Tata Power shares are back in the spotlight with renewed hopes of a Tata Sons listing. The development comes as fresh investor interest has emerged around Tata Power given its position as one of the major listed Tata group companies and a Tata Sons stake.
In a note, Axis Capital analysed the value-creation potential for Tata Power in the event of a Tata Sons listing. The broker has considered the share of Tata Power’s holdings in Tata Sons in its valuation calculation.
Tata Power’s stake in Tata Sons
Tata Power owns 1.65% of Tata Sons. As per its Tata Power books, this investment is currently valued at around 4,189 crore.
The potential difference between the present market value and a potential Tata Sons market value has stoked investor interest. Axis Capital has looked at a scenario where Tata Sons gets listed at 10 lakh crore, which falls within the reported valuation band of 9 lakh crore-12 lakh crore.
At such a Tata Sons valuation, the Tata Power stake would be worth around 16,500 crore. This difference versus the present Tata Power books valuation and potential Tata Sons listing could drive Tata Power share market valuation.
What would Tata Sons listing mean for Tata Power?
Tata Sons is a major player as the main holding company and promoter of Tata Group companies. Tata Sons remains a privately held entity while regulatory developments have thrown a fresh spotlight on its listing plans.
At a Tata Sons listing, the Tata Power stake could become a litmus test for unlocking value. Tata Power’s market capitalisation currently equates to around 114 per share.
With the Tata Powers stake in Tata Sons valued at over 16,400 crore, around 148 Tata Powers per share, Tata Power’s presence in Tata Sons could theoretically bump up the stock value.
However, factoring in holding-company discounts narrows down the potential value to Tata Power investors should Tata Sons list. Using a 30% discount, the first-quarter numbers point to a potential sum-of-the-parts value of 35 per share.
A conclusion in Tata Sons’ favour would make a listing beneficial – but it is not assured in the near future. Tata Sons may wish to continue as a privately owned entity and regulatory changes may potentially delay its listing.
Reverse ownership complicates the story
Tata Power’s over 1.6% stake in Tata Sons is worth a significant sum. But it also results in reverse ownership structure, given Tata Power owns only about 45% of Tata Power.
Tata Power’s market value is worth around 53,000 crore, 10 lakh crore of Tata Sons would represent only about 5.3% of Tata Power’s market value.
At 10 lakh crore Tata Sons valuation, a Tata Power market value calculation would lead to an over 5% overlap. Results like this mean changes in Tata Sons’ valuation directly impact Tata Power’s investors.
Why the spotlight is on Tata Sons again
The new interest was sparked by the Reserve Bank of India turning down Tata Sons’ application to surrender the third-party investment company status.
Tata Sons is currently named a “core investment company” with regulatory requirements for upper-layer NBFCs applying. As per RBI guidelines, large firms such as Tata Sons may be mandated to go public and listing regulation has now sparked fresh speculation.
Tata Powers plans and operations
While the focus is on Tata Sons, Tata Powers real business is also a piece of its valuation. Tata Power has been investing across renewables, power transmission and distribution, rooftop solar and EV charging.
Recently, the company reported its utility-size renewable capacity has grown to 12.3 GW, including over 7 GW operational capacity, while expanding its EV charging network and rooftop solar business.
