AIG in India is a reminder of one of my favorite-to-watch companies, Tata. Much as we
long thought of Berkshire as basically an insurance company with a wide range of side business, Tata might be considered a software/engineering company with additional wide-ranging business interests covered by its 100-plus companies. There are a number of similarities to Berkshire, as well as some underlying differences.
Tata has an interesting way of establishing itself in both volume and brand recognition. About a decade ago it decided to offer insurance products, and got instant credibility – and some expertise – by partnering with AIG in a 75%-Tata / 25%-AIG joint venture. This of course was back when AIG was the premiere global brand for insurance products.
Along with its huge flagship Tata Consultancy Services - its principal software/engineering business - Tata also owns: India’s largest steel-maker (plus the UK’s #2); India’s largest private electric utility; the world’s #2 tea company; a world-class luxury hotel chain; an airline; and numerous consumer product businesses, making and selling everything from shoes to clothing to jewelry to trucks and automobiles. From an investor’s perspective, Tata is a collection of over a dozen publicly traded segmented conglomerates with a combined market capitalization of about $100B. Taken together, these are easily India’s largest publicly traded corporate group. That huge software/engineering 'Consultancy' business unit comprises half the Tata group’s total market cap.
Of course, this segmented structural break-out has both advantages and disadvantages vs the usual conglomerate’s combined structure. On the ‘advantages’ side, the business units are valued according to the economics of their business segment- ranging from the very low PE’s of the auto business to the mid-20’s PE valuation of its consulting services. In the middle, we get businesses such as chemicals and ‘global beverages’. Half the Tata companies pays dividends. Which gets to the disadvantage – in US terms, anyway, and probably also in Indian structure – the internal hindrances to capital allocation.
I believe the companies are majority-owned by the Tata Charitable Trust, which funds various health and educational activities in India (eg, clean water, etc).
Tata has an interesting pattern of ‘going global’ with its brands. 60% of its revenues are from outside India.
The company has a history of ‘buying brand names’ which help give leverage to its very large but largely unknown domestic businesses, with global recognition and reach. For example, it gave international presence to its extensive tea plantations by buying Tetley. Its automobile business, which represents about one-eighth of its overall market cap, had strong domestic presence but questions remained whether it could ever develop the extensive expertise, credibility, and dealer network necessary to sell cars or trucks in Europe or the US. Its acquisitions of Daewoo Trucks and Jaguar / Land Rover got the safety and other technologies, the marketing expertise, and global dealer presence. When they wanted credibility and expertise in the insurance market, they partnered with what at the time was the most recognized global brand. http://www.tataaiginsurance.in/taig/taig/tata_aig/about_us/a...
Fifth-generation Ratan Tata has announced he’s stepping down at the end of 2012 (at 75), fueling succession speculation.
It will be interesting to follow Berkshire’s venture into Indian insurance. With AIG's problems - actual and perceived - the timing might be good.
long thought of Berkshire as basically an insurance company with a wide range of side business, Tata might be considered a software/engineering company with additional wide-ranging business interests covered by its 100-plus companies. There are a number of similarities to Berkshire, as well as some underlying differences.
Tata has an interesting way of establishing itself in both volume and brand recognition. About a decade ago it decided to offer insurance products, and got instant credibility – and some expertise – by partnering with AIG in a 75%-Tata / 25%-AIG joint venture. This of course was back when AIG was the premiere global brand for insurance products.
Along with its huge flagship Tata Consultancy Services - its principal software/engineering business - Tata also owns: India’s largest steel-maker (plus the UK’s #2); India’s largest private electric utility; the world’s #2 tea company; a world-class luxury hotel chain; an airline; and numerous consumer product businesses, making and selling everything from shoes to clothing to jewelry to trucks and automobiles. From an investor’s perspective, Tata is a collection of over a dozen publicly traded segmented conglomerates with a combined market capitalization of about $100B. Taken together, these are easily India’s largest publicly traded corporate group. That huge software/engineering 'Consultancy' business unit comprises half the Tata group’s total market cap.
Of course, this segmented structural break-out has both advantages and disadvantages vs the usual conglomerate’s combined structure. On the ‘advantages’ side, the business units are valued according to the economics of their business segment- ranging from the very low PE’s of the auto business to the mid-20’s PE valuation of its consulting services. In the middle, we get businesses such as chemicals and ‘global beverages’. Half the Tata companies pays dividends. Which gets to the disadvantage – in US terms, anyway, and probably also in Indian structure – the internal hindrances to capital allocation.
I believe the companies are majority-owned by the Tata Charitable Trust, which funds various health and educational activities in India (eg, clean water, etc).
Tata has an interesting pattern of ‘going global’ with its brands. 60% of its revenues are from outside India.
The company has a history of ‘buying brand names’ which help give leverage to its very large but largely unknown domestic businesses, with global recognition and reach. For example, it gave international presence to its extensive tea plantations by buying Tetley. Its automobile business, which represents about one-eighth of its overall market cap, had strong domestic presence but questions remained whether it could ever develop the extensive expertise, credibility, and dealer network necessary to sell cars or trucks in Europe or the US. Its acquisitions of Daewoo Trucks and Jaguar / Land Rover got the safety and other technologies, the marketing expertise, and global dealer presence. When they wanted credibility and expertise in the insurance market, they partnered with what at the time was the most recognized global brand. http://www.tataaiginsurance.in/taig/taig/tata_aig/about_us/a...
Fifth-generation Ratan Tata has announced he’s stepping down at the end of 2012 (at 75), fueling succession speculation.
It will be interesting to follow Berkshire’s venture into Indian insurance. With AIG's problems - actual and perceived - the timing might be good.
