&w=1024&resize=1024,0&ssl=1 "Ratan Tata's Remarkable Journey: Retirement, Mega Takeover | People")
A hallmark of Ratan Tata's tenure as chairman of Tata Sons and the Tata Group was a series of high-profile overseas acquisitions that put the conglomerate – and corporate India – on the world map. These acquisitions transformed the family-owned company, once centered in India, into a global business group. However, before embarking on its global expansion, Tata has reduced and consolidated the group's domestic portfolio, focusing particularly on initiatives in the consumer space.
When Ratan Tata took over the business from JRD Tata in 1991, the Tata Group was India's largest and most diversified business conglomerate, with interests in almost every sector except those reserved for the public sector. The group was dominated by industrial companies such as Tata Engineering and Locomotive Company (now Tata Motors), Tata Steel, three Tata Electric companies (Tata Power Company, Tata Hydro-Electric Supply Company and Andhra Valley Power Supply Company), Associated Cement. Company (ACC) and Tata Chemicals. Together, these companies accounted for almost three-quarters of the group's total revenues, profits, assets and market capitalization in 1990–91 (FY91).
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However, Tata also inherited a diversified consumer products portfolio, one of the largest in the private sector at the time. In the early 1990s, Tata Lakme Limited (cosmetics and personal care products), Tata Oil Mills (soaps), Goodlas Nerolac (paints), Marind (pharmaceuticals), Voltas (air conditioners and refrigerators) became leading players in several consumer segments (refrigerators) , Titan Industries (watches), Tata Tea, Tata Coffee and Tata Press (printing and publishing). The group was a major player in the computer hardware market through its joint venture with IBM and Tata Telecom and partnership with AT&T.
Despite their profitability and strong market position, these ventures, with the exception of Marinda, do not fit Tata's vision of developing a globally competitive portfolio in the era of globalization and free capital flows. He predicted challenges to the long-term viability of domestic consumer goods due to India's relatively small consumer goods market and the entrenched position of multinational companies in the space.
The severe economic downturn in India in the late 1990s and early 2000s forced the group's broad portfolio to be reduced. Between FY97 and FY01, group revenue declined by 5 per cent while net profit fell by 85 per cent from Rs 2,344 crore in FY97 to just Rs 354 crore in FY01.
Ratan began to rationalize the Tata Group portfolio to free up capital and management resources where Tata had the potential to become a global leader. The recession also encouraged geographic expansion to reduce financial risk.
The first was soap manufacturer TOMCO, which was sold to Hindustan Lever (now Hindustan Unilever). In 1997, the group exited the cosmetics and personal care business by selling the Lakme brand to Hindustan Lever for Rs 200 crore. Lakme Limited changed its name to Trent and opened its first store on the Westside in 1998, marking the beginning of the group's entry into the organized retail market.
Group disinvestment continued: in 1998, Voltas spun off its home appliances and refrigerators businesses into a joint venture with Electrolux, focusing instead on air conditioners, commercial refrigeration and contract manufacturing. The same year, Tata exited the pharma sector by selling Marind to Oakheart for Rs 95 crore, after earlier divesting its pharma divisions Rallis India and Lakmé due to lack of scale and profitability.
In 1999, Tata sold the remaining 25.85% stake to Goodlass Nerolac for Rs 98.56 crore to Japan's Kansai Paint Co, which exited the paint business. The group further streamlined its exit from the computer hardware sector by dissolving its 50:50 joint venture with IBM. ACC, then India's second-largest cement producer, also exited the Tata portfolio when Tata was unable to increase its stake; In 2000, the group sold the remaining shares to Ambuja Cement.
The last major investment was in 2004 when Tata Telecom exited Hardware and sold its remaining 25.1 percent stake in Tata Telecom to its joint venture partner Avaya.
Larger spread
Consolidating its presence in the domestic market, Ratan Tata began the global expansion of its parent companies. Tata Tea (now Tata Consumer Products) led the way, acquiring British company Tetley for $432 million in 2000, making Tata Tea the second-largest branded tea company in the world after Unilever. At the time of acquisition, Tata T's market capitalization was around $500 million and its net profit in FY99 was $30 million.
In 2002, Tata Sons acquired a majority stake in state-owned Desh Sanchar Nigam Limited (now Tata Communications) for Rs 2,599 crore, strengthening its position in the fast-growing telecom market.
In 2004, Tata Motors made its first international acquisition, purchasing the heavy-duty business of Daewoo Motors, becoming one of the world's leading truck manufacturers. The following year it acquired a 21 percent stake in Spanish luxury bus maker Hispano Carrosera SA, and in 2008 it acquired Jaguar Land Rover for $2.3 billion, making Tata Motors the world's leading carmaker. The following year, its revenues more than doubled. Between 2004 and 2008, Tata Chemicals, Indian Hotels and Tata Steel also made a number of acquisitions, most notably Tata Steel's $12.2 billion acquisition of Corus in 2007 during the steel boom.
These acquisitions led to rapid growth in the group's revenues and assets, but increased debt and financial stress, which proved challenging during the post-2008 Lehman crisis. The acquisitions led to rapid growth in the Tata Group's revenues and assets between 2002 and 2009, but came at the cost of a significant increase in debt and borrowing. Between the financial years 2002 and 2008, the group's total revenues, profits, assets and debt grew at a compound rate of 40.8%, 76.9%, 31.3% and 29.5% respectively. As a result, the group's balance sheet leverage ratio increased from an all-time high of 1.84x in fiscal 2009, 1.21x in fiscal 2002 and a healthy level of 0.52x in fiscal 2005.
These financial pressures were exacerbated when the 2008 financial crisis caused a global recession and a sharp decline in corporate profits. The Tata Group's consolidated net profit fell by 54 percent in fiscal 2009, falling an additional 7.4 percent the following year. Similarly, the group's consolidated net sales decreased by 6.7% in the 2010 financial year.
Tata Motors, Tata Steel, Indian Hotels and Tata Global Beverages (now Tata Consumer) were the worst hit by the aftershocks of the crisis and debt-fueled takeovers. However, none of these companies faced an existential threat thanks to the financial resources of Tata Sons and steadily growing dividend income from Tata Consultancy Services. Most of the group's companies have overcome these challenges and are back on the growth path.
