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Ratan Tata’s legacy: One would have been better off investing in the Sensex

Ratan Tata has handed over the baton to his successor, Cyrus Mistry, after 21 years. How have the five top stocks at that time -- Tata Steel, Tata Motors, Indian Hotels, Tata Tea and Indian Hotels -- done over two decades under Mr Tata? Well, despite his bold moves across the group just one stock, Indian Hotels, has created more value than Sensex in all these years!

Ratan Naval Tata, who recently turned 75, retired from Tata Sons, after 21 years at the helm of one of India’s largest conglomerates. Mr Tata who was awarded the Padma Vibhushan in 2008, has been hailed as one of the most powerful Indian businessmen by various sections of the media and public. His innovation with the Tata Nano and bold overseas acquisitions are indeed commendable. With the benefit of hindsight, if you knew he was making these extraordinary moves, would you have been tempted to buy the top Tata stocks in order to get extraordinary returns? It would have been a wrong move. The shareholder returns of the five Tata Group companies have been good but nothing compared to the headline making business moves. 
Moneylife calculated the shareholder returns of Tata Group’s key businesses namely: Tata Motors, Tata Steel, Tata Global Beverages, Tata Power Company and Indian Hotels. Tata Consultancy Services (TCS) was floated in the public market only after 2000. We found out that the BSE Sensex outperformed all these companies except Indian Hotels, from the time Mr Tata took over the conglomerate (1991), till the time he retired (2012). The BSE Sensex returned 13.85% compounded annual returns during this period. We have included 3% dividend in Sensex returns apart from the change in Sensex value. Only Indian Hotels did better, returning a compounded annual total shareholder returns (CATSR) of 15.50%, which includes dividends and rights. The reason Mr Tata’s other companies failed to outperform was because he made several missteps and acquired huge debts as it spent more than $20 billion in mergers & acquisitions. You would have been better off just investing the BSE Sensex index and sleeping it off. 

The table below highlights the total compounded shareholder returns between 1991 and 2012 of various Tata companies and the BSE Sensex.


Tata Steel: Among the worst performers of these five companies was Tata Steel. The company has returned just 9.57% compounded annual total in 21 years. While the company used to be well-run company and was often termed ‘boring’, it made a fatal mistake of acquiring Corus, a UK-based steel company for over $7 billion at the height of the business cycle. This is a commodity business with low margins. To break even would take years, assuming the steel industry does exceedingly well and consistently for a long time. 

Tata Motors: Investors would remember Mr Tata for his passion for cars, especially luxurious and fast cars. Mr Tata created history by creating an Indian car, Tata Indica, from the scratch without foreign collaboration with a foreign car company. This was followed by the Tata Nano which investors and car enthusiasts alike thought would revolutionise the car industry by making car ownership closer to reality for the aam aadmi. But the passenger car business of Tata Motors has not been commercially very successful. While Indica and Indigo have sold well because of competitive prices, they don’t make good money. Ever since its launch, Tata Nano sales have been mediocre and beset with engineering failures. His acquisition of Land Rover and Jaguar were hailed as a masterstroke. But like Corus, he paid top dollars for these brands, at the height of the previous business cycle. While these luxury car divisions are doing well, debt only piled up more. Tata Motors returned 13.67% CATSR, which is still below Sensex performance.
Tata Global Beverages: Tata Global Beverages owns some of the leading brands such as Tetley. These brands are well regarded in the marketplace that is otherwise characterised by stiff competition and price wars. Margins are hard to come by as is market share. Tata Global Beverage did well to shed the tea plantations but has not been able to escape the price cycles. It reported a 12.18% CATSR since 1991.
Tata Power: The power industry in India is a mess—from top to bottom. Though largely insulated from the woes of state electricity boards (SEBs), Tata Power still has receivables pending from BEST in Mumbai. Its plant load factor has reduced due to inability to procure raw materials. Its marquee project in Gujarat—the 4000 MW Mundra Ultra Mega Power Plant—has been commissioned but the costs are high, with coal prices even higher. Its acquisition of 26% stake in an Indonesian coal mine, PT Baramulti Sukses Sarana Tbk, has not fully worked out either. Tata Power has done very well as a capital-intensive business returning 13.82%, barely below Sensex returns.
Indian Hotels: The only company in the Tata stable that has outperformed BSE Sensex for the 21-year period is the Indian Hotels, which owns the famous Taj Mahal hotel. It too went in for global acquisitions but the results have been mixed. It returned 15.50%, which is above BSE Sensex 13.85%. However, the gains came from a low stock price in 1991 and it will be very difficult for Indian Hotels to create Sensex-beating value. The business is capital-intensive and cyclical—the worst possible combination unless you have special skills to play the cycle. 
He was more closely involved in the above mentioned companies and failed to deliver returns. The average shareholder would have been better off investing in an index, preferably with the SIP method, than invest in the Tata Group of companies.
This is a landmark moment for the Tata Sons and Tata Group as the conglomerate will be headed, for the first time ever, in its 144 year history, by a person who falls outside the Tata family—Cyrus Mistry. He was unexpectedly picked by a committee which screened from various candidates to replace Mr Tata. He comes from a wealthy Parsi family which owns a slice of Tata Sons. Since Tata Sons is a private holding company of various companies of Tata Group, its financials and ownership pattern is largely unknown, but it is reported that Mistry’s family owns 18% of Tata Sons. Having a stake in Tata Sons means Mistry will mean serious business to unlock the full value of the conglomerate, especially with regard to getting rid of the massive pile of debt accumulated. Will he be able to deliver? 



