In a strategic move aimed at reducing debt and potentially sidestepping a significant IPO, Tata Sons, the holding company of the Tata Group, is set to trim its stake in Tata Consultancy Services (TCS). The plan involves offloading approximately 2.3 crore shares of TCS at an offer price of ₹4,001 per share, representing a 3.6% discount to Monday’s closing price.

This move is expected to raise at least ₹9,200 crore for Tata Sons by selling off a 0.64% stake in TCS. The decision comes amidst Tata Sons’ efforts to streamline its debt burden, which stood at ₹1.58 lakh crore as of March 2023. By reducing its debt at the group level, Tata Sons aims to avoid the necessity of a mega-initial public offering.

The market had previously speculated about Tata Sons going public after it was classified as an upper-layer non-banking financial company (NBFC) last year. This anticipation led to a rally in group stocks, including Tata Chemicals, Tata Investment Corp (TICL), and Automobile Corporation of Goa (ACG), with gains of up to 40% in less than seven sessions.

However, recent reports indicate that Tata Sons is exploring alternative measures to alleviate its debt burden, potentially steering clear of an IPO. As per RBI regulations, an upper-layer NBFC must go public within three years of being classified as such, which occurred for Tata Sons in September 2022.

Notably, dividend income contributed significantly to Tata Sons’ revenue in FY23, comprising 95% of its total income. The dividend income surged by 189% to ₹33,252 crore, primarily driven by substantial payouts from TCS, the group’s cash cow. TCS reported a dividend payout ratio of 158% in FY23, with Tata Sons holding a 72.4% stake in the company as of December 2023.

Additionally, Tata Sons holds substantial investments in various listed companies, with a total market value of ₹16 lakh crore as of Monday. TCS alone accounts for over ₹10 lakh crore of this valuation, while Tata Motors represents another significant holding, valued at ₹1.6 lakh crore.

The decision to trim its stake in TCS underscores Tata Sons’ proactive approach to financial management, aiming to optimize its capital structure while maintaining strategic investments in key assets. By exploring alternative avenues to reduce debt, Tata Sons aims to navigate evolving market dynamics effectively, ensuring sustainable growth and value creation for its stakeholders.

As the conglomerate continues to refine its financial strategy, market observers await further developments to gauge the long-term implications of Tata Sons’ divestment plans and its broader impact on the Tata Group’s trajectory in the evolving business landscape.

By : Kruthiga V S