Tata Sons may shed lakhs of crores before IPO

Mumbai: Tata Sons could be valued at ₹9-12.5 lakh crore in a potential initial public offering (IPO), multiple investment bankers and valuation experts told ET, putting a steep discount on an underlying portfolio worth ₹15-16 lakh crore. Valuations will hinge on how investors price its listed stakes and unlisted businesses, while assigning the traditional discount to a typical holding company structure.

An analysis by the equity capital markets head of a top domestic bank puts Tata Sons' underlying value at ₹15-16 lakh crore, comprising about ₹12 lakh crore from listed holdings and ₹4 lakh crore from unlisted assets. It applies a 41-45% holding company discount to the listed portfolio and about 15% to unlisted assets, with a further 10-15% discount to fair value for the IPO.134219877About₹40,000 crore of losses in the unlisted portfolio are being funded through dividend income.

Investors should value each listed stake at market prices, estimate unlisted businesses using the last real transaction or closest comparable and add option value for businesses such as semiconductors and digital, he said.

The parent should then be discounted because minority holders do not control cash flows, while tax leakage and limited liquidity also reduce value, Taparia said.

Bajaj Holdings and Godrej Industries trade at similar discounts of 30-60%, he said.

Shapoorji Pallonji (SP) Group owns 18.37% equity in Tata Sons. Its Tata Sons holding was valued at about ₹2.3 lakh crore on a look-through basis, an investor note circulated last month said.

Some Have Conservative OutlookThat was as against an eventual price discovery through an IPO.In a letter dated September 11, the central bank rejected the plea of Tata Sons to surrender its licence as a non-bank lender, effectively paving the way for its public listing.