Tata Sons unlocks TCS vaults for second time in four months

Tata Sons. Photo: Bloomberg
Tata Sons. Photo: Bloomberg


  • Floor price at 4,001 a share; block deal follows 17,000 crore buyback in November

Mumbai: Tata Sons Pvt Ltd plans to raise over a billion dollars by selling a chunk of its shares in Tata Consultancy Services Ltd, at a time the conglomerate is entering new-age businesses such as semiconductors, e-commerce, and phone assembly.

The Tata group holding company plans to sell up to 23.4 million shares worth 0.65% stake in TCS through block deals to raise 9,362.3 crore ($1.12 billion), according to a term sheet seen by Mint. Tata Sons now holds around 72.4% stake in TCS, India’s second-most valuable company.

Shares will be offered at a floor price of 4,001 per share, a 3.65% discount to TCS’s Monday closing price of 4,152.50 on the National Stock Exchange (NSE). Following the transaction, Tata Sons’ stake in TCS will fall to around 71.7%.

Tata Sons derives its income mainly from dividends and buybacks in group firms, which it uses to invest in emerging segments or support weaker businesses.

According to Deven R. Choksey, managing director of KRChoksey Shares and Securities, the Tata group is planning significant investments in renewables and commodity businesses including steel and power, and TCS is one company that gives it the ability to raise capital and provide for other businesses.

“Secondly, further amount of capital requirement will come from the need to develop AI and data analytics capabilities across group companies. The group firms will need money to develop enabling technologies and get equipped," Choksey added.

A Tata group spokesperson did not respond to queries on the proposed end use of the amount, but a December 2023 ratings release by Crisil highlighted the group’s focus on new-age businesses.

Shares of TCS hit a record 4,254.45 on Monday, but closed 1.6% lower at 4,152.5 on the BSE. TCS shares are up 30.6% in the last one year, against the Nifty 50 index’s 29% return.

Over the years, TCS, the group’s cash cow, has increased dividend payments from 29,148 crore in FY19 to 42,079 crore in FY23, an increase of 44.4%. It has also conducted several buybacks worth 67,000 crore since 2018, at prices from 2,100 per share in June 2018 to 4,500 per share in January 2022. Most recently, in November 2023, it announced a 17,000-crore buyback at 4,150 per share. In 2021, TCS returned about 95% of free cash flow to shareholders. Last year, it handed out 108.2% of its free cash flow.

Under chairman Natarajan Chandrasekaran, Tata group wants to expand its airline business, set up semiconductor plants and build a super app. In the past three fiscal years (FY21, FY22 and FY23), it has handed out $9 billion to Tata Sons to bankroll these ambitious ventures.

“The stake divestment by Tata Sons could result in a collective flow of around $120-130 million at later dates for Sensex ($35 million), Nifty ($55 million) and FTSE ($35 million) on buying by exchange-traded funds and index funds," said Abhilash Pagaria, head, Nuvama Alternative & Quantitative Research.

According to a March 2024 research report by Spark Capital, TCS is the single largest contributor to the value of Tata Sons and its stake is worth around 10 trillion.

“Over the past few years, the Tata group has been reorganizing businesses by function under various clusters to enable synergies and to simplify its structure," the report said adding that, “The management is focusing on increasing the contribution of the digital, electronics and aviation businesses to the group’s profitability, which may require funding from Tata Sons towards growth capital in some of the entities.

Tata Sons is registered as a core investment company with the RBI. Around 66% of its share capital is held by public charitable trusts. Last year, RBI classified Tata Sons as an upper layer NBFC, mandating it to list its shares publicly by September 2025.

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