Noel Tata Ushers a New Dawn for Community, Company and Country

Edition #18

Welcome back to Beyond Markets – your trusted source for breaking down the financial world! This edition delves into a mix of corporate drama, evolving market landscapes, and legacy-defining moments. One of the most significant headlines this week is Noel Tata stepping into the massive shoes left by Ratan Tata, marking a turning point in the history of Tata Group. We move on to examining Bhavish Agarwal’s recent X (formerly Twitter) rant, addressing the fine line between defending a brand and alienating consumers. Next, we analyze Avenue Supermarts (DMart) and whether the retail giant is losing its foothold amidst increasing competition. Finally, we take a walk down memory lane with a special timeline of Ratan Tata’s extraordinary life, from humble beginnings to becoming one of India’s most revered industrialists.

Topics: 

1. Noel Tata Succeeds Ratan Tata
2. Honest Opinion on a Founder’s X rant
3. Avenue Supermarts (DMart): Is the Retail Giant Losing Ground?
4. Infotrend

Events this week:

1. Friday, October 11, 2024: Real GDP (Euro Area), Inflation (Japan) | Q2FY25 Results: Aether Inds, ICICI Lombard
2. Saturday, October 19, 2024: Real GDP (China) | Q2FY25 Results: HDFC Bank, MCX, Tech Mahindra
3. Monday, October 21, 2024: Central Bank Policy Rate (China) | Q2FY25 Results: Ultratech Cement
4. Tuesday, October 22, 2024: Q2FY25 Results: Coforge, ICICI Pru Life, Max Financial, Zensar Tech,Persistent
5. Wednesday October 23, 2024: Inflation (South Africa) | Q2FY25 Results: Asian Paints, KPIT Tech, Pidilite, Navin Fluorine
6. Thursday October 17, 2024: Real GDP Advance Estimate (Korea) | Q2FY25 Results: Bikaji, Castrol, UBL, Cyient

Noel Tata Succeeds Ratan Tata

Noel Tata Succeeds Ratan Tata

With Noel Tata stepping into the role of chairman at Tata Trusts, the leadership baton has officially been passed, marking the beginning of a new era for the foundation of India's largest conglomerate. Known for his four decades of experience across various Tata Group companies, Noel’s ascension could shape the group’s long-term strategic vision in philanthropy, corporate governance, and global expansion. His behind-the-scenes leadership, especially in transforming Trent, has often been overshadowed by Ratan Tata’s more public presence. Now, however, he is at the forefront of one of India’s most influential entities.

Tata Trusts, a pillar in social development, has contributed significantly to sectors like healthcare, education, and rural development. Noel’s cautious and meticulous leadership style is expected to maintain this legacy while exploring opportunities for global philanthropic collaborations. His new role also coincides with a period of strategic challenges, as Tata Trusts and Tata Sons navigate issues like sustainability and technological disruption. Noel’s expertise, particularly in retail and international markets, could offer fresh insights, ensuring the conglomerate’s continued evolution.

This appointment is not just a milestone for the Tata Group but also a significant global event. Following in the footsteps of iconic leaders like Jamsetji Tata, JRD Tata, and, most recently, Ratan Tata, Noel Tata is inheriting a legacy that has shaped India's corporate landscape and made a profound impact on the world. The emotional weight of this transition is undeniable, as Ratan Tata was a beloved figure, admired for his humility, vision, and commitment to India’s progress. As the world watches, this transition symbolizes not just continuity, but also a step forward, with Noel poised to carry on the remarkable legacy of his predecessors while steering Tata Trusts into a future filled with greater opportunities and challenges.

Honest Opinion on a Founder’s X rant

Many witnessed the Kunal Kamra vs. Bhavish Agarwal clash on X, and while it's commendable for a founder to defend his company, making dismissive remarks about someone else’s career is not the best representation for one of India’s most promising homegrown brands. As a founder, the focus should be on resolving pressing issues, not on verbal spats. Particularly when faced with a mounting list of unresolved customer grievances, Bhavish should focus on Ola Electric’s customer service and product reliability rather than public exchanges.

