After Tata can This Business Group Create Wealth?

May 1, 2024

After Tata can This Business Group Create Wealth

You would be aware about the shareholder wealth created by various Tata group companies in the past few years.

N Chandrasekaran was appointed as the Chairman of the Tata group holding company Tata Sons Limited in January 2017.

Tata Sons Ltd is the holding company of more than 100 Tata operating companies like Tata Consultancy Services, Tata Motors, Titan Company, Tata Steel, and so on.

Before 'Chandra' took over the reins of Tata Sons, he served as CEO and Managing Director of Tata Consultancy Services Ltd from 2009 to 2017.

Since taking over, he has been the driving force behind the conglomerate's transformation.

Under his leadership the group may still continue to remain in most of its traditional businesses. However, the way their products and services are made and delivered to the customers is set to change forever.

For example, consider the following examples:

  1. Tata Motors is transitioning rapidly from traditional ICE vehicles to electric vehicles.
  2. Tata Power is moving from thermal power to renewables.
  3. Titan is moving from a watch and jewellery maker to a lifestyle firm.
  4. Tata Consumer Products is moving from tea and salt to a full scale FMCG firm.
  5. Indian Hotels moving from owned assets to leased assets.

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Let us take a look at the returns that some of the Tata group companies have delivered since Chandra took over.

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Many of the stocks from the Tata's stable have given absolute returns from anywhere between 100-2,000% in the past 7 years.

Looking at the returns, it is natural to feel left out as you may not have participated in all these stocks. Also in many stocks, you might have not ridden the entire move and exited too soon.

A change in the management's vision and focus can lead to business' turning around and creating huge wealth for all the stakeholders.

If you have missed out on Tata stocks, I believe there is an opportunity coming up in another business conglomerate of India.

I am talking about the Aditya Birla Group.

Even though there is no management change in the Birla group like the Tata's, recent strategic announcements show the management's change in focus towards creating stakeholder value.

Let us take a look at the various announcements made by the group in the recent past:

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1) Grasim Industries

Grasim Industries announced its entry into the paints business under the 'Birla Opus' brand in 2021.

The company expects new business to turn profitable once it clocks Rs 10,000 crores in revenues within three years of starting operations.

Company aims to become the 2nd largest player in the 80,000-crore market currently dominated by Asian Paints.

Grasim Ltd aims to achieve a high single digit market share by the end of FY25 by using its current distribution network of over 50,000 dealers.

Demand for paints is very strong and it is a high growth sector that can accommodate more players. Margins and Return on Equity are good in the paints business.

2) Ultratech Cement

Ultratech Cement reported strong operational beat for Q4FY24 which was aided by higher-than-expected volume growth and lower operating expense per tonne.

The country's largest cement manufacturer reported strong earnings for the January-March quarter.

Its consolidated net profit rose 36 percent to ?2,258 crore from ?1,666 crore year-on-year (YoY) led by a decline in fuel costs and double-digit volume growth.

The company has announced the best in class result among cement companies with margin expansion as against margin contraction for other players.

It's on a capacity expansion spree and has announced several acquisitions to achieve the same. It has earmarked Rs 9,500 crores for capital expenditure for FY2025.

3) Vodafone Idea

Vodafone Idea is the third largest telecom operator in India. It recently concluded an FPO (Follow-on Public Offering) worth Rs 18,000 crores which was the largest in the country.

The FPO had good demand with overall 7 times higher subscription numbers than the amount to be raised.

The government of India accepted a stake in the cash-strapped telco and reduced the interest dues helping the company in reducing its overall debt.

This ensured that India remained a three-player market.

The fund infusion shall be utilised for capex to upgrade Vodafone's network across key markets.

Fund infusion through expansion of 4G services and roll out of 5G network infrastructure is expected to boost Vodafone Idea's subscriber base.

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4) Aditya Birla Fashion and Retail

The board of directors at Aditya Birla Fashion Retail Ltd (ABFRL) approved the demerger of Madura Fashion and Lifestyle business from ABFRL into a new company called Aditya Birla Lifestyle Brands Ltd (ABLBL).

The demerged entity will be listed separately on the stock exchanges once the demerger is complete.

ABLBL will house brands such as Louis Phillipe, Van Heusen, Allen Solly, American Eagle, Forever 21, and Peter England.

On the other hand, ABFRL will be operating platforms such as Pantaloons, Style up, and the recently acquired portfolio of TCNS brands.

Within 12 months of demerger, ABFRL plans to raise Rs 2,500 crores in equity to strengthen its balance sheet and fund the growth of its business.

On demerger, the shareholders of ABFRL will get one share of ABLBL for every one share in ABFRL, in addition to their existing shareholding in ABFRL.

Such moves may accelerate growth and value-creation through two listed entities with clear structures and a sharp capital-allocation strategies.

Therefore, looking at these various strategic announcements by the Aditya Birla group, it seems as if they are also looking to turn their businesses around which in turn shall lead to wealth creation for shareholders.

Please note that the group has been inconsistent with its returns over the past years due to its below par capital allocation policies and that risk remains.

Happy Investing!

Warm regards,

Bhavin Dedhia
Bhavin Dedhia
Research Analyst, Hidden Treasure
Equitymaster Agora Research Private Limited (Research Analyst)

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1 Responses to "After Tata can This Business Group Create Wealth?"

Mayur

May 1, 2024

Bhavin bhai jay jinedra pls let me have investment guidance for long term wealth creation do you help me jn this regards. Pls let me inform so that I may contact you I am very very serious for my goal. Waiting for your reply. Kachchh me aajo kyo gam aaye

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