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If you are an Indian, you know this name right when you are a kid. No matter where you are, in a cosmopolitan city or a village. You know Tata.

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TATA

Where to start.Well, let us begin with this.Don’t believe me?

Okay, do you remember this:Tata namak. DESH ka namak.Or how about Tata Tea? Well, remember good ole Tata Indica? Or the world’s cheapest car Tata Nano? Girls, do you remember Lakmé? Well, who founded it?Tata has always been there, playing a significant part, yes, indeed, a small part but definitely significant.

I feel associated with it, not because it is a company but because it is a feeling.  And by feeling, I mean to say, Tata on a whole has played such a significant part in our lives.

I remember reading in my history textbooks how Jamshetji Tata founded this company in 1868, back when it was British India and flourished, created one of the luxury hotels in India which stands today, the Taj. He was so influential in Independent India that the Government named a city after him, Jamshedpur.

Imagine, succeeding in turmoil and creating the biggest company in Indian history in terms of value. Even today, all companies strive to achieve what Tata has achieved. It is THE GOLD STANDARD.

Tata was the first and the most successful Indian conglomerate. It bought in the craze of conglomerate which so many tried to follow but failed, bar Reliance. But in terms of providing and adding value, even Reliance cannot match Tata.

History

So, the Tata Group was founded as a private trading firm in 1868 by  Jamsetji Nusserwanji Tata. The group incorporated the Indian Hotels Company to commission the Taj Mahal Palace & Tower, the first luxury hotel in India, which opened in 1903. However, in 1904, Jamsetji’s passed away and his son Sir Dorab Tata took over as chair of the Tata Group. He was the one who ensured that the group quickly diversified its overall portfolio, venturing into a vast array of new industries, including steel (1907), electricity (1910), education (1911), consumer goods (1917), and aviation (1932).

In 1938, 6 years after Dorabji Tata’s death, his son Jehangir Ratanji Dadabhoy Tata (J.R.D.) took over the position and continued the expansion into new sectors—such as chemicals (1939), technology (1945), cosmetics (1952), marketing, engineering, and manufacturing (1954), tea (1962), and software services (1968)— thereby earned Tata Group international recognition. In 1945, Tata Group established the Tata Engineering and Locomotive Company (TELCO) to manufacture engineering and locomotive products;  which was later renamed Tata Motors in 2003. In 1991 J.R.D.’s nephew, Indian business mogul Ratan Tata, succeeded him as chairman of the Tata Group. Upon assuming leadership of the conglomerate, Ratan aggressively sought to expand it, and increasingly focused on globalizing its businesses. In 2000, the group acquired London-based Tetley Tea, and in 2004 it purchased the truck-manufacturing operations of South Korea’s Daewoo Motors. In 2001, Tata Group partnered with American International Group, Inc. (AIG) to create the insurance company Tata-AIG.

In 2007, Tata Steel completed the biggest corporate takeover by an Indian company when it acquired the giant Anglo-Dutch steel manufacturer Corus Group. The following year the company made headlines worldwide when it ventured into the automotive industry.

On January 10, 2008, Tata Motors officially launched the Nano, a tiny, rear-engine, pod-shaped vehicle that eventually sold at a base price (excluding options, tax, and transportation fees) equivalent to $1,500 to $3,000. Although only slightly more than 3 metres (10 feet) long and about 1.5 metres (5 feet) wide, the highly touted “People’s Car” could seat up to five adults and, in Tata’s words, would provide a “safe, affordable, all-weather form of transport” for millions of middle- and lower-income consumers both in India and abroad. The first Nano hit the road in India in July 2009. Tata Motors purchased the elite British brands Jaguar and Land Rover from the Ford Motor Company in 2008.

In June 2018, the Tata Group merged its European steelmaking operations with those of the German steelmaker ThyssenKrupp.

Currently, the group operates in more than 100 countries across six continents, and there are 28 publicly listed Tata enterprises with a combined market capitalisation of over $160 billion.  However, the crown jewel is Tata Consulting Services (TCS) yet who became the first company to touch a market cap of $120.49 billion exceeding IBM in June 11, 2019.

Our Recommendations

Honestly, if you are seeking to invest for a 3-year horizon, we would recommend you pick any Tata subsidiary, as they all are value additions to your portfolio.

However, if you still insist on 3 recommendations, we recommend you buy stocks of Titan, Tata Motors, and Tata Consulting Services. These are the cream of the crop and their results are out there for everyone to see.

Titan

Titan Company Limited is an Indian consumer goods company that mainly manufactures fashion accessories such as watches, jewellery, and eyewear. Part of the Tata Group, the company is headquartered in Electronic City, Bangalore. It commenced operations in 1984 under the name Titan Watches Limited.

