Tata Sons IPO: All You Need to Know

Just days after reports emerged for an upcoming Tata Sons IPO, which sparked a rally in multiple Tata group stocks, the company is understood to be working on an alternate plan to avoid taking the IPO route.

Reports state that one of the options it is considering could be transferring the holding in financial services company Tata Capital to another entity.

Anything can happen... they're looking at multiple options.

In this article, we'll look at what could happen if the company does come out with a potential IPO soon.

Tata Sons is the primary investment holding company and promoter of Tata Companies.

Its unique ownership structure with a substantial 66% of its equity share is held by trusts supporting health and education.

A Little Background on Tata Sons

Tata Sons is the main investment holding company and promoter of Tata businesses. Founded by Jamsetji Tata in 1868, the vision was to establish an industrial empire that would contribute to India's economic development.

Each Tata company operates independently with its own Board of Directors overseeing its operations. Under the leadership of Jamsetji Tata's successors such as Sir Dorabji Tata and Sir Ratan Tata, Tata Sons expanded its operations into sectors - hospitality, power, automobiles, and steel.

Philanthropic trusts currently hold 66% of Tata Sons' equity share capital.

Investors frequently confuse the terms "Tata Group" and "Tata Sons". To clarify, Tata Sons serves as the parent company, while Tata Group refers to the entire conglomerate of companies owned and managed by Tata Sons.

Evaluating the Prospects of TATA Sons IPO

It is rumoured that Tata Group, one of the India's biggest business families, is getting ready to launch multiple initial public offerings (IPO) by 2025.

Last year, Tata Technologies became the first Tata company in as many 19 years to list on the bourses.

Since 2004, no Tata Group stock was listed on the BSE or NSE. In the same year, Ratan Tata had expressed to list the conglomerate's holding company. He compared this move to the structure of Berkshire Hathaway, the company founded by Warren Buffett.

In recent years, the Reserve Bank of India (RBI) changed rules and released the list of non-banking financial companies (NBFC) in 2022, putting Tata Sons in the category.

According to the central bank's rule, upper-layer NBFCs like Tata Sons must list within three years of being designated as such. Being classified as NBFC back in 2022, Tata Sons has to go public by December 2025.

Tata Sons, as an upper-layer NBFC, will compete with several other financial institutions also classified as NBFCs.

Tata Sons Competitors

Shanghvi Finance	Shriram Transport Finance	Piramal Capital & Housing	PNB Housing
LIC Housing Finance	L&T Finance	Cholamandalam Finance	Aditya Birla Finance
Bajaj Finance	India Bulls Housing Finance	M&M Finance	Bajaj Housing Finance

Source: Media Reports

An intriguing observation with the competitor Piramal Capital & Housing is that Anand Piramal, who oversees the financial services businesses of the group, serves as a non-executive director at Tata Sons Ltd.

Tata Sons is expected to be the biggest IPO in the history of Indian markets.

The IPO is a big deal, because it is not just about money. It is about Tata Group's journey in the Indian economy. Hence, investors are watching closely to see what happens next.

Equations Behind the IPO: Which Tata Stocks Could Benefit?

One of the primary ways Tata Sons influences Tata stocks is through its strategic decisions such as business expansion, corporate governance, and resource allocation. Tata Sons plays an important role in providing direction to its subsidiary companies.

Tata Sons has a complex ownership structure with significant stakes owned by Dorabji Tata Trust (28%), Ratan Tata Trust (24%), and some other listed companies. These include Tata Chemicals and Tata Motors (3%), Tata Power (2%), and Indian Hotels (1%).

According to calculations done by market experts, the market value of Tata Sons could be pegged at Rs 16 trillion (Rs 16 lakh crores).

Based on these numbers, the stake that the listed Tata companies hold in Tata Sons is valued at substantial amounts. So much so in the case of Tata Chemicals that it accounts for almost 80% of Tata Chemicals' current marketcap.

Tata Sons is also eligible for the holding company discount which roughly surrounds 30-60%. Assuming a 60% discount, the market value is ascertained at somewhere around Rs 8 tn.

