foreign operations or those which have made substantial acquisitions are already facing major problems in raising capital and establishing lines of credit for their operations," the e-mail stated. According to a Tata Sons spokesperson, "The senior management of the Tata Group companies have been advised to be sensitive and conscious of the difficult financial circumstances existing today and have been requested to be proactive to focus on cash flow and conserve expenditure wherever prudently possible." Hope amidst adversity But as put by the experts, Ratan Tata has managed to sail through many adversities successfully and proved his mettle in a tough marketplace. His rise to the topmost position of the group was marked by bitter fights between him and some wellentrenched senior CEOs in the group eager to protect their own turf. Overcoming the initial opposition, he then steadfastly transformed the group into one meaningful conglomerate. However, in recent times, the Group has been battered by a gamut of problems. Declining consumer demand, problems in integrating global assets, inadequate funds, and now global terrorism have made the life of Ratan Tata tougher. However, if there is one man who can steer the Tata ship through this rough weather, it is only Ratan Tata. As industry observers say, the JMJKI
3
April 1, 2009
TATA
Tata Group will surely rebound. It has great leadership with a steely spirit at the top and dedicated human resources across all levels of the workforce. And this became increasingly apparent during the recent terrorist attack, where the Taj staff worked altruistically to save and comfort the guests. Same kind of dedication and efforts by the Tata Group are likely to rescue the Tatas this time too.
JMJKI
4
TATA
Tatas : Facing Tough Times Since the beginning of 2008, the Tatas have been in deep trouble, following tight liquidity conditions, a depressed stock price, and erosion in investor confidence. Tatas, the largest private corporate group in India had started the year 2008 with a bang by spreading its wings globally with the big-ticket acquisition of iconic British marquees Jaguar and Land Rover (JLR) for $2.3 bn. And a year ago, in the largest ever merger of corporate India, Tata Steel, the world's 56th ranked steelmaker then, acquired Anglo-Dutch steelmaker, Corus, the ninth largest steelmaker in the world, for $12.1 bn. That was indeed a stupendous achievement for corporate India as it was for the first time India Inc. had forayed into the global arena in a big way. The deal had immediately catapulted the Tata Steel into the big league of global steel majors, comprising the likes of Arcelor-Mittal and POSCO. Those two big deals fetched the Tata Group the necessary global clout. But during the second half of 2008, problems started creeping into many Tata group companies. Tata's ordeal started when a violent political upheaval forced Ratan Tata, the Chairman of the Tata Group, to shift the company's prestigious Nano project from West Bengal to Gujarat. Afterwards, as the global financial meltdown set in, its various lines of businesses soon got affected. Finally, adding insult to injury, the terrorist attack on Taj Mahal Palace and Tower have put the Tatas on the backfoot. Cup of woes The Tata Group is the largest private corporate group in India in terms of market capitalization and revenues. Its business interests span across steel, automobiles, information technology, communication, power, tea and hotels. The group, with its headquarters in Mumbai, has a physical presence in more than 85 countries, spanning across six continents; and the various companies of the group export products and services across 80 nations. Whatsoever, despite a successful track record, the group has been severely plagued by a gamut of problems. Already the global meltdown has hit group businesses. The group is finding it difficult to access credit and equity markets as a result of the tight liquidity conditions, a depressed stock market and erosion in investors' confidence. The year 2008 has indeed been annus horribilis for the Tatas, with mishaps ranging from the trivial to the very serious. One of the biggest challenges that the Tatas confronted last year was a violent political agitation in West Bengal JMJKI
1
April 1, 2009
TATA
over land issue, which eventually forced Tata Motors to shift their prestigious Nano project from West Bengal to Gujarat. The small car project of Tata Motors started hogging the limelight ever since Ratan Tata had announced that his group would offer a car at just Rs 1,00,000 for the common Indians. Even the escalating crude oil prices and the tightening liquidity conditions did not deter the group's enthusiasm and so the deadline for the car was also intact. But the violent political protests caused a relocation and delay in the project. Even before the incidence of shifting the Nano project to Gujarat, the Tata group had been victimized by hoaxes, though of trivial nature. Last August, a fake press report stated that Tata Steel had frozen work on an Orissa port. The report said that Tata Steel had suspended work on the port as it could jeopardize the lives of the Olive Ridley Turtles. After the Nano