Market Cap (Rs Cr.): 95,428.13 Book Value (Rs): 76.88

P/E: 62.91 Industry P/E: 51.78

Price/Book: 13.98 Book Value (Rs): 76.88

SWOT analysis

Strengths

a) The varied offerings to diverse segments with a clear cut positioning.

b) The quality of watches is impressive.

c) Innovation is core to its strategy.

d) Visual Merchandising has been Titan’s strength ever since its inception.

e) Good retail network by “WORLD OF TITAN”

f) Excellent customer service.

g) International tie-ups with Hugo Boss and Tommy Hilfiger.

Weaknesses

a) Waterproof watches not a part of its kitty.

b) Rural India does not form a substantial part of the customer base.

c) Kids are fascinated with mobile phones rather than watches and incidentally, they show the time.

Opportunities

a) Under-penetrated market for watches as only 35% (approximately) of Indian population possesses watches.

b) Watches positioned as a fashion wear rather than just utility products.

c) With a changing consumer attitude, people like to possess multiple watches for different occasions and events.

d) Huge market in the exchange business.

e) Introducing waterproof watches.

f) Rural markets may be tapped.

Threats

From competitors –

a) Japanese- Citizen, Casio

b) Swiss- Rolex, Omega, Rado, Tissot, Tag Heur, etc.

c) Chinese watches

d) Unorganized sector/ Grey market.

e) Mobile phones and wall clocks are a substitute to watches.

f) The fashion trend keeps on changing.

Tata Motors

Tata Motors Limited, formerly Tata Engineering and Locomotive Company, is an Indian multinational automotive manufacturing company headquartered in Mumbai, Maharashtra, India. It is a part of Tata Group, an Indian conglomerate.

Market Cap (Rs Cr.): 34,411.17 Book Value (Rs): 59.20

Market Lot: 1 Industry P/E: 33.21

Price/Book: 1.88 Face Value (RS): 2.00

SWOT analysis of Tata motors

Strengths

1. The internationalization strategy so far has been to keep local managers in new acquisitions, and to only transplant a couple of senior managers from India into the new market. The benefit is that Tata has been able to exchange expertise. For example after the Daewoo acquisition the Indian company learned work discipline and how to get the final product ‘right first time.’

2. The company has a strategy in place for the next stage of its expansion. Not only is it focusing upon new products and acquisitions, but it also has a programme of intensive management development in place in order to establish its leaders for tomorrow.

3. The company has had a successful alliance with Italian mass producer Fiat since 2006. This has enhanced the product portfolio for Tata and Fiat in terms of production and knowledge exchange. For example, the Fiat Palio Style was launched by Tata in 2007, and the companies have an agreement to build a pick-up targeted at Central and South America.

Weaknesses

1. The company’s passenger car products are based upon 3rd and 4th generation platforms, which put Tata Motors Limited at a disadvantage with competing car manufacturers.

2. Despite buying the Jaguar and Land Rover brands; Tata has not got a foothold in the luxury car segment in its domestic, Indian market. Is the brand associated with commercial vehicles and low-cost passenger cars to the extent that it has isolated itself from lucrative segments in a more aspiring India?

3. One weakness which is often not recognized is that in English the word ‘tat’ means rubbish. Would the brand sensitive British consumer ever buy into such a brand? Maybe not, but they would buy into Fiat, Jaguar, and Land Rover

Opportunities

1. In the summer of 2008 Tata Motors announced that it had successfully purchased the Land Rover and Jaguar brands from Ford Motors for UK £2.3 million. Two of the World’s luxury car brand have been added to its portfolio of brands and will undoubtedly off the company the chance to market vehicles in the luxury segments.

2. Tata Motors Limited acquired Daewoo Motors Commercial vehicle business in 2004 for around USD $16 million.

3. Nano is the cheapest car in the World – retailing at little more than a motorbike. Whilst the World is getting ready for greener alternatives to gas-guzzlers, is Nano the answer in terms of concept or brand? Incidentally, the new Land Rover and Jaguar models will cost up to 85 times more than a standard Nano!

4. The new global track platform is about to be launched from its Korean (previously Daewoo) plant. Again, at a time when the World is looking for environmentally friendly transport alternatives, is now the right time to move into this segment? The answer to this question (and the one above) is that new and emerging industrial nations such as India, South Korea and China will have a thirst for low-cost passenger and commercial vehicles. These are the opportunities. However the company has put in place a very proactive Corporate Social Responsibility (CSR) committee to address potential strategies that will make its operations more sustainable.

5. The range of Super Milo fuel efficient buses are powered by super-efficient, eco-friendly engines. The bus has an optional organic clutch with booster assist and better air intakes that will reduce fuel consumption by up to 10%.

