While Tata Motors’ consolidated sales grew at a compounded annual growth rate (CAGR) of 17.7% in the last five years, its earnings before interest, taxes, depreciation and amortisation (EBITDA) grew at a slightly slower rate of 16.9% during the same period.
Its profit, on the other hand, grew at a CAGR of just 3.5%, thanks to interest expense growing at a CAGR of 14.2% on account of the total debt growing at a CAGR of 16.5% during this period.
Another major reason for Tata Motors’ bottom line failing to keep pace with the growth in the top line, despite almost a commensurate growth in EBITDA, is the rising depreciation-to-sales ratio. While in FY11, depreciation accounted for 3.8% of sales, in FY16, the same was 6.2%. However, being non-cash expenditure, what this ensured was a 28.4% CAGR in operating cash flows during this period.
A comparison of Tata Motors’ performance during the last three years under Ratan Tata with that during the first three years under Cyrus Mistry makes one thing clear. While Tata went for growth, Mistry looked at consolidation. While Tata paid hefty dividends to shareholders, Mistry preferred to spend on capital expenditure (capex).
In fact, capex spends of Tata Motors during the first three years of Mistry were more than double of that during the last three years of Ratan Tata. Such capex spends, in turn, meant that Tata Motors’ depreciation-to-sales ratio rose every single year under him to hit a multi-year high of 6.2% in FY16.
The lower dividend payout by Tata Motors under Mistry, however, seemed to have acted as a deal breaker. In a statement last week, Tata Sons said if one ignores the performance of TCS since “Mr Mistry does not really contribute materially to TCS’s management”, the dividend income it receives from the group companies fell from Rs 1,000 crore in FY13 to Rs 780 crore in FY16.
And FE analysis found that the minor fall in dividend income of Tata Sons during this period was largely on account of just Tata Motors. In fact, if one takes into account the top 10 dividend paying companies of the Tata Group, nine of them paid higher dividend to their shareholders in FY16 than what they had paid in FY13.