Ola Electric is currently under fire from both consumers and regulatory bodies. With over 10,000 unresolved complaints filed over the past year regarding after-sales service, the Central Consumer Protection Authority (CCPA) has taken a tough stance. Consumers have raised a wide range of issues, including delays in service, refusal to honor warranties, and technical glitches like battery defects. In addition to scrutiny over customer service failures, the CCPA has begun a deeper investigation into Ola Electric’s business practices. The CCPA's focus includes whether Ola is violating consumer rights by failing to offer proper refund options and transparency in invoicing. Under the current policy, Ola only provides coupon-based refunds, leaving customers without the option to receive their money back in their bank accounts. The CCPA has directed Ola to offer refunds directly to customer accounts and to provide clear, detailed invoices for auto rides, which have been absent due to a "change in service terms."

The company’s challenges aren’t just limited to customer service. Ola Electric’s dominant position in the electric two-wheeler market is slipping. In September 2024, Ola’s sales dropped by 11% month-on-month, marking its lowest figures in nearly a year. Competitors like Bajaj Auto and TVS are capitalizing on Ola's customer dissatisfaction, swiftly eating into its market share. To make matters worse, Ola's financial performance also raises concerns, with a net loss of ₹347 crore in Q1 FY25, a 30% increase from the previous year.

The Ministry of Heavy Industries has also asked the Automotive Research Association of India (ARAI) to investigate whether Ola is honoring its warranties and maintaining adequate service centers. Amid growing regulatory scrutiny and increasing competition, Ola faces a crucial moment: will it rise to the challenge, or will its operational missteps allow competitors to steal the spotlight?

Ola Electric’s leadership will need to refocus on delivering quality service and addressing customer concerns. After all, a company’s reputation isn't built on social media wars, but on how well it takes care of its customers.

Avenue Supermarts (DMart): Is the Retail Giant Losing Ground?

In the latest update for Q2FY25, Avenue Supermarts (DMart) has posted weaker-than-expected results, making some investors cautious about the future. DMart, known for its chain of hypermarkets, saw revenue growth of just 14% year-over-year (YoY) and 2% quarter-over-quarter (QoQ), which is considered soft, especially given its store expansion.

What went wrong?

1. Store Expansion and Revenue Pressure: DMart added only six new stores in the quarter, resulting in a 14% increase in square footage YoY. However, same-store sales growth (SSSG), which measures performance at existing stores, stood at just 5.5%—a significant drop from 9.3% in the previous quarter. This indicates that even though they have more space, revenue per square foot is falling, and they’re struggling to grow sales at existing locations.
2. E-commerce and Quick Commerce Pressure: A major reason for the sluggish performance is the growing dominance of online players, especially in metro cities where DMart has historically thrived. The shift of consumers to e-commerce, especially for non-FMCG discretionary items, is eating into DMart’s market share. Quick commerce players (think of instant delivery services) are also expanding aggressively, putting further pressure on DMart’s in-store sales.
3. Margins are Shrinking: Although DMart’s gross margins (profit on goods sold) slightly expanded, their overall profitability (EBITDA margin) contracted by 30 basis points. Why? It seems they’re not able to leverage their operating costs effectively—meaning they’re spending more to sell less.

What does this mean for investors?

JM Financial’s analysis highlights the concerns about DMart’s outlook in the face of these challenges. The stock is currently trading at high valuations (~80 times its expected FY26 earnings), making it a pricey bet given the competitive threats it faces from online players. DMart’s relative market share has dropped by 600-700 basis points over FY23-FY24, and the trend is expected to continue as online and quick commerce continue to grow.

JM Financial has now downgraded DMart from a ‘Buy’ to a ‘Hold’ rating, with a target price of INR 4,450. With growing competition and squeezed margins, investors are advised to be cautious, as the company’s valuation may not justify the risks. In summary, DMart’s challenges paint a picture of a retail giant losing ground in a fast-evolving e-commerce landscape. Investors should watch closely as the retail market continues to shift.

Infotrend

A chronological journey through the life of Ratan Tata, mapping key milestones in both his personal and professional life. From his early education and international experiences to his impactful leadership in expanding the Tata Group globally.

That's all for this edition of Beyond Markets by blinkX! Let us know in the comments what you think and what would you like us to cover in the next edition? Have a great week!