RBI norms may force Tata Sons to consider mega Rs 55,000-crore IPO

After Tata Technologies, the first initial public offering (IPO) listing by the Tata group in over 19 years, made a blockbuster debut in November last year, the group will likely be considering the option of a mega initial public offer (IPO) before September 2025 in the wake of stringent Reserve Bank guidelines for non-banking finance companies.

Tata Sons — whose valuation is estimated at `11 lakh crore — could be looking to sell a five per cent stake in the IPO, which is worth about Rs 55,000 crore, according to a Kotak Securities report. The last time an IPO of this magnitude hit the market was the one by LIC, which was worth Rs 21,000 crore.

“The Tata group’s non-banking financial company (NBFC) is classified as ‘upper-layer’ NBFC and because of this, Tata Sons has to be listed on the stock exchanges by September 2025,” the report said.

A Tata Sons spokesperson did not respond to an email from The Indian Express seeking comment on the matter.

Tata Trusts, headed by Ratan Tata, holds 66 per cent stake in Tata Sons. The Pallonji Mistry group holds an 18.4 per cent stake in the company.

The Tata Group has over 100 operating companies across sectors. Tata Sons, the group’s non-banking financial arm, supports and promotes all these businesses. “India’s central bank classified Tata Sons as an ‘upper layer’ NBFC in 2022, suggesting it must go public within three years. This could possibly be one of the biggest IPOs… not just for the Tatas but in the history of the Indian stock market,” the Kotak report said.

The RBI published the list of 16 upper layer NBFCs on September 30, 2022. “This means Tata Sons will have to list its shares by September 30, 2025 unless the RBI extends the deadline or gives an exemption,” said a financial sector analyst. And the central bank may not be in favour of relaxing the listing requirement for one entity as others may seek the same .

The upper layer NBFCs comprise companies that are specifically identified by the Reserve Bank as warranting enhanced regulatory requirements based on a set of parameters and scoring methodology. The top ten eligible NBFCs in terms of asset size shall always reside in the upper layer. Tata Sons, listed at the fourth position, is the only core investment company in the list.

An RBI circular dated October 22, 2021, directed that an upper layer NBFC must be listed within three years of identification as one. Disclosure requirements should be put in place on the same lines as applicable to a listed company even before the actual listing, as per Board approved policy of the NBFC, it said.

NBFCs of the Birlas, Bajaj, the Piramals and the Mahindras are in the ‘upper layer’ list.

Tata Technologies delivered around 140 per cent returns flat in a single day, listing at Rs 1,200 against the issue price of Rs 500. “Since then, those who missed this great opportunity have been waiting with bated breath for the Tata Group to launch another IPO from its kitty of many unlisted companies," the Kotak report said.

Total revenue of Tata Sons, the unlisted holding company of major Tata group companies, on a standalone basis rose to Rs 35,058 crore in FY 2023 as against `24,132.97 crore in the previous year, a rise of 47 per cent. The company’s profit for the year also rose to Rs 22,132.38 crore for the year from Rs 17,171.21 crore a year ago, a growth of 28.89 per cent. The income of Tata Sons is mainly from tech giant TCS which made a profit of Rs 39,106 crore in FY2023

According to India Ratings, Tata Sons has considerable financial flexibility because of the substantial market value of its investments (Rs 11.2 lakh crore as of March 2023), which is 51 times of the total borrowings (FYE23: Rs 22,200 crore) on the standalone balance sheet. The cash flows from investee companies, including TCS, by way of dividend and share buyback (from time to time) are largely sufficient for investments in group companies, it said.