Weeks after Ratan Tata’s death, Noel Tata gets ready for Rs 150000000000 IPO bet, how will it impact Tata Motors, Tata Sons and overall Tata Group?

As the Tata Group prepares for one of its most significant financial milestones, the interconnections between its companies showcase the power of its integrated structure.

Shares of Tata Group companies rallied on Tuesday, driven by excitement around Tata Capital’s upcoming Rs 15,000 crore IPO. Key stocks like Tata Investment Corporation, Tata Chemicals, Tata Motors, and Tata Technologies saw significant gains, reflecting the broader impact of the development across the conglomerate.

The Rally in Tata Group Stocks saw Tata Investment Corporation (TICL) shares surged 12%, Tata Chemicals hit an intraday high of ₹1,100, up 5.2%. Tata Motors rose over 2%, closing at ₹735.10, Tata Technologies gained nearly 3%, closing at Rs 908.55, though still 25% below its all-time high of ₹1,242.20.

This widespread rally underscores how closely linked Tata Group companies are and the potential for Tata Capital’s IPO to create a ripple effect throughout the conglomerate.

Tata Group’s Unique Structure

At the center of the conglomerate is Tata Sons, the holding company that owns significant stakes in most Tata entities. It holds a 92.83% stake in Tata Capital, the financial services arm gearing up for its IPO.

How other Tata Group companies are connected:

1. Tata Chemicals and Tata Motors both own stakes in Tata Sons, meaning any value created at the Tata Sons level directly benefits these companies.
2. Tata Motors: Holds a 4.7% stake in Tata Capital, acquired through the merger of Tata Motors Finance Ltd (TMFL) with Tata Capital earlier this year. Additionally, Tata Motors owns a 3% stake in Tata Sons, amplifying its gains from any appreciation in Tata Sons’ valuation.
3. Tata Investment Corporation (TICL): As the investment arm of the group, TICL holds stakes in multiple Tata companies. The potential value unlocked by Tata Capital’s IPO could elevate TICL’s portfolio value, explaining its stellar performance on Tuesday.

Why Now? The Push for Tata Capital’s IPO

The decision to list Tata Capital is driven by regulatory requirements and favorable market conditions. The Reserve Bank of India (RBI) mandates that “upper-layer” NBFCs (Non-Banking Financial Companies) must list within three years of being classified as such. Tata Capital received this classification in September 2022, setting a deadline of September 2025. Tata Capital’s assets under management (AUM) have grown to ₹158,479 crore as of March 2024, making this an opportune moment to capitalize on its strong performance.

The Broader Implications

The IPO not only helps Tata Capital comply with regulatory requirements but also unlocks value for Tata Sons, whose performance impacts other Tata Group companies. Investors are particularly bullish on the cascading effect this will have on valuations across the group, making the IPO a potential windfall for shareholders of Tata Chemicals, Tata Motors, TICL, and other related entities.