As revenues thin, Tata Group companies prepare to tighten belt

MUMBAI: The $113-billion Tata Group has initiated a large-scale cost-cutting exercise across the holding company, Tata Sons, and operating firms as part of an effort to ensure liquidity amid revenue loss caused by the Covid-19 pandemic.The cuts will impact all functions, including finance, marketing, human resources and branding, officials said. The exercise was approved by the Tata Sons board at its June 5 meeting.The board is also understood to have approved reduction in compensation for the management of the holding and operating companies, said the officials. There would be no bonus and increments for the year, they said.The board approved funding for growth businesses, including a proposed medical devices venture, the officials said. Tata Sons did not comment.Strategic decisions around Tata Steel UK and Jaguar Land Rover could be delayed, given the financial crisis caused by Covid-19.“For now, group companies have been advised to review all possible operating costs and cut them significantly to protect cash flows,” said one of the officials. 76396445“The medical devices venture will include manufacturing of ventilators, personal protective gear, surgical and testing devices used for Covid-19 and for other health requirements,” said the official. Group company Tata Elxsi already manufactures medical devices, including some equipment used in intensive care units and critical care units. The medical devices venture will be a new subsidiary of Tata Sons, and have no overlap with Tata Elxsi, officials said. ET had reported on May 25 that the chairman of Tata Sons and CEOs of all the operating companies will take an estimated 20% reduction in compensation as part of cost-cutting measures. DECLINE IN EXPENSES The overall expenses of 25 listed Tata Group companies that have declared FY20 results have declined by 4% over FY19, compared with a 5% fall in sales during the period. Employee costs, which amount to about 27% of cumulative sales of the 25 companies, rose 5% in FY20. Other expenses, which also amount to almost 27% of sales and include items such as marketing, administration, power, R&D and real estate, declined marginally in FY20. Tata Steel is among the group’s listed companies that are yet to announce FY20 results. HEAVY INVESTMENTS Over the past three years, Tata Sons has been investing heavily in its flagship businesses — steel, automobiles and power. Between FY17 and FY19, Tata Steel, Tata Motors and Tata Power have together invested Rs 74,000 crore. However, smaller consumer-focused group companies such as Titan, Trent, Indian Hotels Company and Tata Global Beverages have grown faster. During FY19, Tata Group’s 29 listed companies posted a cumulative net profit of Rs 21,100 crore — 19% lower than in FY18, mainly due to Tata Motors’ Rs 28,826-crore loss. Tata Motors closed manufacturing operations in Thailand and the relevant restructuring costs were factored into the financial results. In FY20, Tata Motors reduced losses to Rs 12,071 crore. In FY20, about 25 companies, excluding Tata Steel, reported an average 4.5% decline in revenues even though cumulative profits rose 146% to Rs 27,019 crore. Tata Consultancy Services alone contributed Rs 32,340 crore to the group’s total net profit in FY20. The Tata Group has lost Rs 1.25 lakh crore in market capitalisation so far this year. Stocks such as Tata Chemicals, Tata Motors, Tata Steel and Indian Hotels have declined 30-50% since January 1.

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