Mistry family's stake in Tata Sons could be worth Rs 90,000 cr

Tata Sons' valuation estimated at Rs 5 lakh crore

The Shapoorji Pallonji group’s 18.5 per cent stake in Tata Sons would be valued at over Rs 90,000 crore or around $13.5 billion, based on the market value of its current portfolio of listed companies and the estimated value of its large unlisted portfolio.

The value of Tata Sons’ investments works out at Rs 5 lakh crore. This figure is arrived at by valuing Tata Sons’ stake in the various companies where it owns shares plus cash in its books, minus debt. Tata Sons has direct equity stake in 14 listed Tata companies currently valued at around Rs 4.38 lakh crore. It also has direct and indirect equity investments in 144 unlisted subsidiaries with combined net worth or book value of around Rs 31,000 crore at the end of March 2015. Detailed break-up of the Tata Sons’ investment in unlisted subsidiaries is not available for FY16. In valuing its stake in unlisted companies, we have considered a valuation of at twice its book value, which is what listed large holding companies such as Bajaj Holdings, Grasim Industries and Aditya Birla Nuvo among others enjoy.

For example, Bajaj Holdings, a pure play holding company with no business operations of its own like Tata Sons, is currently valued at 1.6x its book value in FY16.

Experts believe Tata Sons should get a premium over its peers given its sheer scale and controlling stake in industry leading unlisted companies such as Tata Sky, Infiniti Retail (Croma), Tata Auto Comp Systems, Viom Networks, Tata Advance Systems, Tata AIA Life Insurance and Tata AIG Insurance among others.

Tata Sons was sitting on cash and equivalents of Rs 10,152 crore at the end of last fiscal while its total borrowings were Rs 13,623 crore at the end of March this year. The holding company has nearly Rs 5,000 crore worth of investment in debentures and preference shares of group companies such as Tata Teleservices, Indian Hotels and Tata Realty at the end of last fiscal.

All these numbers put together work out to a valuation of Rs 5 lakh crore for Tata Sons. The problem is that holding companies trade at a discount to the market value of their portfolio. “Holding companies are typically valued at a discount to the market value of their securities. By this yardstick, Mistry family’s stake in Tata Sons would get much lower valuation then what the above arithmetic shows,” says Jyotivardhan Jaipuria, former India strategy and head of research at Bank of America-Merrill Lynch.

Listed holding companies have historically traded at around half the market value of their listed equity holdings.

However, this is not the way analysts are valuing Tata Sons given its size and unique position in Indian industry, and some believe that Tata Sons may, in fact, command  premium to its investment portfolio.

“It would be tough to assign the right valuation for the company given that its large portfolio makes it a virtual proxy on the Indian economy and business. A strategic investor would assign a completely different value than a financial investor, which will only look at group financial performance. But many companies are financially struggling now even if they have good assets,” says G Chokkalingam, founder & CEO, Equinomics Research & Advisory.

The other issue is that while Tata Sons has a large portfolio, it owns majority stake in only one of the key listed company — Tata Consultancy Services. In others, it shares ownership with around 30 per cent stake on average. TCS also accounts for nearly 80 per cent of Tata Sons’ dividend income and the market value of its listed portfolio.