Tata stocks rally on RBI ruling, potential Tata Sons listing

Mumbai: Shares of Tata Group companies with minority stakes in Tata Sons surged Tuesday, bucking the broader market selloff spawned by leaping US bond yields and oil prices, after the central bank last week rejected the request by Tata Sons to surrender its status as a non-bank lender, signalling the conglomerate’s holding company may have to list its stock to comply with rules.

Tata Chemicals led the gains, rising as much as 20%, its biggest advance since 2009. Tata Investment Corp jumped 10%, while Tata Motors Passenger Vehicles, Indian Hotels and Tata Power, which had surged in early trade, gave up most of their gains and closed flat.

A potential listing of Tata Sons could benefit Tata Chemicals, Tata Steel and Tata Motors Passenger Vehicles most directly, as they hold around 2.5-3.1% stakes in the holding company. Tata Chemicals could see the biggest impact, with its 2.5% stake in Tata Sons estimated at around ₹25,300 crore. Tata Steel and Tata Motors Passenger Vehicles each hold 3.1% stakes worth around ₹30,600 crore.

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Ravindra Singh, chief research officer of Master Capital Services sees around 13-210% potential equity value creation for Tata Chemicals, depending on the valuation assigned to Tata Sons.

Other potential beneficiaries include Tata Power, Indian Hotels and Tata Consumer Products, with seven listed Tata Group companies together holding around 11.94% of Tata Sons.
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“Tata Sons listing will unlock cash value for group companies is a misnomer. It will set a valuation benchmark as an embedded value in each company, as currently the investment is on book value. But there is no reason to think that group companies will sell shares in the open market and realise value,” said Manish Bhandari, chief executive officer and portfolio manager at Vallum Capital.

Bhandari said Tata Sons does not have the cash flow to undertake a buyback and that the listing is being forced on the group.

He added that the market currently has limited visibility on Tata Sons’ financials and a listing would bring its financial obligations into greater focus.

SP Group Climbs

Shares of Shapoorji Pallonji Group companies also gained after the RBI decision. Afcons Infrastructure, which had rallied nearly 20% in early trade, pared most of its gains to close 3.5% higher, while Forbes & Co gained 18%. The SP Group owns an estimated 18.37% of Tata Sons. A Tata Sons listing would potentially give a debt-laden SP Group a liquid route to monetise its sizable stake in the company.

Tata Sons could be valued at about Rs 12.5 lakh crore, according to calculations cited by Deven Choksey, managing director at DRChoksey FinServ. At that valuation, the 11.94% stake held by seven listed Tata Group companies would be worth roughly ₹1.49 lakh crore.