Tata Sons to unlock TCS vaults for over ₹9,360 cr

Floor price at ₹4,001 a share; block deal follows ₹17,000 cr buyback in Nov

Tata Sons Pvt Ltd plans to raise over a billion dollars by selling a chunk of its shares in Tata Consultancy Services Ltd, at a time the conglomerate is entering new-age businesses such as semiconductors, e-commerce, and phone assembly.

The Tata group holding company plans to sell up to 23.4 million shares worth 0.65% stake in TCS through block deals to raise ₹9,362.3 crore ($1.12 billion), according to a term sheet seen by Mint. Tata Sons now holds around 72.4% stake in TCS, India’s second-most valuable company.

Shares will be offered at a floor price of ₹4,001 per share, a 3.65% discount to TCS’s Monday closing price of ₹ 4,152.50 on the National Stock Exchange (NSE). Following the transaction, Tata Sons’ stake in TCS will fall to around 71.7%.

Tata Sons derives its income mainly from dividends and buybacks in group firms, which it uses to invest in emerging segments or support weaker businesses.

According to Deven R. Choksey, managing director of KRChoksey Shares and Securities, the Tata group is planning significant investments in renewables and commodity businesses including steel and power, and TCS is one company that gives it the ability to raise capital and provide for other businesses.

“Secondly, further amount of capital requirement will come from the need to develop AI and data analytics capabilities across group companies. The group firms will need money to develop enabling technologies and get equipped,” Choksey added.

A Tata group spokesperson did not respond to queries on the proposed end use of the amount, but a December 2023 ratings release by Crisil highlighted the group’s focus on new-age businesses.

Shares of TCS hit a record ₹4,254.45 on Monday, but closed 1.6% lower at ₹ 4,152.5 on the BSE. TCS shares are up 30.6% in the last one year, against the Nifty 50 index’s 29% return.

Over the years, TCS, the group’s cash cow, has increased dividend payments from ₹29,148 crore in FY19 to ₹42,079 crore in FY23, an increase of 44.4%. It has also conducted several buybacks worth ₹67,000 crore since 2018, at prices from ₹2,100 per share in June 2018 to ₹4,500 per share in January 2022. Most recently, in November 2023, it announced a ₹17,000-crore buyback at ₹4,150 per share. In 2021, TCS returned about 95% of free cash flow to shareholders. Last year, it handed out 108.2% of its free cash flow.

Under chairman Natarajan Chandrasekaran, Tata group wants to expand its airline business, set up semiconductor plants and build a super app. In the past three fiscal years (FY21, FY22 and FY23), it has handed out $9 billion to Tata Sons to bankroll these ambitious ventures.

“The stake divestment by Tata Sons could result in a collective