IPO Expected to Enhance Value for Group Companies with Tata Sons Stake
MUMBAI: Nine Tata companies, including seven listed and two unlisted, collectively hold a 12.8% stake in Tata Sons. The listed firms account for 11.9% of this stake, which has been treated as dead capital for three decades without any exit or public valuation. This situation may change if Tata Sons complies with the Reserve Bank of India’s regulations for upper layer investment companies, according to a report by Reeba Zachariah.
Shares of the listed companies—Tata Steel, Tata Motors, Tata Chemicals, Tata Power, Indian Hotels, Tata Consumer Products, and Tata Investment Corporation—are anticipated to rise in trading on Tuesday.
Tata Chemicals’ Notable Stake
Tata Chemicals has emerged as a standout among the listed holders. Spark Capital estimated in March 2024 that its stake in Tata Sons was worth 80% of its own market capitalization, which stood at Rs 15,594 crore as of Friday. Some analysts now suggest that this value may exceed Tata Chemicals’ market cap, positioning it as a key proxy for any potential value unlocked by an IPO.
Historical Context of the Stake
The listed companies acquired their shares in Tata Sons through a rights issue in 1995-96. Tata Trusts, the promoter, did not participate due to legal restrictions on public charities investing in commercial entities. This rights issue kept the shares within the Tata Group. Shareholders raised concerns at the time, questioning the rationale behind investing in an unlisted and illiquid parent company. Ratan Tata, then chairman of Tata Sons, assured that the investment would yield returns once Tata Sons went public.
Shriram Subramanian, founder of InGovern Research Services, noted that a Tata Sons listing would provide over 1.2 crore public shareholders in the listed Tata companies with a long-awaited opportunity for value unlocking and enhance liquidity for the seven listed firms. In 2020, during a legal dispute with former group chief Cyrus Mistry, Tata Sons cited a valuation of Rs 3.8-4.3 lakh crore, a figure Mistry contested, claiming it was more than double his calculations.
Market values currently estimate Tata Sons at Rs 14 lakh crore. An analyst pointed out that while the market applies a holding-company discount to Tata Sons, Tata Investment, which is also a holding company, has historically traded at a premium to its underlying investments. The RBI has classified non-banking financial companies (NBFCs) into an upper layer based on indirect public-fund access through group companies, placing Tata Sons in this category and necessitating the listing requirement.
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