N Chandrasekaran, Chairman of Tata Sons stands next to the bust of Jamsetji N Tata at the TCS House in Mumbai. (Photographer: Vishal Patel/BloombergQuint)

Writeoff Wipes Out Bonanza For Tata Sons

A year of bonanza for Tata Sons Ltd., India’s largest conglomerate, ended like any other.

That’s because most of what it received as dividend from group companies, and from a buyback and stake sale in India’s largest software services provider was wiped out by an impairment charge on its telecom arm Tata Teleservices Ltd.

Tata Sons is the parent of more than 100 group companies that offer everything from steel to salt. The subsidiaries pay dividend to the holding arm. But most of it is contributed by a handful of them, led by cash-rich Tata Consultancy Services Ltd.— the largest group company.

In financial year 2018, Tata Sons reported a revenue of Rs 8,156 crore, according to ratings agency Crisil. BloombergQuint’s calculations show nearly Rs 6,700 crore of it came as dividend from TCS.

The company also received extraordinary gains from two transactions:

  • Nearly Rs 10,278 crore by participating in the Rs 16,000-crore TCS buyback—Tata Sons is the largest shareholder with 72 percent.
  • Sale of stake worth Rs 8,150 crore in TCS.

In all, it got more than Rs 28,102 crore during the year.

But Tata Sons also took an impairment of nearly Rs 24,267 crore on investments in Tata Teleservices, according an Aug. 1 report of rating agency ICRA.

After taking out the operating costs, Tata Sons earned a profit after tax of Rs 873 crore, according to Crisil. That compares with a net profit of Rs 824 crore in the previous financial year.

Tata Sons didn’t respond to an emailed query from BloombergQuint.

Rising Debt, Enough Liquidity

Tata Sons had invested nearly Rs 34,000 crore in the telecom unit. Of that, it infused Rs 23,000 crore by subscribing to preferential shares of the wireless carrier between April 2017 and June 2018 to repay debt, according to Crisil.

The telecom operator ended the year through March 2018 with a loss of Rs 17,630 crore as competition continues to drive telecom tariffs lower in India, forcing consolidation in the sector. In fact, Bharti Airtel Ltd. agreed to buy the mobile consumer business of Tata Sons’ telecom arm along with about Rs 9,500 crore of deferred spectrum liability.

Tata Sons has been raising funds to infuse capital in group companies. Over the last two years, the parent’s debt-equity ratio increased to 0.7 times from 0.4 times, India Ratings said in its report. Its total debt rose to Rs 27,748 crore as of March 2018 from Rs 20,680 crore a year ago.

Yet, liquidity will not be an issue, according to Crisil and ICRA. The market value of Tata Sons’ quoted investments increased to Rs 6,34,182 crore as on July 30 from Rs 4,98,884 crore in March, ICRA said.

And TCS will contribute substantially to Tata Sons earnings this financial year as well.

The information technology company has announced another Rs 16,000-crore buyback. Tata Sons is likely to get up to Rs 11,504 crore, according to BloombergQuint's calculations.

Crisil also reiterated that Tata Sons has indicated its intention to participate in the share repurchase, which is expected to augment its liquidity by around Rs 10,000 crore.

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