Tata Chemicals, despite experiencing a period of underperformance, recently witnessed a remarkable rally in its shares, surging over 40% in just one week. The stock rallied another 11% on 7 March to hit its highest levels.

As Tata Sons is anticipated to have its preparation for its IPO, investors are eyeing Tata Chemicals as a direct beneficiary due to its 3% stake in Tata Sons.

Apart from Tata Sons, the NBFC list by RBI also includes its indirect subsidiary, Tata Capital Financial Services. Reports suggest that Tata Sons is in the process of merging Tata Capital Financial Services into Tata Capital, with plans for the combined entity to undergo listing.

The surge in Tata Group stocks reflects investor optimism surrounding the potential implications of Tata Sons' IPO.

A Look at its Financials

In the financial year ended March 2023, Tata Sons experienced a significant surge in its revenue. It witnessed a remarkable 33.53% increase from FY22's revenue 30,34,578 to FY23's 40,39,796.

Further, as per Tata Sons report, the profit went down 44.56% as observed in from FY 2022 to FY 2023.

Here's a table showing the company's performance over the past five years.

Tata Sons Pvt Ltd - Financial Snapshot

Rs m, consolidated	FY19	FY20	FY21	FY22	FY23
Net Sales	21,73,134	23,01,666	23,75,707	30,24,578	40,39,796
Growth (%)	19%	6%	3%	27%	34%
Operating Profit	5,46,402	5,38,926	6,40,778	7,19,146	8,14,647
OPM (%)	25%	23%	27%	24%	20%
Net Profit	2,03,572	68,770	1,26,846	3,03,903	1,68,478
Net Margin (%)	9%	3%	5%	10%	4%
ROE (%)	28.5	8.3	15.5	26.3	15.9
ROCE (%)	21.6	12.5	16.8	21.3	18.2
Dividend (Rs)	10000	10000	10000	10000	17500
Debt to Equity (x)	1.1	1.1	1.2	1.2	1.3

Data Source: Ace Equity

The holding company also pays big dividends, and it has increased its dividend payout over the years.

Tata Sons Pvt Ltd Dividend History

The Shapoorji Pallonji Link...

In 2020, share price of Sterling & Wilson Solar, a Shapoorji Pallonji (SP) group company was a steep rise.

The surge was due to the news of the termination of association with Tata Sons which marked the end of 70 year relationship between SP group and Tata Sons.

SP group currently holds approximately an 18% stake in Tata Sons, valued at around Rs 800 bn (bn).

However, banks have pledged this significant stake, enabling the SP group to secure funds estimated at US$3 bn so far. They have utilised these funds to address debt obligations and provide financial support to operating companies within the group.

Factors Contributing to Investor Confidence

• Strong Leadership and Governance: The history and leadership of Tata Sons, guided by a governance philosophy prioritizing stakeholder's well-being, instil confidence in investors.
• Diversified Portfolio: Tata Sons offers investors exposure to a broad spectrum of industries, mitigating risks, and enhancing potential for long-term returns.
• Positive Market Response: The recent surge in Tata Chemicals' shares reflects investor optimism surrounding Tata Sons IPO.
• Anticipation of IPO: Investors perceive it as an opportunity to capitalise on the conglomerate's potential value unlocking.
• Potential for Value Unlocking: The prospect of Tata Sons IPO and the subsequent value-unlocking opportunities It presents, makes the Top Tata Group stocks an attractive investment proposition for investors seeking capital appreciation.

In Conclusion

As investors eagerly await the potential value unlocking opportunities presented by Tata Sons IPO, there is a sense of anticipation and excitement in the market. However, it is important to note that while big IPOs often attract attention, their actual performance may vary.

In the case of Tata Sons, if the group does decide to come out with its IPO, it could mark a significant milestone in the conglomerate's journey, potentially reshaping the Indian market.

However, only time will tell how Tata Sons IPO unfolds and whether it lives up to the lofty expectations set by investors.

Stay tuned as we cover more such Upcoming Tata group IPO editorials in detail.

Happy Investing!

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