Mumbai: The market value of Tata group companies edged up by nearly 3.6% in 2016 despite the uncertainties faced by the country’s largest conglomerate in view of the dispute between interim chairman Ratan Tata and ousted chairman Cyrus Mistry.
The market capitalization of all 26 listed Tata group companies, the highest among Indian conglomerates, had risen to Rs8.03 trillion as of 31 December, according to corporate data provider Capitaline.
“All the Tata group companies are largely doing well. Despite the ongoing issue between Mr Tata and Mr Mistry, I don’t think their market cap will erode from here,” said Deven Choksey, group managing director at KR Choksey Investment Managers Pvt. Ltd.
Other analysts shared this view.
“The day-to-day management of these companies are continuing as expected. The strategic plans are also on. So, Tata stocks have largely been resilient to the spat,” said Dipen Shah, senior vice-president and head of private client group research at Kotak Securities Ltd.
Of the top 15 conglomerates, the market capitalization of five had declined in 2016, while that of 10 had risen. The BSE benchmark 30-share Sensex was up 2% in the same period.
For the purpose of this report, conglomerates are considered as a group of listed companies that have the same promoters and are in different businesses. For Larsen & Toubro (L&T) group, two companies—Larsen & Toubro Infotech Ltd and L&T Technology Services Ltd—were excluded, as they were only listed in 2016. Currently, Larsen & Toubro Infotech Ltd and L&T Technology Services, have market caps of Rs11,581.91 crore and Rs7,911 crore, respectively.
Commodity producers stole the show last year, and were among the top performers.
“Commodity-linked companies have done amazingly well this year, with the rebound in prices across the board fuelling the rally for these companies’ stocks,” said Shah of Kotak Securities.
Anil Agarwal-led Vedanta group saw its market capitalization rise the most in percentage terms, jumping 87% to Rs 2.21 trillion, mainly on the back of a rebound in commodity prices. The Vedanta group companies are Vedanta Ltd., Hindustan Zinc Ltd., Sterlite Technologies Ltd. and Cairn India Ltd.
Sajjan Jindal-led JSW group, comprising JSW Steel Ltd., JSW Holdings Ltd, and JSW Energy Ltd., saw its value grow 27% to Rs50,728.97 crore.
“With commodity prices staging a rally, the commodity-linked companies have done very well. Also for Vedanta, mining operations started in Goa this year,” said Choksey.
The Bloomberg Commodity Index of 22 raw materials—from oil to metals—reached an all-time low of 72.8759 on 20 January, and has risen 20.09% since then till the end of the year.
Brent crude soared to $57.89 barrel on 12 December, its highest close since 22 July 2015. It has gained 52.41% for the year 2016.
The country’s second-largest conglomerate, Mukesh Ambani-led Reliance Industries group, was not among the top performers, but added 5.14% to edge up to Rs3.61 trillion.
On the other hand, younger brother Anil Ambani’s Reliance Group companies were the worst hit, with an erosion in value of nearly 32.22% to Rs47,277.75 crore, mainly hurt by a steep decline in the stock prices of Reliance Communications Ltd (R-Com). Its shares plunged 61.4% year in 2016, hurt by a huge debt and stiff competition in the telecom sector.
R-Com has a debt of about Rs42,000 crore which it expects to drop to Rs17,000 crore after the demerger of its wireless business and sale of tower assets.
On 20 December, Fitch Ratings downgraded RCom’s long-term foreign- and local-currency issuer default ratings (IDRs) to ‘B+’ from ‘BB-’, saying it did not expect the company’s FFO-adjusted (funds from operations-adjusted) net leverage to fall below 4.5 times for the foreseeable future.
The Indian pharmaceuticals sector has been facing headwinds in terms of regulatory issues, slowing growth in the US, pricing pressure in domestic as well as US markets and adverse currency movements in emerging markets.
The value of Dilip Shanghvi’s Sun Pharma group eroded by 22.55%, as shares of Sun Pharmaceutical Industries Ltd are set to post losses for the first time in seven years, on the back of industry-specific as well as company-specific issues.
To add to its troubles, Sun Pharma has also suffered due to compliance issues at its Halol plant in Gujarat which has clouded the company’s growth prospects in the US, its biggest market.
For Sun Pharma, the high premium valuation has corrected to a moderate level. The business prospects for Sun Pharma is quite promising, and I don’t think there is a need to worry,” said Choksey.