Tata Group’s DEBT Threat
Tata Power, set up in 1915, held its 100th annual general meeting on June 18, 2019. While it should have been an occasion to celebrate, with net debt of ₹47,552 crore in FY19 and a net debt-to-EBITDA (earnings before interest, taxation, depreciation and amortisation) ratio of seven, there was not much to celebrate. When shareholders asked Tata Group Chairman N. Chandrasekaran what he was doing to reduce the company’s liabilities, he looked visibly irritated. “We’re working on a solution; it’s not that we are not trying hard,” he said.
In the first nine months of FY2020, Tata Power repaid ₹2,257 crore debt. But for Chandrasekaran, who completes three years as the head of the Tata group on February 21, that is little relief. The gross debt of 11 major indebted listed companies in the group – excluding financing companies and holding company Tata Sons — stood at ₹2.46 lakh crore in FY19 compared to ₹2.22 lakh crore in FY18 and ₹2.1 lakh crore in FY17.
Debt pressure is mounting on marquee Tata companies such as Tata Steel and Tata Motors. In the first nine months of FY2020, Tata Steel’s net debt increased 10.2 per cent to ₹1,04,628 crore, while that of Tata Motors’ automotive business (excluding lending subsidiary Tata Motors Finance) surged 59.8 per cent to ₹45,376 crore. While the steel business has been dogged by troubles in Europe, the auto business faces headwinds in India and China and slowdown in demand for diesel cars, which account for a vast chunk of its UK and European business.
BT sent a questionnaire to the Tata group, which provided details of its debt handling plan. Besides, Tata Sons executives briefed Business Today.
The net debt – gross debt minus cash in hand, including liquid investments — in these companies stood at ₹1.39 lakh crore in FY19. If Tata Sons had not cleared the ₹50,000 crore loans and spectrum liabilities of Tata Teleservices in the last fiscal with dividend and buyback windfall from Tata Consultancy Services (TCS), the debt numbers would have been even higher.
All this would not have been a problem if the companies were earning robust profits to service the debt. But that is not the case with Tata Steel, Tata Motors and Tata Power.
The 11 companies (see ) posted an aggregate loss of ₹14,765 crore in FY19. This was primarily due to the ₹28, 934 crore loss incurred by Tata Motors. It was Tata Motors’ net loss of ₹28, 934 crore that ate away the modest profits of
