Tata Sons may command market value of ₹8lakh cr in IPO: Spark PMW
Tata Sons may fetch a market valuation of of ₹78lakh crore in an initial public offering, according to Mumbaibased investment banking firm Spark PWM Pvt Ltd. If it commands a marketcap of ₹8lakh crore, then it would be among the top four listed companies.
The investment advisory firm expect the IPO to happen in next 18 months, as Tata Sons was classified as an “upperlayer” nonbanking financial company by the central bank in September 2022. Any upperlayer nonbanking financial company must list its shares within three years. This requirement indicates that Tata Sons is expected to enter the capital market by September 2025.
“We believe that this event could likely lead to the simplification of the complicated group holding structure of the Tata Group and enable some of the listed holding companies to liquidate its holding within the giant parent conglomerate,” Spark added.
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 ₹11.5lakh crore of value from unlisted investments and stepdown subsidiaries (such as Tata Technologies, Tata Metalliks and Rallis), it added.
The market value of Tata Sons’ listed investments is estimated at around ₹16lakh crore and the book value of the unlisted investments is around ₹0.6lakh crore, Vidit Shah, Research Analyst, said in the report. “We believe that about 80 per cent of Tata Sons’ holdings might not be monetisable but the process of restructuring could trigger a rerating,” Shah said.
TATA CHEM TO BENEFIT
Four (Tata Motors, Tata Chemicals, Tata Power and Indian Hotels) companies within the Tata Group hold ownership in Tata Sons. However, the only realistic way to get exposure to the potential value unlocking (of Tata Sons stake) is via Tata Chemicals wherein the ownership of Tata Sons potentially amounts to about 80 per cent of the company’s market capitalisation. The stake is worth about 1621 per cent of the market capitalisation for the other three companies.
“We calculate the intrinsic valuation of Tata Chemicals to be about 11x FY25 PE (calculated using Bloomberg earnings estimates). Given the cyclical nature of the commodity Soda Ash and the potential headwinds faced by the industry due to falling realisations, the valuations have been supressed. We also note that should the street assign a ₹1011lakh crore valuations to Tata Sons, the intrinsic valuation of the listed Tata Chemicals business is 57x FY25 PE, which could potentially rerate should the investment be liquidated at/ or post IPO.