What Is Driving Consolidation At The Tata Group?

The Tata Group’s flagship steelmaker Tata Steel last week approved the merger of six subsidiaries and an associate company with itself in a major move that consolidates the group’s metals and mining business.

The move involves listed entities, Tata Steel Long Products, The Tinplate Company of India, Tata Metaliks and TRF.

The proposed amalgamation is aimed at driving synergies through raw material security, centralised procurement, optimisation of inventories, reduced logistics costs and better facility utilisation.

The consolidation is in continuation with Tata Steel’s drive to simplify the group holding structure. Since 2019, it has reduced 116 associated entities.

Recently, the Adani Group overtook Tata to become India’s most valuable conglomerate. At $278 billion, listed Adani companies had a combined valuation higher than Tata Group’s $260 billion.

Under the Chairmanship of N Chandrasekaran, the salt-to-software conglomerate has been consolidating businesses that share common synergies. Earlier this year, the group announced the merger of Tata Consumer Products and Tata Coffee.

Tata Consumer itself was a result of the 2019 merger of consumer products business of Tata Chemical with Tata Global Beverages.

A financial daily on Tuesday reported that the group and Singapore Airlines are working on merging their airline businesses Air India and Vistara, and housing them under a new joint venture.

Meanwhile, Tata-owned AirAsia India is in the process of being merged with Air India Express, an Air India subsidiary that operates flights mainly on India-Gulf routes. By 2025, Tata’s aviation business will be reportedly brought under Air India.

Tata Sons, the group holding company, had consolidated its various businesses across aerospace and defence sectors together under a single entity, Tata Aerospace & Defence (Tata A&D).

Ambareesh Baliga, Independent Market Analyst says, consolidation is a value creation proposition. Will bring in synergies and cost efficiencies. Tata’s successful future businesses may also undergo consolidation.

According to a financially daily, Tata Sons has commenced plans to halve the number of listed companies in the conglomerate to an estimated 15 from 29 in the coming months. This is being done to focus on investing in bigger entities that can compete in the marketplace.

The news report quoted the conglomerate’s executives saying that it is speeding up the simplification to focus better on the growth and scale of the large companies.

Chandrasekaran, who is serving his second term as Tata Sons Chairman, restructured the group into ten verticals such as infrastructure, financial services, automotive and technology and e-commerce.

The group had committed over $10 billion to deleverage and restructure Tata companies, consolidate cross-holdings, acquire strategic assets and infuse capital for future growth.

Chandrasekaran is driving his 3S philosophy of simplify, synergise and scale to take the group to new heights.

Simplification includes consolidating entities sharing the same sector into a single vertical and reducing subsidiary or exiting non-core businesses to bring focus and agility.

An example of synergy would be Tata Motors leading the effort to develop an Electric Vehicle (EV) ecosystem in partnership with Tata Capital for financing and Tata Power for the charging infrastructure network.

The group is largely focusing on home markets, as its strategy of going global has not yielded much returns.

[Shailesh Haribhakti, Chairman, Shailesh Haribhakti Associates says, talent freed from separate silos. Enable clearer capital allocation. Chandrasekaran creating template for synergy.

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Tata’s latest ambitious goal is to harness its presence across multiple sectors into a unified offering for consumers through its super app Tata Neu. It’ll be interesting to see how the consolidation exercise aids in this goal.