The feisty 70-year-old chairman of one of the oldest business houses in the country has ordered the chief executives of his 96 group companies to put off acquisition plans unless these are strategic in nature, soft-pedal capacity expansion plans, tap into all available credit lines, pare costs and improve operational efficiencies.
In short, batten down the hatches — as the group tries to cope with the rumbling effects of the worldwide financial turmoil.
Last week, Tata wrote to the CEOs of all his group companies warning them about the far-reaching implications of the credit crisis that has roiled businesses across all geographies.
He asked his head honchos to kick off a critical review of business plans and strategies.
Tata outlined a six-point action plan that each company should consider in the backdrop of the deepening credit crisis. Besides ordering a complete review of all buyouts and expansions, the action plan directs the CEOs to look at ways to conserve cash, tap into existing funding agreements, and cut operational expenses, it is learnt.
Tata, who took over the group’s reins in 1991 and turned it into a conglomerate straddling six continents, is altering the roadmap for the 96 operating companies to help them deal with the global credit crunch.
Some of these guidelines could spell a strategic shift from the way the group has carried out business over the past decade. The Tata group had been well on its way to realising the chairman’s ambitions of becoming “an Indian business conglomerate that is at home in the world”.
Over the past eight years, it has notched up overseas acquisitions worth $18 billion, including deals like Tata Motors’ $2.3-billion buyout of Jaguar Land Rover, and Tata Steel’s $12.1-billion takeover of Anglo-Dutch steel maker Corus in early 2007 — the biggest overseas acquisition by an Indian company — that turned it into the world’s sixth largest steel producer.
There were other acquisitions as well: Tata Chemicals bought Brunner Mond of the UK, Tata Motors took the wheel at Daewoo Commercial Vehicles of South Korea, Tata Steel snapped up Singapore-based Nat Steel, VSNL (now Tata Communications) locked into Tyco Global Network, and Tata Chemicals acquired the US-based General Chemicals. Some of these deals, however, have faced pressure to refinance their debt obligations.
At present, the group has 263 projects under various stages of implementation (including some that have just been completed). The big-ticket project investments are currently being made by Tata Steel, Tata Power, Tata Teleservices, Tata Motors, Tata Chemicals and Tata Communications (see chart on top).
High-profile projects like the Nano small car venture, which has just been relocated from Singur to Sanand in Gujarat, and the Mundra ultra-mega power project will not be impacted by Tata’s directive, said an analyst on the condition of anonymity.
The CEOs of companies that operate in sectors that are facing cyclical pressures may, however, review some of their plans, he added.
Tata has reportedly expressed concern about the ability of the companies to access credit and raise equity in the current scenario. He does not expect the state of affairs to improve over the next year or so.
Tata group companies have seen a spurt in borrowings as a result of their aggressive acquisitions. Data collated by CMIE show that Tata Steel saw an 84 per cent year-on-year growth in borrowings. Tata Motors reported a 57 per cent rise in borrowings during the year ended March 2008.
Tata has said the current crisis calls for immediate action. The global exposure of the group — revenues from international operations amounted to $38.3 billion, or 61 per cent of its total revenues in 2007-08 — has probably made Tata more sensitive to the implications of the financial meltdown.
The Tata directive could now serve as a cue to other business houses and conglomerates in the country.