Tata Sons to trim stake in TCS, likely to dodge the giant IPO

The offer price for offloading has been set at ₹4,001 per share, with a discount of 3.6% to Monday’s closing price for TCS shares. The proposed deal will see the promoter raise at least ₹9,200 crore by offloading a 0.64% stake in the company.

The selling stake by Tata Sons could be the start of a fundraising exercise to reduce its debt at the group level so that it can avoid the mega-initial public offering (IPO). The consolidated borrowings of Tata Sons (other than debt securities) have increased by 8% to ₹1.58 lakh crore in FY23.

Earlier in March, the market anticipated the company going public as it had been classified as an upper-layer non-banking financial company (NBFC) last year. Sensing an imminent listing, many group stocks, especially Tata Chemicals, Tata Investment Corp (TICL), and Automobile Corporation of Goa (ACG) had rallied up to 40% in less than seven sessions.

However, the news flow that propelled the rally in group stocks was short lived. Sources to CNBC-TV18 confirmed that the group is evaluating alternative measures to reduce debt at the group level. The latest move by Tata Sons could be an effort by the group to refrain from going public. As per the RBI mandate, an upper-layer NBFC has to get listed within three years of being notified. Tata Sons was classified as an upper-layer NBFC in September 2022.

Interestingly, dividend income contributed 95% of Tata Sons FY23′ revenue. The dividend for the year increased by 189% to ₹33,252 crore in FY23. Thanks to a big payout by the group’s cash cow, TCS. The dividend payout ratio of TCS was 158% in FY23, while Tata Sons’ holding stood at 72.4% at the end of December 2023. The net profit of Tata Sons for the year increased by 29% to ₹22,132 crore.

Further, the market value of Tata Sons holdings in various listed companies stood at ₹16 lakh crore as of Monday. Of this, ownership in TCS alone is valued at over ₹10 lakh crore. Tata Motors is another company in which Tata Sons has the highest holding. The current investment value of Tata Sons in the company is pegged at ₹1.6 lakh crore.