Tata Sons IPO is in the news again. It may be of interest to you to know the details, whether as an investor in Tata Group shares or elsewhere. It is important to know about Tata Sons and its IPO. That's why we thought of covering the topic for you and helping you get a clear picture of what it's all about.
Understanding Tata Sons
Tata Sons is the principal investment holding company of the Tata Group, one of India's oldest and largest conglomerates. Tata Sons was founded in 1868 by Jamsetji Tata. Tata Sons acts as a promoter of Tata companies and holds significant stakes in various sectors including information technology, automobile, steel, telecommunications and hospitality.
As the parent company, Tata Sons oversees the strategic direction and leadership of the various entities of the Tata Group.
It plays a crucial role in promoting collaboration and synergy between the group's companies, while upholding the core values of integrity, excellence and social responsibility instilled by its founders.
Of the company's total shareholding, 65.90% is held by Tata Trusts, 12.87% by Tata Companies (including Tata Motors, Tata Chemicals, Tata Steel, Tata Power) and 18.4% by the Mistry family.
TATA Sons IPO details
First things first, there is no official confirmation that Tata Sons' IPO will go live. There's a reason why most people believe the IPO will happen soon – we covered that in the next section. First, let's look at the company's financials and IPO details:
- Total revenue of Tata Sons stood at Rs 35,058 crore in FY23 on a standalone basis as compared to Rs 24,132 crore in the previous year, registering a rise of 47%.
- The company's profit for FY23 rose to ₹22,132.38 crore from ₹17,171.21 crore in the previous year, a growth of 28.89%.
- Tata Sons' revenue comes mainly from TCS, which posted a profit of Rs 39,106 crore in FY23.
- The estimated value of Tata Sons is around Rs 11 million.
- The group could sell around 5% stake in the IPO, translating into an IPO size of Rs 55,000 crore. It would be the largest IPO in the Indian IPO industry.
- The expected IPO date is September 2025.
RBI Regulations for Listing a Company/NBFC
Tata Sons was today asked by the Reserve Bank of India (RBI) to list the company on Indian stock exchanges by September 2025. In this section, we try to answer why the RBI gave this order to the company. To do this we need to understand a few things – the basics.
First, let's answer: Why does Tata Sons need to be listed? This is because Tata Group's non-banking financial company (NBFC) is classified as an 'upper tier' NBFC. Tata Sons was classified as 'upper tier' by the RBI in 2022. This means that the company had to go public in the next three years (September 2025).
The RBI framework categorizes NBFCs into the following tiers:
- Base Layer (NBFC-BL): NBFCs in this layer are typically smaller, less complex, and less systemically important. They are subject to relatively simpler regulatory requirements.
- Middle Layer (NBFC-ML): NBFCs are larger and more complex than those in the base layer, but are not considered systemically important. They may have a broader range of financial activities, including consumer financing, real estate financing and vehicle financing.
- Upper layer (NBFC-UL): NBFCs are larger, more complex and potentially more systemically important. They may offer a wider range of financial products and services, including asset management, asset management and infrastructure financing. NBFCs in this tier are subject to even stricter regulatory scrutiny and regulatory norms to mitigate systemic risks.
- Top Layer (NBFC-TL): They may have significant connections to the financial system and the economy as a whole and pose potential systemic risks if they experience financial difficulties.
The RBI released the list of 16 upper tier NBFCs on September 30, 2022 and Tata Sons is one of them.
Why is the company not ready to be listed on the stock exchange?
The company wants to be a GmbH and there are reasons for that. As a private company, the company can have greater autonomy and flexibility in decision-making. As a listed company, the company is subject to many audits and regulatory requirements.
They need to be more transparent and disclose more about what the funds are being used for. In some cases, it can be a real eye-catcher for the company, especially in strategic initiatives and investments.
Another reason is that the listing must be accompanied by a change in the shareholder composition and governance structure of the Tata Group. The required changes would require balancing various stakeholders in the company, including Tata Trusts, and it will not be easy for the company.
Way ahead for TATA Sons
The good news is that if the company doesn't want to go public, there are options. The direct option for the company is to apply for an exemption from the Central Bank. However, it won't be that easy considering that the NBFCs of the Birlas, Piramals, Bajaj and Mahindras are also in the 'upper tier' list. If the RBI relaxes the listing requirement for one company, the others may approach the central bank seeking similar exemptions, which is not the situation the RBI would like to be in
The second option for the company is to free itself from the “upper class” status. Again, it won't be easy, but on paper it's possible. To do this, the company must repay all debts. The company will also have to move its financial services business, Tata Capital, to another subsidiary.
Before you go
To date, no one knows what the company is up to as the company has not made any official statement. The news of Tata Sons' IPO is not new and has surfaced many times in the past. However, the company will soon have to decide on its path with 18 months' notice. We will keep you updated on this.
Comments are closed.