Tata Consultancy Group and Reliance Industries are currently the two biggest companies in India but differ greatly in terms of the way their businesses operate and in terms of revenues and market valuations.
Valuation
Tata Consultancy Group leads the race between the two, currently, the Indian company with the highest valuation, Rs 6.11 trillion as of January 2018, while Reliance Industries Group holds a valuation of 6.10 trillion, trailing the software major by little. It should also be noted that TCS has been leading the Indian ground in terms of market capitalization for years since 2013 to be precise. At the time, TCS was leading RIL by up to Rs 4 trillion. However, in April 2017, RIL re-gained its perch of the leader after 4 years with an m-cap of Rs 4.60 trillion. Since then, both companies crossed the Rs 6-trillion milestone in December and TCS regained its lead.
Revenues
The oil-to-telecom conglomerate Reliance Industries reported its highest quarterly net profit of Rs 9,435 crore as its petrochemical and retail business registered record earnings. Its telecom unit, Jio also increased in profitability. The consolidated net profit of Rs 9,435 in January-March was 17.3% higher than the Rs 8,046 crore it recorded the previous year in the same quarter.
Reliance Industries registered a record net profit of Rs 36,075 crore in FY18 which is a 20.6% increase compared to the 29,901 crores net profit registered in 2016-17 fiscal. The Mukesh Ambani Group also saw profits rise in its mobile data network recording Rs 510 crore.
As for Tata Consultancy Services (TCS), the conglomerate recorded an increase of 4.4% in annual revenue for FY18, standing at Rs 123,104 crore while its Q4 revenue for the fiscal year 2018 stands at Rs 32,075 crore that is a 3.8% quarter-on-quarter increase and 8.2% year-on-year increase. These figures meant that the conglomerate was rewarded by being named among the Top 3 brands in the IT services sector globally by Brand Finance. The brand value of TCS also crossed the $10 Bn mark in 2017 and recorded a 14.4% year-on-year growth which contrasted the largely stagnant valuation of the sector as a whole.
Businesses
- Tata Group is a conglomerate of diverse business streams spread across over 100 companies in 6 continents. On the other hand, Reliance is one big company, with diverse footprint.
- TCS is a global company, all their gains and losses are related to their globalization. However, while Reliance did purchase some gas companies in the US and occasionally in Europe, it remains largely an Indian entity.
- The Tatas have expanded globally mostly through debts while Reliance is an almost debt-free company.
- Despite being called a group, TCS is actually a loose federation of businesses ran independently, each having its own growth trajectory. As for Reliance, it is centrally controlled by its promoter Mukesh Ambani, despite the fact that several professionals also run the operations in major strategic business units.
What is the difference?
As Tata Group possess a diverse group of different companies running different businesses, it is actually easier to analyze and evaluate the revenue streams of the company.
For example, out of the Rs 6 trillion market capitalization of the company,
- Tata Consultancy Services (TCS) contributed up to 60% of the value.
- Tata Steel accounted for only 5% of the valuation.
- Tata Motors brought 15% to the valuation, mostly attributed to the largely successful acquisition of Jaguar Land Rover (JLR).
Moreover, the business core profit generator of both companies are very different; TCS operates in the technology sector, which is a booming market in North America. As for Reliance, it operates in tightly regulated businesses, where it is forced to sell its bulk of gas at fixed rates. For example, the regulation of domestic fuel prices makes it hard for Reliance to maximize profits, and this is why India’s biggest private refiner prefers selling the majority of its resources in overseas markets rather than India; because it can generate more profits.
Another major difference is the return on net worth (RONW) which differs considerably for both companies. TCS is the prime cash generator for its holding company, Tata Sons. It, therefore, helps in driving high dividend payout ratio meaning that TCS’s RONW stands at nearly 40. In comparison, Infosys, another major Indian company operating in almost the same sector has a RONW of 25. As for Reliance, its RONW is only 11.66.
The difference in valuation is also evident because of the different attitudes both companies approach its cash payout. TCS’s payout ratio as a percentage of net profits stands at 36% while Reliance is only 12.5%. If Reliance wishes to increase its valuation, it will have to pay more out of its profits.
However, the major difference between the two giants are the structural business models they have. The Tata Group have a horizontal conglomerate with vertical businesses that are run by separate entities whereas Reliance operates both vertical and horizontal business models. For instance, It possesses business in textiles to polyester to petrochemicals to an oil refinery to oil exploring chain and to telecom most recently.
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Who owns the businesses?
Tata Sons Limited is the holding company of Tata Group, meaning that it holds the major portion of shares in these companies. Tata Sons Ltd is the parent company of the Tata name and the Tata trademarks, encompassing all companies registered in India and abroad.
About 86% of the equity capital of Tata Sons is owned by philanthropic trusts retained by members of the Tata family. Therefore, the chairman of Tata Sons indirectly holds the highest position in the Tata Group. Natarajan Chandrasekaran is the current chairman of Tata Sons, appointed in January 2017 after receiving a unanimous recommendation for the role by the selection committee. As for Ratan Tata, the patriarch of the company, he only owns a mere 0.83% of the company!
The shares of Reliance Industries are distributed differently; the footprint boasts shares of approximately 3.1 billion. Its promoter group, the Ambani family, headed by Mukesh Ambani holds around 46.32% of the total shares while the remaining 53.68% is held by public shareholders, such as FII and corporate bodies. The LIC of India is the biggest non-promoter investor in Reliance Industries, owning 7.89% of shares.
Prominent Figures Net Worth
Due to the fact that Mukesh Ambani holds over 45% of Reliance industries, which is the second largest company in India, he is, therefore, the richest person in India, boasting a net worth of $40 billion as of 2018.
Ratan Tata’s net worth is estimated to be around $1 billion. Although his family owns over 86% of his company’s shares, they are mostly used for philanthropic and charity works, therefore meaning that most of the fortune of Ratan Tata goes into charity. In fact, if not for his philanthropic mindset, Ratan Tata could be among the world’s richest man but did sacrifice his personal net worth to improve the lives of the less fortunate.
After all, Ratan Tata’s vision is, in his own words, “to do good things for the country.”