Hystaspes F Engineer

4 years ago

ONE COMPLETELY shares the last four comments posted till date by others. To STATE: - the caption, the contents & the purpose of posting this M/L article is absolutely unwarranted, untimely and needs to be recalled; as it exhibits the one-sided biased viewpoint of the M/L team. IT IS NOT AT ALL IN GOOD TASTE OF ETHICAL & BALANCED JOURNALISM REPORTING and does not befit the avowed objective for which M/L stands for.
There is no just & serene criticsim in it. It is said --"Criticism like rain should be gentle enough to nourish a man's growth without destroying his roots". AND unfortunately, by a stroke of pen your ill-conceived article has endeavored to malign all the good work done by that internationally acclaimed man thru' his selfless efforts spanned over decades. I am reminded of the laudable quote of the famous actress, Katherine Hepburn, who once said -- "If you want to sacri-fice the admiration of many men for the criticism of one, go ahead, get married".
Your article has just that and incurred the wrath of innumerable RNT's well-wishers, which you justfully deserve.
"Every human being is entitled to courtesy and consideration. Constructive criticism" is not only to be expected but sought". However, your innocent looking packaged, yet purpose-ful write-up was just contrary to this objective. It's a "risky proposition" your team ventured into; and needs to be nipped in the bud for future recurrence. Let wiser counsel prevail & be imbibed by these authors, ably guided by their mentors. Khuda-hafeez.


4 years ago

Investing in the sensex doesnt create JOBS or help the economy!!! It is manufacturing companies like Tata Steel, Tata Motors and the other service based companies that create job and help the economy, if only there were others who looked up to Ratan Tata and created manufacturing companies we could have been a superpower like China in manufacturing.

This article was just like many other moneylife articles, a pure waste. you need some class and brain to write articles with vision which could be helpful to the society at large and NOT BE CRITICAL OF PEOPLE WHO HAVE CONTRIBUTED!!!

Dheeraj Bhat

4 years ago

This article is funny. What does it try to prove? It is well known that indexing is better(most of the times) than individual stocks. How does this reflect on Ratan Tata's legacy? Was he running a mutual fund?

If you really want to prove/disprove Ratan Tata's legacy, compare individual companies with comparable industry leaders. Tata motors with other motor companies, TCS with Other IT, Tata Steel with other steel companies and so on.That would be a insightful company.

If nothing, please change the title to be about the benefits of indexing.Not about Ratan Tata's legacy. This is not expected from a respectable site like moneylife


RaghvendraN Dhoot

In Reply to Dheeraj Bhat 4 years ago

I fully agree - this kind of a hindsight number crunching does not make sense - moneylife should rise above tracking stock prices and look at the larger picture - jobs he added, value addition to the economy, etc.

Kisalay Somani

4 years ago

Although I appreciate pure numbers, show me a scheme which will allow me to invest in the Sensex and sit over it along with accumulation of dividend and no load charges. Every stock except Tata Steel has given double digit CAGR and rightly so. Corus was bad timing and TISCO is bleeding due to it. And, Ashok Vishwanathan rightly notes the level of ownership in 1991 vis-a-vis today. Hats off, Mr. TATA. Disclosure: I do work for TCS and own zero stock of any TATA companies.

Ashok Visvanathan

4 years ago

This has to be seen another way. When Ratan Tata took over Tata's had 1.5 % of Tisco and not much of Telco either. TCS which was a division of Tata Sons, started minting money. Ratan Tata used that money to increase Tata Holding in Tisco and Telco to substantial levels.
Some of the dilution was for allotment to themselves , non voting shares were for Aam Aadmi.
So post screw for the shareholders, it was still about the sensex gains. I would say well done Mr. Tata.

Vaibhav Dhoka

4 years ago

Nano venture is a misadventure and Tata motors shareholders are paying its price.They should have concentrated on medium and heavy vehicle.

BSE Sensex, Nifty will break out of the narrow range soon: Monday Closing Report

The indices continue to trade in an extremely narrow range. It is about to break out soon may be in the first few trading days of the New Year 


The market settled lower amid range-bound and volatile trade on weak global cues as the world waits for a solution for US’ fiscal woes. The indices continue to trade in an extremely narrow range. It is about to break out soon may be in the first few trading days of the New Year. The National Stock Exchange (NSE) reported a volume of 54.54 crore shares and advance-decline  ratio of 808:621.


The Indian market opened flat with a negative bias reflecting a mixed trend in the Asian which were open today. Investors were cautious as US policymakers failed to arrive at a consensus for a budget deal, adjourning the talks for Monday. Failure to sew a deal would lead to additional taxes and spending cuts that come into effect from Tuesday.


