Tisco - The EVA Journey

Ratan Tata, Chairman of TISCO, blamed the recessionary phase in the global steel industry due to the buildup overcapacity for the company's poor performance. However, the fact remained that TISCO was not improving shareholders' value. Media reports estimated that TISCO had destroyed shareholders' value to the extent of about 35% though TISCO's officials claimed that the value destruction was limited to 5%. This controversy cropped up even as Muthuraman insisted that making TISCO an EVA positive company by 2007 was top of his agenda. After a prolonged phase of poor financial performance, TISCO reported significantly improved financial results for the financial year 2002-03...

Muthuraman accepted this point of view, saying, "The price of steel should be irrelevant to us." In order to achieve a positive EVA, analysts suggested that TISCO needed to diversify extensively. They said that by widening the scope of its operations, TISCO would be somewhat insulated from business cycles.

In this context, the company evaluated a plan to invest Rs. 50 bn in the telecom business. However, industry experts argued that telecom was too unrelated a business and one with a long gestation period. They cited the fact that Essar Steel which had invested in an unrelated business, had landed in a major financial mess, even defaulting on an international debt obligation in 1999...