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Will India’s Tata Group Survive?

August 21, 2013

In India, this question would be regarded as sacrilegious.   But the time has come to tot up the group’s assets and liabilities.  This is a must for any sensible investor before he plunges into the perpetual debt of Tata Steel and the Tier I and Tier II capital instruments of Tata Capital or Tata Motors Finance.  On the asset side, there is only the group’s holdings in TCS.  All the rest is liability.  No one wants to be seen dead in the ghastly cars that Tata Motors makes (the JLR bit alone cant bail out this company).  God only knows for how long Tata Steel can carry its leveraged capital structure before the edifice collapses.   Tata Communications requires Rs 1500 crores of annual bailout (the joint venture partner DoCoMo wants to get out- if the Tatas buy out the Japanese company, the bad situation would only get worse).  Though Indian Hotels has made losses recently, that company should survive once the economy turns.  The same cant be said with certainty about Tata Chemicals or the Tata group’s retail adventures.  Tata Power is a bottomless pit, guzzling cash faster than Ford’s Model T guzzled petrol.  Many of the group’s companies have not been shy about borrowing in foreign currency.  The recent fall in the INR is going to make things worse.  Credit investors who are investing in the debt instruments of the Tata group companies based on the AAA rating of Tata Sons assigned by the Indian arms of S&P and Moody’s should not look to those agencies for solace when the shit hits the fan.      

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From → Credit Analysis

One Comment
  1. Ravi Vukkadala permalink

    Given the way Tata Teleservices is performing, and the telecom cash guzzling sector in general, the sensible thing for Docomo to do would be to exercise the put option and sell their stake to Tata Sons in March ’14. More troubles for the Tatas which will likely again resort to public deposits (like earlier) to keep the game going.

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