Among the many questions raised in the tussle between the Tata group and Shapoorji Pallonji (SP) group is how Tata Sons Private Ltd is worth. The SP Group’s version is that it is sum of the value of the holding company’s stake in various listed companies, and then some more to account for some unlisted companies and the Tata brand value.
This worked out to ₹9.7 trillion or $132 billion, in their books. Whether the Tata group agrees to this valuation is a separate matter, but at the least, some analysts say that Tata Sons should be worth the sum of its value in listed companies, after adjusting for the debt on its books.
“The value of Tata Sons’ holding in listed companies gives a $107 billion valuation,” wrote analysts from Jefferies India Pvt. Ltd in a report on 6 October. This is based on closing stock prices on 5 October.
But even working with this lower valuation, there are major implications for some Tata group firms which have a cross-holding in Tata Sons. In one case – Tata Chemicals – the value of its 2.5% Tata Sons stake is about ₹20000 crore, or about 2.5 times its own market cap of around ₹8000 crore.
Jefferies points out the value of Tata Sons shares held by group companies as a percentage of their market capitalisation is more than 50% for five group firms. These include Tata Power Co. Ltd (75%), The Indian Hotels Co. Ltd (73%), Tata Steel Ltd (55%) and Tata Motors Ltd (54%).
Investors typically frown when their companies have cross-shareholdings. The main quibble is that they lock capital, which could otherwise have been used elsewhere. Companies such as Tata Steel and Tata Motors are regularly grappling with debt issues, and it would be natural for investors to complain about precious capital to be locked away in investments in the promoter group’s shares.
“They need to unlock value by selling off their cross holdings (stake in Tata Sons) to realise the true value,” said an analyst seeking anonymity. But some worry that instead of realising the locked value of their shares, some group firms may end up paying a price.