Tata Sons could be valued ₹9-12.5L crore in an IPO
What's the story
Tata Sons, the holding company of the Tata Group, could be valued between ₹9 lakh crore and ₹12.5 lakh crore in a potential initial public offering (IPO), as per the Economic Times. This is a significant discount to its underlying portfolio value of ₹15-16 lakh crore, according to several investment bankers and valuation experts. The final valuations will depend on how investors assess its listed stakes and unlisted businesses, while applying a traditional discount for a typical holding company structure.
Asset breakdown
Underlying value at ₹15-16L crore
An analysis by the equity capital markets head of a leading domestic bank pegs Tata Sons's underlying value at ₹15-16 lakh crore.
This includes nearly ₹12 lakh crore from listed holdings and ₹4 lakh crore from unlisted assets.
The analysis applies a 41-45% holding company discount to the listed portfolio, about 15% to unlisted assets, and an additional 10-15% discount for fair value in the IPO process.
Financial strategy
Losses in unlisted portfolio being financed by dividend income
Tata Sons's unlisted portfolio has incurred losses worth ₹40,000 crore, which are being financed through dividend income.
Vimal Taparia, a partner at Morphis Management Services, an IPO and valuation advisory firm, said that valuing a conglomerate of this size directly is not feasible.
He suggested investors should value each listed stake at market prices and estimate unlisted businesses using the last real transaction or closest comparable.
Valuation challenges
Minority holders do not control cash flows
Taparia also said that minority holders do not control cash flows, which should be discounted in the valuation process. Tax leakage and limited liquidity further reduce value.
He cited Bajaj Holdings and Godrej Industries as examples of companies trading at similar discounts of 30-60%.
Shapoorji Pallonji (SP) Group owns an 18.37% stake in Tata Sons, which was valued at around ₹2.3 lakh crore on a look-through basis last month.
Regulatory approval
RBI rejected Tata Sons's plea
On September 11, the RBI rejected Tata Sons's plea to surrender its license as a non-bank lender. The decision effectively clears the way for its public listing.
However, a leading global brand valuation firm sees further constraints on Tata Sons's value.
It believes future revenue could be more influenced by regulatory policies than royalties earned from group companies.
Governance issues
Concerns over introduction of trustees and directors
The firm also flagged concerns over the introduction of trustees and directors after Tata Sons goes public. It said this could make the trust's agenda less flexible than before, making the future outlook "extremely conservative" from a valuation perspective.