Tata Steel reclaims profit perch
Tata Steel, a company conceived by the founder of the $106-billion group and built by his sons and cousin, is reasserting its pre-eminence within the Tata empire.
Buoyed by an unprecedented rally in steel prices and a quicksilver surge in margins, Tata Steel is looking to roll back the years to once again emerge as the largest company in the Tata Group — with the forecast cushioned by the caveat that such an eventuality will critically depend on whether or not the commodity market stays red hot during the rest of the year.
It has made a very bright start in fiscal 2022 in its quest to reclaim its past glory. During the first quarter, Tata Steel’s net profit on a consolidated basis stood at Rs 9,768 crore, rising to the top of the totem pole after eclipsing Tata Consultancy Services for the first time in at least a decade.
The software behemoth, long considered as the money-spinner of the over century-old conglomerate founded
by Parsi businessman Jamsetji Tata, clocked a profit of Rs 9,031 crore during the same period.
The gap between the two iconic institutions from the house of Tatas has been far wider in terms of income.
On a consolidated basis, TCS had reported a total income of Rs 46,132 core compared with Tata Steel’s income of Rs 53,534 crore in the first three months of this year.
Investors and Tata group observers will be keenly waiting to see whether this trend sustains or is just a mere flash in the pan. Being in the commodity business, steel is often known to fall prey to the vagaries of business cycles that can turn all too quickly.
In contrast, TCS has been a consistent performer over the years: barring a few instances, the company has shown a steady uptrend in profit and income every quarter since its listing in 2004.
The uphill task that Tata Steel faces would be borne out by a simple number: TCS had made four times more profits than its peer during 2020-21.
Tata Steel, established in 1907 by Dorabji Tata, son of Jamsetji, and his cousin RD Tata, may have clawed back to the top in terms of quarterly profits but the software giant is still the king when it comes to creating investors’ wealth.
The stock has given over 3,000 per cent return in the last 17 years and is ranked as the second most valuable company on the Indian bourses after Reliance Industries, with a market cap of over Rs 14 lakh crore. In contrast, Tata Steel is 27th in the pecking order with a market cap of Rs 1.74 lakh crore, after beefing a considerable sum of investor wealth over the past nine months.
Leader of the pack
Tata Steel has always been considered by many within the Group as the group’s flagship company as it has a special place in the history of India as well as the House of Tatas. It is one of the oldest and largest of the Tata companies which still runs a town named after the founder, which was also conceived by Jamsetji Tata. It has over a million shareholders and employs many fifth and sixth generation employees.
Tata Steel’s fortunes were clouded after the 2007 acquisition of Corus with the European steel business starting to feel the strain after the global financial crisis in the following year. TCS, in contrast, soon became the leader of the pack and started to provide the ballast to the rest of the group.
Will we see a different script play out in 2021-22? The jury is still out on that tantalising question.