Tata Sons to up stake in subsidiaries?
By Alok Agarwal | 23 Oct 2001
Mumbai: Is Tata Sons, the holding company of all Tata Group companies, going to hike its stake in all its subsidiaries? This question has been doing the rounds particularly after Tata Sons armed itself with an enabling provision that allows it to borrow as much as Rs 3,500 crore as against the Rs 1,000 crore last year.
The provision is purely an enabling one and does not necessarily mean that the Tatas will go ahead and borrow more. Nevertheless, if one reflects on what Ratan Tata had said some time back during the Telco AGM, it is possible that the enabling resolution for borrowing more could be used to buy group companies shares through open-market purchases.
At the Telco AGM, Tata had said that companies, where promoters held less than 30 per cent stake, were susceptible to take over by predators, and only those promoters who held 50 per cent or more stake in their companies should consider themselves safe. Tata Sonss holding in most of its companies is less than 30 per cent. Factors, which tilt scales in favour of Tata Sons increasing its stake through open market purchases, are: 1) The Securities and Exchange Board of India recently allowing promoters to raise their stake in their companies by 10 per cent through creeping acquisitions. (The former limit was 5 per cent). 2) The market price of most Tata group companies is on the lower side due to a bearish sentiment. 3) Tata Sonss holding in its group companies is well below 30 per cent.
Another advantage, which could accrue to Tata Sons if it decides to buy shares now, is the possibility of substantial appreciation in the market value of its investments, once market sentiment improves. The Tata group companies stand to gain substantially because quite a few of them operate in the old economy sector.
For the year ended 31 March 2001, Tata Sons posted revenues of Rs 3,322 crore, up by 38 per cent, in comparison to the last years figure of Rs 2,413 crore. But its net profit, at Rs 714 crore, is up by only 8 per cent over the corresponding periods figure of Rs 663 crore.
The maximum contribution to Tata Sonss revenues and profits came through Tata Consultancy Services, which posted revenues of Rs 3,142 crore in comparison to the Rs 2,115 crore in the corresponding period of the previous year.