imbroglio, the Tata Motors' $2.3 bn deal to buy JLR—completed in June last year—has backfired. The marquee luxury car maker JLR has reportedly approached the UK government for a £1-bn loan assistance to shore up its financials. A business entity, acquired and managed by a company in one country, seeking a bailout package from the government of another country, is a rarity. This bailout plea has peeved the British taxpayers, who are questioning its rationality. And analysts are continuing to give the thumbs down to Tata Motors' stock as the company's ordeals seem to be never ending. Analysts are skeptical about Tata Motors' ability to refinance the $3 bn bridge loans to finance the JLR deal with Ford. However, some analysts are sympathetic to Tata Motors, given the fact that, globally, the auto industry is going through a rough patch. But the abrupt and the secretive manner in which Tata Motors' JLR Division approached the UK government is what is disturbing the shareholders. Tata Motors had come out with a rights issue in October last year to finance the JLR purchase. But it struggled to finance the deal due to stock market slump and was bailed out by the founders and the underwriters. Now it is feeling the heat of slowing demand, and it has also shut down its commercial vehicle manufacturing plant for three days to avoid buildup of inventory. Again, ever since the acquisition of Corus, Tata Steel is riddled with high debt. Now it is plagued with low prices of steel and dissipating demand. Both Tata Steel and Corus are now mulling cost-cutting measures. In fact, Corus has already cut production by 30% and is likely to run into losses. According to the electronic edition of Britain's Daily Mail, Tata Steel Ltd. may merge Corus with itself in an attempt to curb costs. The report has further added that such a merger could put thousands of jobs at Corus in peril. Another serious concern the markets have had about overseas deals by the Tata group is its agreements with labor unions. According to an analyst with a foreign broker, the company has an agreement with JMJKI
2
April 1, 2009
TATA
Corus' unions that it will not engage in massive layoffs for a few years after the acquisition. In fact, this agreement is what is said to have caused the unions of Ford Motor Co.'s Jaguar-Land Rover to be comfortable with the Tata group. While such employee-friendly environment may not hurt Tata Steel's Indian operations, which has a competitive edge thanks to its captive resources, they would backfire in case of a commodity business like that of Corus. Moreover with the US companies cutting down on their IT spending or delaying outsourcing orders, Tata's IT arm, Tata Consultancy Services (TCS), had reported muted second quarter (July-September) earnings. Belt-tightening The $62.5 bn business conglomerate, which repeatedly hogged the headlines with its big-ticket acquisitions in the past two years, will now "put on hold any plans for acquisitions unless considered strategically critical," revealed an e-mail from Ratan Tata to the top management of the group's 98 companies and its elite decision making body, the Group Corporate Center. In this e-mail, Ratan Tata has also directed managing directors and chief executive officers of all companies to "expeditiously finalize pending loan and funding agreements, even if they involve accepting higher interest rates", while predicting a tough 12 months ahead. "Some of our companies with substantial foreign operations or those which have made substantial acquisitions are already facing major problems in raising capital and establishing lines of credit for their operations," the e-mail stated. According to a Tata Sons spokesperson, "The senior management of the Tata Group companies have been advised to be sensitive and conscious of the difficult financial circumstances existing today and have been requested to be proactive to focus on cash flow and conserve expenditure wherever prudently possible." Hope amidst adversity But as put by the experts, Ratan Tata has managed to sail through many adversities successfully and proved his mettle in a tough marketplace. His rise to the topmost position of the group was marked by bitter fights between him and some wellentrenched senior CEOs in the group eager to protect their own turf. Overcoming the initial opposition, he then steadfastly transformed the group into one meaningful conglomerate. However, in recent times, the Group has been battered by a gamut of problems. Declining consumer demand, problems in integrating global assets, inadequate funds, and now global terrorism have made the life of Ratan Tata tougher. However, if there is one man who can steer the Tata ship through this rough weather, it is only Ratan Tata. As industry observers say, the JMJKI
3
April 1, 2009
TATA
Tata Group will surely rebound. It has great leadership with a steely spirit at the top and dedicated human resources across all levels of the workforce. And this became increasingly apparent during the recent terrorist attack, where the Taj staff worked altruistically to save and comfort the guests. Same kind of dedication and efforts by the Tata Group are likely to rescue the Tatas this time too.
JMJKI
4