The Nifty opened seven points lower at 5,901 and the Sensex started the day at 19,423, down 22 points from its previous close. Select buying in opening trades pushed the market to the day’s high. At the highs, the Nifty touched 5,919 and the Sensex went up to 19,492.


However, the market could not sustain the early lead with the benchmarks paring their gains and hovering on both sides of their previous closing levels. Selling pressures in blue chips like HDFC, ICICI Bank, Larsen & Toubro and TCS pushed the indices into the negative in late morning trades.


The market touched the lows in noon trade as selling intensified. The Nifty fell to 5,897 and the Sensex slipped to 19,409 at their respective intraday lows. The benchmarks continued to remain in the red on a mixed opening of the key European markets.


The market ventured into the positive for a brief moment at around 2.30pm but the gains were short-lived as sellers pushed the market lower again.


The volatile market settled marginally lower on weak global cues as a US budget deal looks impossible. The Nifty slipped three points (0.06%) and the Sensex fell 18 points (0.09) to close the last trading day of 2012 at 19,427.


The Nifty ended the calendar year 2012 with a gain of 28% while the Sensex closed the year up 26%.


While the Sensex settled marginally lower, the broader indices settled in the positive. The BSE Mid-cap index gained 0.28% and the BSE Small-cap index climbed 0.51%.


The top sectoral gainers were BSE Realty (up 1%); BSE Consumer Durables (up 0.80%); BSE PSU (up 0.59%); BSE Power (up 0.47%) and BSE Auto (up 0.42%). The main losers were BSE Capital Goods (down 0.33%); BSE Fast Moving Consumer Goods (down 0.27%); BSE IT and BSE TECk (down 0.05% each).


Seventeen of the 30 stocks on the Sensex closed in the positive. The chief gainers were Tata Power (up 1.19%); GAIL India (up 0.98%); Hindalco Industries, Tata Motors (up 0.89% each) and Hindustan Unilever (up 0.83%). The key losers were ITC (down 0.88%); Larsen & Toubro (down 0.76%); Maruti Suzuki (down 0.75%); Cipla (down 0.55%) and HDFC (down 0.53%).


The top two A Group gainers on the BSE were—TTK Prestige (up 4.21%) and Gitanjali Gems (up 4.02%).

The top two A Group losers on the BSE were—Suzlon Energy (down 3.89%) and Mahindra & Mahndra Finance (down 3.07%).


The top two B Group gainers on the BSE were—Indian Hume Pipe Company (up 19.97%) and Veer Energy Infrastructure (up 19.95%).


The top two B Group losers on the BSE were—Tuni Textile Mills (down 19.99%) and Karuturi Gobal (down 14.37%).


Out of the 50 stocks listed on the Nifty, 27 stocks settled in the positive. The chief gainers were Punjab National Bank (up 3.35%); DLF (up 2.18%); ACC (up 1.60%); GAIL (up 1.20%) and Tata Motors (up 1.19%). The top losers were HCL Technologies (down 1.37%); ITC (down 1.11%); TCS (down 1.08%); IDFC (down 0.98%) and L&T (down 0.93%).


Markets in Asia settled mixed on uncertainties over the US budget deal. The region witnessed thin trading as some markets were closed today while others closed early.


The Shanghai Composite surged 1.61% and the KLSE Composite climbed 0.45%. On the other hand, the Hang Seng lost 0.04% and the Straits Times settled 0.77% lower. Markets in Indonesia, Japan South Korea and Taiwan were closed for trade today.


At the time of writing, CAC 40 of France was up 0.29%; DAX of Germany declined 0.57% and UK’s FTSE 100 was 0.47% lower. At the same time the US stock futures were trading marginally higher.


Back home, foreign institutional investors were net buyers of stocks totalling Rs833.40 crore on Friday while domestic institutional investors were net sellers of equities aggregating Rs530.35 crore.


Pharma major Suven Life Sciences today said it has received three product patents for CNS molecules, two from Eurasia and one from Canada, which could be used for treating various central nervous system disorders. The company has received approval for molecules that could be used in the treatment of neurodegenerative disorders like Parkinson's, Alzheimer's and Schizophrenia. The stock closed 1.65% higher at Rs30.85 on the NSE.


Ramky Infrastructure has secured finances worth Rs1,225 crore for its Agra-Etawah road project in Uttar Pradesh, the company said today. An agreement to this effect was signed between Agra Etawah Tollways, a special purpose vehicle (SPV) formed to undertake the project and consortium of bankers led by Oriental Bank of Commerce and other participating lenders on December 29, 2012, the company said in a statement. Ramky climbed 2.68% to close at Rs99.70 on the NSE.


Tecpro Systems has bagged a Rs95-crore order from South Korea’s SK Engineering and Construction (SKEC) for supply of the entire coal and fly ash handling systems for a power plant that it is building in the US. Tecpro declined 1.95% to close at Rs145.80 on the NSE.


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