Flagship Tata companies see rich value in cross-holdings

Some of the flagship listed companies of Tata Group hold significant investments in other group companies and in Tata Sons, the promoter company. While the book value of these investments is miniscule, their current market value is equal to 1% to 135% of the market capitalisation of these investor Tata companies, says IIFL Institutional Equities.

In a report featuring a compilation of these cross-holdings, the brokerage says such investments could lend support if any of these companies were to face financial turmoil.

The research note cited the financial crisis of 2008 when Tata Steel and Tata Motors faced funding issues after the acquisition of Corus and Jaguar Land Rover, respectively.

“IIFL noticed that investors value stocks of these investor companies on the basis of earnings of these companies and attribute almost zero value to their investments in Tata group.” It added: “This is partially because monetisation of these investments in the past has been limited and there is no certainty that all or some of these would be sold even in the long term.”

These companies chose to raise money through equity issuance and monetisation of investments in group companies was limited. “At present, Tata Steel’s debt levels remain elevated. However, it continues to hold large stakes in listed group companies,” said analyst Bijal Shah.

The analysis noted that Tata Steel, Tata Power and Tata Chemical all have substantial direct investments of Rs 9,430 crore, Rs 1,908.2 crore and Rs 1,489.2 crore in listed Tata companies. While Tata Motors accounted for a majority of direct investment of Tata Steel, Tata Global Beverages and Titan Company were together responsible for more than three-fourth of the direct investment held by Tata Chemical.

Meanwhile, a large part of the total investment value of the investor companies comes from their stake in the group’s holding company Tata Sons. The listing of TCS has resulted in a sharp increase in the value of Tata Sons' holdings over the last decade.