Good News for Tata Group Shareholders | What lies ahead?

Introduction:

The promoter of Tata Group  ‘Tata Sons’ has revoked their pledging in 5 Tata Group Companies namely TCS, Tata Power, Tata Motors, Tata Consumer Products Limited, and Tata Steel.

Tata Sons have pledged their stake in these companies to Centbank Financial Services. And now they have released the below-mentioned pledged share from this institution.

Pledged shares released by Tata Sons in different companies are as follows:

i) In TCS, 2.15% or 7,96,04,930 shares of the total share capital were pledged by the promoter. In this company, Promoters released 1.81% or 66,971,840 pledged shares and are only left with 0.34 pledged shares now.

ii) In the case of Tata Power, 1,77,39,505 shares have been released out of its 3,87,71,375 shares pledged.

iii) Promoters had pledged a total of 5,17,29,000 shares of Tata Motors. By this revoking, Promoters have revoked 2,36,66,500 shares of Tata Motors, and is now only 2,80,62,500 shares are pledged.

iv) Tata Sons have released 48,39,200 pledged shares of Tata Consumer Products Limited. This company is now left with 38,32,950 pledged shares.

v) Likewise, Tata Sons has released 7,96,04,930 shares out of total pledged shares of 1,39,80,000 shares in Tata Steel. Earlier, 1.16% of the total share capital was pledged by the Promoter of Tata Steel, now post this release Tata Steel has only 0.63% shares pledged.

Why Did Promoter pledged share?

• Capital Intensive Sectors like Steel Sector, Auto Sector, etc. to which Tata Steel and Tata Motors belong. In the recent past, a great amount of capital infusion was done in both companies.
• And, for that company needs to raise money for the infusion. In that scenario, promoters of the company need to pledge their share after a certain limit.
• One positive sign here is that the money raised is for Group Companies.
• Generally, when promoters pledge their shares, it is considered a red flag in Corporate Governance. And questions also arise that Why Promoters need to pledge their shares?
• But, in the case of Tata Group Companies, it shows the confidence Promoter of the Group in the businesses and hence in this manner it can be a positive sign. Since money raised will be utilized for the group’s business, there is not much issue.
• But in case, if Promoters pledged their stake for their interest, then it could be a troublesome issue and it raises a red flag on corporate governance.

Challenges Ahead:

• Shapoorji Pallonji Group holds an 18.4% stake in Tata Group.
• And now, the SP Group wants to exit their whole stake. While Tata Sons seek to purchase this stake of the SP Group.
• As per Tata Sons, the value of 18.4% stake of the SP group values around Rs. 90,000 Cr. to Rs. 94,000 Cr. On the other hand, the SP group believes that this stake values near around Rs. 8 Lakh Cr. to Rs. 9 Lakh Cr.
• But as per several analyst reports, an 2.5% stake of Tata Chemicals in Tata Sons values around Rs. 20,000 Cr. Accordingly, the Total Value of Tata Sons should be around Rs. 8 lakh Cr. As per this valuation, the 18.4% stake of SP Group accounts to near about Rs. 1.3 Lakh Cr. to 1.4 Lakh Cr.
• The honorable Supreme Court has also given its verdict to both the parties to settle this issue of valuation of the stakes out of the court in the last hearing on 26^th March 2021.
• Hence, to purchase a stake of 18.4% from the SP Group for an expected value of Rs. 1.3 Lakh Cr. to 1.4 Lakh Cr., Tata Group may again need to pledge their share.

Conclusion:

As of now, this news of releasing of pledged shares by Tata Group Promoter is good news for Shareholders. But also point to notice here is the challenges lying ahead in the form of exit of the SP Group and the possibility of re-pledging shares of the Tata Group to facilitate the exit of the SP Group. Here, one should also not wait for correction on this piece of news but should also track news in relation regarding this and proper research of the company for taking a wise call for investment.