TCS m-cap to lift Tata Sons’ fortunes
Tata Sons will be a big beneficiary of Tata Consultancy Services’ entry into the $100-billion market capitalisation club. The soaring valuation of the cash cow strengthens the risk appetite of Tata Sons to grow the business. And, if the holding firm decides to dilute even a small portion of the 71.89 per cent it holds in TCS, it will improve its standing when it goes for overseas borrowing.
Chandresh Ruparel, managing director at investment banking firm Rothschild India, said the strong valuation of TCS is an opportunity for Tata Sons to meet its other financial commitments. “TCS is a currency for Tata Sons and they still hold enough to dip into it repay the debt and correct the capital structure or increase stake in other group companies. If the valuation is right, they might as well do it,” said Ruparel.
But Tata group insiders said while encashing a small portion of Tata Sons’ holding in TCS could take care of the group’s debt and equity, Tata Sons isn’t considering that as an option anytime soon. It sold 28.27 million shares, or 1.48 per cent stake, in March. Consolidated debt at the holding company ballooned to ~1,277.11 billion at the end of 2016-17 from ~707.57 billion a year ago, says Capital Line.
“Over the past 15 months since N Chandrasekaran has taken charge, the fortunes of the group have changed for better,” said one of the officials, pointing out that Tata Sons may go ahead with overseas borrowing. “It is a dream sequence for any company,” said another official, adding Tata Sons does not plan to encash its holding in TCS.
Some of the immediate financial needs include repaying debt of Tata Teleservices before it is merged with Bharti Airtel. In October, the bleeding mobile telephony business was sold to Bharti in no-cash, no-debt deal, while the optic fibre business was retained. Of the ~210-billion denominated debt that Tata Teleservices had, it repaid ~170 billion to a consortium of bankers led by the SBI in January, said reports. It still has to repay ~60 billion before concluding the deal with Airtel.
Tata Sons also has to fund Tata Steels’ purchase of Bhushan Steel. Tata Steel has offered ~352 billion in cash and conversion of the remaining debt of around ~270 billion into equity to take over Bhushan Steel. Tata Sons holds 31.64 per cent in Tata Steel. The holding firm is seeking an offshore syndicated loan, as it seeks to pay down expensive debt at telecom units, Bloomberg reported on March 9. It has mandated lenders for a six-year loan of $1.5 billion, adding that it would use the proceeds to repay debt of Tata Teleservices and Tata Teleservices Maharashtra.
On March 13, Tata Sons sold 1.48 per cent in Asia’s largest software developer firm bringing down its stake from 73.52 per cent at the end of December quarter to 71.89 per cent. A jump in its market capitalisation has jacked up the value of Tata Sons investments even as its overall stake has reduced. At current market price (as on April 26), the value of Tata Sons’ investment in the company stands at ~4,850.8 billion at the end of March, higher than the ~3,800 billion at the end of December quarter, according to TCS’ latest shareholding data.