Just when the shares of Tata Consultancy Services (TCS) hit a fresh lifetime high of Rs 4,254.45 on BSE on Monday, investment banker JP Morgan issued the term sheet of a block deal in which Tata Sons was looking to sell 2.43 crore shares of the software company.
The next day, a large block deal worth around Rs 9,000 crore was reported in which Tata Sons is believed to have sold around 2.02 crore shares at an average price of Rs 4,043 per share. A final confirmation would come in the evening later on.
The impact of the promoter cashing out, even if it is just 0.6% equity sale out of 72.38% stake, was felt on the stock too. TCS shares have lost over 6% from their peak in just 2 sessions.
For Tata Sons, the holding company of not just TCS but a number of other Tata companies like Tata Power, Tata Steel, Titan, Tata Motors, Tata Chemicals and Tata Consumer, TCS is the biggest cash cow. In FY23, it earned standalone revenue of around Rs 35,000 crore, 95% of which came from dividends.
Most of those them were from TCS, which paid out Rs 33,306 crore as dividends to shareholders in the last financial year.
While the much storied salt-to-software conglomerate has not yet publicly explained the reasons behind the stake sale, we list out a confluence of four possible reasons that might have made the Tatas sell a part of their family silver.
1) Fund ambitious growth plans
The Tata Group, under the leadership of Chairman N Chandrasekaran, has displayed an insatiable hunger for growth in newer areas like semiconductor and digital products.
Tata Sons’ subsidiary Tata Electronics has committed to spend Rs 91,000 crore to build a semiconductor fabrication plant in Gujarat’s Dholera. The company also plans to invest $1 billion in Tata Digital over the next few years.
2) Pare debt and avoid IPO
Tata Sons’ FY23 balance sheet shows borrowings of about Rs 20,270 crore. The fundraising could help the company strengthen its books. The debt reduction is also said to be crucial for Tata Sons to avoid getting listed. If it brings down debt to sub-Rs 100 crore level, Tata Sons may cease to be regarded as an upper-layer NBFC by RBI.
The regulator has asked all such upper-layer NBFCs to get listed on stock exchanges by September 2025. Tata Sons is averse to getting listed but the RBI has turned out its request for exemption. Since then, the Tatas are hunting for legal and financial options to dodge the IPO, ET had reported earlier. Paring debt is one of the options.
3) Good valuation
The ongoing bull run is also an opportune time for promoters to cash out. TCS shares hit a lifetime high on Monday after rallying around 30% in the last one year.
At a market value of about Rs 14.5 lakh crore, TCS is about half of the total market capitalisation of all listed Tata entities.
4) Negligible impact on shareholding
TCS is one of those stocks in which the promoter shareholding is very high at more than 72%. Therefore, a minor stake of just 0.6% will not have much impact but does leave the Tatas with a lot of cash. The shareholding of Tata Sons is less than 50% in companies like Tata Power (45.2%), Tata Motors (43.7%), Tata Steel (32.2%), Tata Consumer (29.1%), Trent (32.4%) and Titan (20.8%).
