Cyrus Mistry family’s 18.5% stake in Tata Sons worth Rs 94,000 crore

Tata Sons — the holding and promoter company of Tata Group — is valued at around Rs 5.08 trillion, based on the current valuation ratio of listed holding companies (holdcos), such as Bajaj Holdings & Investment, JSW Holdings, Grasim Industries, Bajaj Finserv, Bombay Burmah Trading, Mahindra & Mahindra (M&M), EID Parry, and Vedanta, among others.

These listed holdcos are currently trading at 42 per cent discount to their net asset value (NAV), based on their market capitalisation (m-cap) on Friday.

NAV is the sum of the current market value of their listed investments, unlisted investments minus debt on their books at the end of March this year.

Based on this, the Cyrus Mistry family’s 18.5-stake in Tata Sons would be valued at nearly Rs 94,000 crore (or around $12.8 billion).

In September this year, Shapoorji Pallonji (SP) Group had agreed to sell its stake in Tata Sons for around Rs 1.78 trillion, based on the its stake in group listed companies and unlisted companies. SP Group has also assigned brand value of Rs 1.46 trillion to Tata Sons and wants a proportionate share of it.

Holdcos are valued at a discount to the market value of their investments, given investors don’t have direct access to cashflows and dividend paid out by companies in their portfolio.

“Investment in Tata Consultancy Services (TCS) or Bajaj Auto gives direct access to cashflows generated by these companies, unlike investment in their holdcos,” says Shailendra Kumar, chief investment officer, Narnolia Securities.

Tata Sons holds promoter stake in group listed companies, such as TCS, Tata Motors, Titan, and Tata Steel. It was valued at around Rs 8.7 trillion at the end of trading on Friday. Besides, it had other investments and assets worth Rs 38,000 crore at the end of March this year, according to its annual report.

The company was also carrying total debt worth Rs 31,400 crore at the end of 2019-20 (FY20).

In all, Tata Sons has direct equity stake in 16 listed group companies, with a book value of Rs 52,500 crore.

It also has equity investment worth Rs 23,600 crore in 25 unlisted subsidiaries, such as Infiniti Retail, AirAsia, Tata Capital, Tata Teleservices, Tata Advanced Systems, Tata AutoComp, Tata Housing, Tata AIG General Insurance Company, Tata Realty and Infrastructure, and Tata SIA Airlines, among others.

“Holdcos are valued at 60-70 discount to their NAV, with the average being 45-50 per cent. The discount can be as high as 80 per cent for small-sized holdcos with a few hundred crore worth of assets, while large holdcos – with significant stake in fast growing and cash-rich companies – can get as little as 30 per cent discount,” says G Chokkaligam, founder & managing director, Equinomics Research & Advisory Services.

The 13 listed holding-cum-operating companies in the Business Standard sample had a combined m-cap of Rs 4.13 trillion on Friday, against their NAV of Rs 7.12 trillion.

The discount-to-NAV varied from a high of 80 per cent in the case of Bombay Burmah Trading to a low of 10 per cent in the case of Bajaj Finserv and M&M.

Grasim Industries — the flagship of Aditya Birla Group — has an m-cap of around Rs 60,000 crore, against its NAV of Rs 1.35 trillion.

Grasim holds majority stake in UltraTech Cement and Aditya Birla Capital. It also holds non-controlling promoter stake in Vodafone Idea, Aditya Birla Fashion and Retail, and Hindalco Industries.

For example, Bajaj Holdings & Investment – a pure-play holdco with no standalone business operations – has an m-cap of Rs 34,120 crore, against its NAV of Rs 1.07 trillion, implying a holdco discount of 68 per cent. The company is the promoter of Bajaj Auto, Bajaj Finserv, and Maharashtra Scooters.

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Experts believe Tata Sons may get some premium valuation compared to its peers, given it’s the country’s largest holdco with large dividend income from companies such as TCS and Titan.

The company earned a total equity dividend of Rs 24,000 crore from various group companies in FY20 —more than any other holdco and next only to the Government of India’s dividend income from public sector undertakings.

TCS, however, accounts for nearly 90 per cent of Tata Sons’ dividend income and the market value of its listed portfolio.

However, most of Tata Sons’ dividend income is used up in funding losses of the group’s cash-guzzlers, such as Tata Motors, Tata Steel, Tata Power, and Tata Teleservices. This has resulted in a steady rise in its indebtedness and little or no growth in its networth or book value.

Tata Sons’ borrowings have nearly doubled in the past five years, while its net worth is up just 10 per cent since 2014-15.

“The cash-guzzlers in its portfolio and constant equity investment in them weighs on Tata Sons’ market valuation, leading to higher holdco discount than what a company of its scale would usually get otherwise,” says Kumar of Narnolia.