Tata Sons can fetch Rs 7.8 lakh crore valuation on listing: Report

A little-known equity market research firm has pegged Rs 7.8 lakh crore valuation for the Tata group's NBFC holding company Tata Sons on listing going by the current market cap of the group firms.

"Being an upper-layer non-banking finance company, Tata Sons has to go public over the next 18 months as per the RBI norms. Tata Sons could list within the next 1.5 years as the Reserve Bank classified Tata Sons as an upper-layer NBFC last year, which makes it mandatory for it to list itself by September 2025," Spark Capital said in a note on Tuesday.

The report stated that the listing can lead to the simplification of the complicated group-holding structure of the group.

Recent news reports indicated that the company can fetch a valuation of Rs 11 lakh crore and the IPO size will likely be around Rs 55,000 crore. 

"We believe that 80 per cent of Tata Sons' holdings may not be monetisable but the process of restructuring can trigger a re-rating. There are multiple levers of value available from the unlisted investments as the group is entering into new-age segments such as semiconductors (by Tata Electronics)."

"Thus, we believe that the group could derive another Rs 1-1.5 lakh crore of value from unlisted investments and step-down subsidiaries such as Tata Technologies, Tata Metalliks and Rallis. Together this can value the holding company at Rs 7-8 lakh crore on listing," the report said.

The valuation is derived by summing up Tata Sons' all investments across listed and unlisted companies/equities, preference shares and mutual funds, the report said, adding the optionality value which Tata Sons offers is likely to have a significant bearing on the holding company discount that the street will potentially offer.

Currently, in the unlisted space through its strategic investments, it has subsidiaries which operate in areas such as semiconductors and EV batteries, which could deliver significantly higher value than the book value over time.

Valuation of these investments is not yet possible in the absence of data hence investors prefer to play the investments in unlisted companies through adjusting the holding company discount.

The report derives a value of Rs 7.8 lakh crore, assuming a 60 per cent holding company discount and Rs 1 lakh crore as the value of the optionalities. The analysis suggests that the valuation can be Rs 1.2/1.1 lakh crore should investors ascribe a 30/40 per cent holding company discount to its investments.

While TCS, is the single largest contributor to the value of Tata Sons (stake valued at over Rs 10 lakh crore pre-holding company discount and the present market cap of Rs 14.51 lakh crore), the conglomerate holds a significant stake in several listed and unlisted companies across an array of industries.

The market value of investments is estimated at Rs 16 lakh crore and the book value of the unlisted investments is 0.6 lakh crore and thus the market value of the unlisted investments can be much higher than this at Rs 1-2 lakh crore as the group is making forays into semiconductors and EV batteries.

While investors are likely to give the holding company a 30-60 per cent discount calculating the equity value, the report values Tata Sons at Rs 7.8 lakh crore post factoring for a 60 per cent holding company discount of its listed investments and valuing the unlisted investments at Rs 1.6 lakh crore.

While four group companies--Tata Motors, Tata Chemicals, Tata Power and Indian Hotels hold ownership in Tata Sons to the tune of 1-3 per cent, Tata Chemicals can have the biggest play as the ownership of Tata Sons in this firm is around 80 per cent of the company's market capitalisation.

Tata Sons is mostly owned by Dorabji Tata Trust (28 per cent) and the Ratan Tata Trust (24 per cent), the other promoter trusts own 14 per cent and the Cyrus Mistry family-run Sterling Investment Corporation and Cyrus Investments own 9 per cent each. Then Tata Motors and Tata Chemicals own 3 per cent each, Tata Power (2 per cent) and Indian Hotels hold 1 per cent.