Tata Sons IPO: Will the IPO take place?

Tata Sons IPO is in the news - again. You may be interested to know the details whether as an investor of Tata Group stocks or otherwise. It is essential to know about Tata Sons and its IPO. So, we thought of covering it for you and helping you get a clear picture of what's going around with it.

Understanding Tata Sons

Tata Sons is the principal investment holding company of the Tata Group, one of India's oldest and largest conglomerates. Established in 1868 by Jamsetji Tata, Tata Sons serves as the promoter of Tata companies and holds significant stakes in various sectors, including information technology, automotive, steel, telecommunications, and hospitality.

As the parent company, Tata Sons oversees the strategic direction and governance of the diverse Tata Group entities. 

It plays a crucial role in fostering collaboration and synergy among the group's businesses while upholding the core values of integrity, excellence, and social responsibility instilled by its founders.

Of the total shareholding of the company, 65.90% is held by Tata Trusts, 12.87% by Tata Companies (Tata Motors, Tata Chemicals, Tata Steel, Tata Power, among others), and 18.4% by the Mistry family. 

TATA Sons IPO Details

First things first, there is no official confirmation on the Tata Sons IPO going live. There is a reason why most people believe that the IPO will come soon - we have covered that in the next section. For now, let us look at the company's financials and the IPO details:

• Total revenue of Tata Sons on a standalone basis for FY23 was Rs 35,058 crore as against Rs 24,132 crore in the previous year, a rise of 47%.
• The company’s profit for FY23 increased to Rs 22,132.38 crore from Rs 17,171.21 crore a year ago, a growth of 28.89%. 
• The income of Tata Sons is mainly from TCS, which made a profit of Rs 39,106 crore in FY23.
• The estimated value of the Tata Sons is around Rs 11 lakh crore.
• The group may sell around a 5% stake in the IPO, which makes the IPO size Rs 55,000. It would make it the largest IPO in the Indian IPO industry.
• The expected IPO date is September 2025.

RBI regulations for listing a company/NBFC

As of today, Tata Sons has been asked to list the company on the Indian stock exchanges by September 2025 by the Reserve Bank of India (RBI). In this section, we try to answer why RBI has given this mandate to the company. For that, we need to understand a few things - the basics.

Let us first answer - why Tata Sons has to be listed? The reason is that the Tata Group’s non-banking financial company (NBFC) is classified as an ‘upper-layer’ NBFC. Tata Sons was classified as the 'upper layer' in 2022 by RBI. It means that the company had to go public in the next three years (Sep 2025).

The RBI framework categorizes NBFCs into the following layers:

• Base Layer (NBFC-BL): NBFCs in this layer are typically smaller, less complex, and less systemically important. They are subject to relatively simpler regulatory requirements.
• Middle Layer (NBFC-ML): NBFCs are larger and more complex than those in the Base Layer but are not considered systemically important. They may have a wider range of financial activities, including consumer finance, housing finance, and vehicle financing.
• Upper Layer (NBFC-UL): NBFCs are larger, more complex, and potentially more systemically important. They may offer a broader array of financial products and services, including wealth management, asset management, and infrastructure financing. NBFCs in this layer are subject to even stricter regulatory scrutiny and prudential norms to mitigate systemic risks.
• Top Layer (NBFC-TL): They may have significant interconnectedness with the broader financial system and economy, posing potential systemic risks if they encounter financial distress.

The RBI published the list of 16 upper-layer NBFCs on September 30, 2022, and Tata Sons is one of them.

Why is the company not willing to get listed?

The company wants to have its private limited status, and there are reasons for it. As a private company, the company can have greater autonomy and flexibility in decision-making. As a listed company, there is a lot of scrutiny that happens, and regulatory requirements come into the business. 

They will have to be more transparent and disclose more about how the money that comes is getting used. In some cases, it may be a show-stopper for the company, especially in strategic initiatives and investments.

Another reason is that the listing will have to come with a change in Tata Group's shareholder composition and governance structure. The required changes would need balancing of various stakeholders in the company, including Tata Trusts, and it won't be easy for the company. 

Way Ahead for TATA Sons

The good news is that if the company does not want to go public, there are options available. The direct option for the company is to seek an exception from the central bank. However, it won't be that easy, given that NBFCs of the Birlas, Piramals, Bajaj, and Mahindras are also in the ‘upper layer’ list. If RBI relaxes the listing requirement for one company, the others may rush to the central bank for similar exceptions, which is not the situation RBI would like to be in

The second option for the company is to free itself from 'upper-layer' status. Again, it won't be easy, but on paper, it is possible. For that, the company has to repay all of its borrowings. Also, it has to move its financial services firm, Tata Capital, into another subsidiary. 

Before you go

As of today, no one knows what the company plans to do as no official statement has been made by the company. The news of Tata Sons IPO is not new, and it has surfaced many times in the past. However, with a deadline date of 18 months from now, the company will have to choose its path soon. We will keep you posted on the same.