Tata Sons eyes 2025 IPO for NBFC arm

“The group is targeting an IPO (for Tata Capital) in 2025. The board has been expanded, and mergers of some of the group firms under Tata Capital have been done as a part of the IPO plan," one of the two people said on condition of anonymity.

The conglomerate is seeking a valuation similar to Mukesh Ambani’s recently listed non-banking financial company (NBFC), Jio Financial Services Ltd.

“Currently, it is a work in progress, with the IPO process to begin in March 2024 with the appointment of investment bankers," said the second person, also on condition of anonymity.

The Reserve Bank of India (RBI) in September 2022 classified both Tata Capital and parent Tata Sons Ltd among the 16 ‘upper-layer’ NBFCs, requiring them to go public within three years from the date of the categorization. In Tata Capital’s case, the deadline is September 2025.

“We will comply with RBI guidelines," said Rajiv Sabharwal, the managing director of Tata Capital.

As part of the plan to go public, Tata Capital has nearly completed the merger of some of its key subsidiaries with itself, according to the two people. Tata Capital’s units include Tata Capital Financial Services Ltd, Tata Capital Housing Finance Ltd, Tata Cleantech Capital Ltd, Tata Securities Ltd, Tata Capital Pte. Ltd, Tata Capital Advisors Pte. Ltd and Tata Capital Plc. Tata Capital expects RBI’s approval of the ongoing mergers by the end of the year.

Tata Capital’s unlisted shares are trading at ₹425 in the grey market. At this price, the company is valued at about ₹1.5 trillion. According to a grey market group, the shares touched a record ₹560 a few weeks ago.

Tata Capital’s promoters may dilute a 10-20% stake, resulting in one of the largest IPOs ever, the people said.

Tata Capital’s board, too, has been restructured in the run-up to the public issue. Tata group veterans F.N. Subedar and Aarthi Subramanian are non-executive directors of Tata Capital.

The board of Tata Sons’ financial services division has been expanded to include two independent directors V.S. Radhakrishnan, a senior retired executive from the State Bank of India, and Mathew Cyriac, the co-founder of Florintree Advisors, an alternative asset manager. The board also includes Varsha Purandare, the former managing director of SBI Capital Markets, and retired central banker Malvika Sinha.

Tata Sons, however, has not initiated any plan to get listed, especially considering the widely diversified nature of its businesses. The Tata group is more likely to focus on Tata Capital IPO ahead of Tata Sons, said another person tracking the group. “They would rather fight the battle (with RBI) on Tata Sons rather than Tata Capital," the person said, also on condition of anonymity.

Tata Sons’ units, Tata Technologies and Tata Play, are also preparing for their IPOs.

According to a letter of offer, a copy of which has been reviewed by Mint, Tata Capital started a process to raise at least ₹999.90 crore through a rights issue on Monday by offering at least 61.3 million shares at ₹162.90 apiece. The rights issue will close on 24 September.

In the rights issue, Tata Capital will allot shares to existing shareholders in the ratio of 1:58 (or one share for every 58 held). Tata Capital’s key shareholders include Tata Sons Pvt. Ltd (94.62%), Tata group firms (2.51%), TCL Employee Welfare Trust (1.47%) and others, according to the rights issue document. Tata Capital will use the rights issue proceeds for general corporate purposes and redemption of the preference shares of the firms.

During FY23, Tata Capital’s disbursals grew 42% to ₹75,099 crore from the previous year, with the share of retail and MSME advances at 80% of the loan book. The company’s net profit rose 80% to ₹2,975 crore in FY23.

Mayur Bhalerao contributed to this story.