Tata and India

India put in $60bn in spending to boost export, RE and infra. Budget deficit projected to be above 8% Mar 2009. Key repo rate slashed by 100bps to 6.5%. Also injected more than $60bn in primary liquidity. Tata Motors and Mahindra and Mahindra were hit badly. Hundreds of textile business went bust and exports dropped 12.1%. Vodafone to appeal against India tax ruling... another potential pitfall in investing in India.

Mr Tata family led conglomerate has a history of 140 years. Just 12 months ago the group and its statesmanlike chairman symbolised the ascendancy of Indian business, making bold acquisitions overseas and increasing its revenues at double-digit percentage rates.

A multinational with revenues in the year ended March of $62.5bn, 350k employees and ops in industries from steel to vehicles, telcos and retailing, the Tata group penetrates almost every area of Indian life. Tata Motors is India’s largest truckmaker, Tata Steel its biggest pte sector steelmaker and Tata Consultancy Services its largest info technology outsourcing company.

Controlled by three family-run trusts, an unlisted parent company, Tata Sons, acts as a provider of strategic direction and capital to the group, whose listed op companies are given leeway to run themselves. The group’s central figure is its 70-year-old chairman, a scion of the Tata business clan. The family hails from Mumbai’s Parsee community, an ethnic minority that traces its origins to Iran and follows the ancient Zoroastrian religion.

Mr Tata launched internationalisation by buying Britain's Tetley Tea in 2000. In 2006, the group followed this with the largest overseas acquisition by an Indian company: the £6.7bn acquisition by Tata Steel of Corus, the Anglo-Dutch steel producer. Previously, no Indian overseas acquisition had been worth more than $1bn. And Tata this year bought Jaguar and Land Rover, the lossmaking Ford marques, for $2.3bn. But perhaps the high point of Mr Tata’s career came in January when he unveiled the prototype of the Tata Nano – the world’s lowest-cost car, with a price tag of around $2,000 – at the Delhi motor show.

As the year wore on, the news started to turn sour. The first setback came when a firebrand politician named Mamata Banerjee began a blockade in September of the site of the Nano plant in West Bengal, the communist-ruled state in India’s east whose capital is Calcutta. Ms Banerjee accused the Tata group of using land forcibly taken from farmers for the plant.

Mr Tata countered that the politician’s supporters were violently obstructing his workers from completing the plant. Disgusted, he eventually shifted the plant to the western state of Gujarat, delaying production by a yr. The episode threatened to take the sheen off the Tata group’s reputation as the acceptable face of Indian capitalism. While Mr Tata accused Ms Banerjee of exploiting the farmers, studies show that the state had used force to appropriate the site of the factory, which stood on fertile rice fields.

But the group’s real troubles began with the worsening of the global liquidity crunch that followed the collapse of Lehman. In Nov, Mr Tata warned of tough times to come for at least 12 months, calling on them “drastically” to reduce costs so as to avoid getting into “irretrievable positions”. Tata steel by far the biggest subsidiary, half of rev, was hit badly. Tata India has the biggest margin compared to the lowest at Corus. Corus still has the technology to provide Tata. Tata Steel is down 81%. Tata Motors, another flagship, has seen auto sales collapsed in the past 2 months. forcing the plants to close 5x to reduce inventories. Struggling to refi loans $3bn loan for jaguar and rover. Hope is to keep on milking Tata cash cow's, Tata consultancy services.

The outsourcing industry has bot in $40bn of rev in 2007. But even that is slowing down. Larger groups include TCS, Infosys technologies and Firstsource.