Tata Sons Trim TCS Stake to Raise Funds for New Ventures

In a major block deal last Tuesday, Tata Sons, the holding company of the Tata Group, sold 2.34 crore shares of its flagship IT services firm Tata Consultancy Services (TCS). The deal is estimated to be worth around Rs 9,000 crore, although the exact share sale price has not been disclosed by the companies involved.

Marginal Stake Reduction, Significant Cash Infusion

Following the stake sale, Tata Sons’ holding in TCS has decreased from 72.38% to 71.74%. While the reduction in shareholding is marginal, the cash proceeds from the deal are substantial and could potentially fuel the group’s ambitious growth plans in emerging industries.

The Block Deal and Its Impact

The block deal was facilitated by investment bank JPMorgan, which issued a term sheet on Monday, offering 2.43 crore TCS shares at a floor price of Rs 4,001 per share, representing a 3.6% discount to the stock’s closing price on that day. The impact of this large block deal was evident as TCS shares fell by 4% on Tuesday, erasing a portion of the lifetime high of Rs 4,254.45 reached on the previous trading session.

Fueling Growth in New Businesses

Although Tata Sons has not officially commented on the rationale behind the stake sale, market analysts speculate that the cash generated could be utilized to fund the group’s ambitious growth plans in new businesses, particularly in the semiconductor and electric vehicle (EV) battery sectors.

Recently, Tata Electronics, a subsidiary of Tata Sons, committed to investing Rs 91,000 crore to establish a semiconductor fabrication plant in Dholera, Gujarat, highlighting the group’s determination to diversify into cutting-edge technologies.

Debt Reduction and Avoiding an IPO

In addition to funding new ventures, the cash proceeds from the TCS stake sale could also be used to pare down a portion of Tata Sons’ debt, which stood at around Rs 20,270 crore as of the financial year 2023. Reducing debt levels could potentially help the holding company avoid the need for an initial public offering (IPO), which has been speculated in the past.

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Tata Group’s Valuation and Shareholding Structure

The Tata Group is India’s most valued conglomerate, with the market value of all its listed entities exceeding Rs 30 lakh crore. The market value of Tata Sons’ listed investments is estimated to be around Rs 16 lakh crore, while the book value of its unlisted investments stands at Rs 60,000 crore. However, analysts at Spark Capital estimate that the market value of these unlisted investments could be significantly higher, ranging from Rs 1 lakh crore to Rs 2 lakh crore, given the group’s forays into semiconductors and EV batteries.

Tata Sons is majorly held by the Dorabji Tata Trust (28%) and the Ratan Tata Trust (24%), with other shareholders including Sterling Investment, Cyrus Investments, Tata Motors, Tata Chemicals, and Tata Power, reflecting the group’s intricate cross-holdings across its companies.