Threats

1. Other competing car manufacturers have been in the passenger car business for 40, 50 or more years. Therefore, Tata Motors Limited has to catch up in terms of quality and lean production.

2. Sustainability and environmentalism could mean extra costs for this low-cost producer. This could impact its underpinning competitive advantage. Obviously, as Tata globalises and buys into other brands this problem could be alleviated.

3. Since the company has focused upon the commercial and small vehicle segments, it has left itself open to competition from overseas companies for the emerging Indian luxury segments. For example ICICI bank and DaimlerChrysler have invested in a new Pune-based plant which will build 5000 new Mercedes-Benz per annum. Other players developing luxury cars targeted at the Indian market include Ford, Honda and Toyota. In fact the entire Indian market has become a target for other global competitors including Maruti Udyog, General Motors, Ford and others.

4. Rising prices in the global economy could pose a threat to Tata Motors Limited on a couple of fronts. The price of steel and aluminium is increasing putting pressure on the costs of production.

TATA CONSULTING SERVICES (TCS)

Tata Consultancy Services Limited is an Indian multinational information technology service and consulting company headquartered in Mumbai, Maharashtra, India. It is a subsidiary of the Tata Group and operates in 149 locations across 46 countries. TCS is the second largest Indian company by market capitalisation. 

Market Cap (Rs Cr.): 843,967.61 Book Value (Rs): 59.20

P/E: 27.55 Industry P/E: 23.10

Price/Book: 11.35 Book Value (Rs): 198.19

SWOT Analysis of TCS

Strengths

1.   Clients from diversified markets: TCS has clients from diversified industries such as Banking, financial services, retail, telecom and media and entertainment etc. Exposure to diversified business industries dilutes business risks of overdependence on a single market or industry.

2.   Geographic Footprint: TCS has strategically expanded to geographically diversified markets throughout the globe which includes North America, the UK, Middle East Europe, Africa and Asia-Pacific. Presence in geographically diversified markets reduces business risks and creates a strong global image for TCS.

3.   Strategically established partnership network: TCS has established the strong partnership with global companies around the world. It has partnered with some technology giants such as Adobe, Amazon, Bosch, Dell and HP etc. These partnerships allow TCS to deliver technologically sustainable and innovative business as well as strategic solutions.

4.   Strong portfolio of services offered: TCS has a strong and balanced portfolio of offered services which includes, Business process services (BPS) application development and maintenance, IT infrastructure, business intelligence and much more. Such a strong and diverse portfolio attracts various business clients.

Weaknesses

1.   Legal battles: In 2014, TCS was involved in a legal battle against Epic Systems for alleged misuse of Epic System’s confidential information. In 2016, TCS was found guilty and was ordered to pay damages worth $940 million. TCS has opposed the judgment and challenged it to the higher jurisdiction. Such incidents affect the image of the company.

2.   Decline in performance by Diligent: Diligenta, a subsidiary of TCS has continuously performed below par. The company is not expected to improve on performance soon and thus affects TCS’s bottom-line.

Opportunities                     

1.   Digital transformational technologies: The world is going digital and hence business dynamics are also changing to the digital economy. TCS has focused on digitally transforming itself and providing digital solutions. TCS should look ahead to spend more on digital transformation technologies.

2.   Cloud-based solutions: With the advent of digital transforming technologies and fast internet connectivity. The world is moving towards cloud based solutions and as a matter of fact, the spending on cloud services is expected to grow at a CAGR of over 19% in the next 5 years. TCS has a solid infrastructure to provide cloud-based solutions and hence it is well poised to be benefited with the demand created.

3.   Machine-to-Machine (M2M) solutions: M2M solutions are those which allow wireless as well as wired communications systems. There is a positive outlook for M2M solutions in the future and is expected to generate high revenues. TCS has a comprehensive suite of M2M services which will enable to take advantage of the demand for M2M solutions.

4.   Enterprise Mobility market: With increasing, mobile worker population and increased usage of sophisticated mobile devices, enterprise mobility solutions are expected to be driven by business applications. There is a latent demand for mobility solutions which is expected to grow at a CAGR of 24.7% till 2022. With TCS’ increasing focus on developing enterprise mobility solutions, it is well positioned to benefit.

Threats

1.   Immigration restrictions: With stricter immigration laws, increased H-1B visa fees and changing political circumstances in the US, Indian IT companies are expected to suffer from it as it will increase its costs and impact profitability and hence this is a threat to the industry.

2.   Intense competition: The IT industry is subjected to intense competition from companies such as Wipro, Infosys, Accenture, Capgemini and Deloitte etc. This leads to pricing wars in the industry and limits market share.

3.   High attrition rate: The Indian IT industry is subjected to high attrition rate which increases cost in providing skills and leadership development to new hires and also impacts the image of the company.

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