Tata Sons may be valued up to ₹12.5 lakh cr in IPO

Mumbai: Tata Sons could be valued at ₹9-12.5 lakh crore in a potential initial public offering (IPO), multiple investment bankers and valuation experts told ET, putting a steep discount on an underlying portfolio worth ₹15-16 lakh crore. Valuations will hinge on how investors price its listed stakes and unlisted businesses, while assigning the traditional discount to a typical holding company structure.

An analysis by the equity capital markets head of a top domestic bank puts Tata Sons' underlying value at ₹15-16 lakh crore, comprising about ₹12 lakh crore from listed holdings and ₹4 lakh crore from unlisted assets. It applies a 41-45% holding company discount to the listed portfolio and about 15% to unlisted assets, with a further 10-15% discount to fair value for the IPO.

About₹40,000 crore of losses in the unlisted portfolio are being funded through dividend income.


Also Read: RBI blocks Tata Sons' bid to stay private, forcing listing of Rs 2.01 lakh crore giant

"A conglomerate this size, you can't value the parent directly," said Vimal Taparia, partner at Morphis Management Services, a boutique firm specialising in IPO and valuation advisory.

Investors should value each listed stake at market prices, estimate unlisted businesses using the last real transaction or closest comparable and add option value for businesses such as semiconductors and digital, he said.

The parent should then be discounted because minority holders do not control cash flows, while tax leakage and limited liquidity also reduce value, Taparia said.

Bajaj Holdings and Godrej Industries trade at similar discounts of 30-60%, he said.

Shapoorji Pallonji (SP) Group owns 18.37% equity in Tata Sons. Its Tata Sons holding was valued at about ₹2.3 lakh crore on a look-through basis, an investor note circulated last month said.

Some Have Conservative Outlook

That was as against an eventual price discovery through an IPO.

In a letter dated September 11, the central bank rejected the plea of Tata Sons to surrender its licence as a non-bank lender, effectively paving the way for its public listing.

Also Read: Why it’s getting harder for Tata Sons to resist an IPO

A leading global brand valuation firm sees further constraints on Tata Sons' value. Future revenue could be shaped more by regulatory policies than royalties earned from group companies, it said. The firm also raised concerns about the infusion of trustees and directors once Tata Sons is listed, saying the trust's agenda may not remain as fluid as it has been in the past. "That could make the future outlook 'extremely conservative' from a valuation perspective," the firm said. "A trust brand is also difficult to transfer or monetise, unlike assets that can be transferred and generate value relatively quickly."

The Tata brand should not receive a separate premium, said the head of equity capital markets at the firm. Brand benefits are already reflected in the market valuations of listed Tata companies, while group synergies are reflected in their revenues and margins. Adding a separate brand value would, therefore, amount to double counting.